SHIPPING INDUSTRY Intense rivalry spurs UPS, FedEx to grow

ATLANTA (AP) -- Now and then, a purple-emblazoned delivery truck shows up with a package at the home of UPS chief executive Mike Eskew, whose company's vehicles are a familiar brown.
"The FedEx guy shakes his head when he gives it to my wife and says, 'I don't know what I'm doing here,'" Eskew said with a laugh.
UPS and FedEx don't discuss their rivalry much -- neither likes to utter the other's name -- but their competition is intense.
"Both of them are being challenged to expand their market share. That puts them in head-to-head competition with each other even if they don't talk a lot about that," said John Gnuschke, a University of Memphis economics professor who follows the shipping industry.
The companies have contrasting operational structures, labor strategies and business opportunities.
Companies' strengths
In the United States, Memphis, Tenn.-based FedEx carries more packages by air than Atlanta-based UPS, but UPS still has an overwhelming advantage in U.S. ground volume. UPS has a very strong international business, especially in China.
Although three-quarters of UPS's business comes from U.S. small-package deliveries, it thinks a big part of its future lies in overseas shipments and supply-chain management services, which help companies control the flow of their products and reduce costs.
"The small package market in the U.S. is about a $60 billion market. The worldwide supply-chain market is about a $3.2 trillion market," Eskew said. "It's everything from the moment something gets made until it gets delivered for final delivery, and then after market, it's parts replacement."
FedEx remains focused on its core delivery business and thinks supply-chain management is only a small piece of the puzzle.
"People here have been dealing with skeptics and naysayers since Day One, and we have been proving them wrong and will continue to do so," spokesman Bill Margaritis said. "Obviously, our model has proven to be successful, because we're taking share and our margins are comparable."
Store locations
Still, some of their evolving strategies are similar -- both are increasingly using storefronts to compete for more customers.
Three years after buying the Mail Boxes Etc. chain for $190 million, UPS has rebranded the 4,500 stores as The UPS Store, while FedEx is renaming the 1,200 stores in the Kinko's copy shop chain it bought this year for $2.4 billion.
"That's what I'm looking for -- an all-in-one-store," said Ed Overton of Columbia, S.C., a respiratory therapist who says he prefers to use the FedEx drop box at Kinko's stores because he often uses the shop's specialty copying services.
For loyal UPS customer and Atlanta business consultant Tom Nessen, the choice comes down to cost and convenience, including the notary public service and mailboxes available at The UPS Stores. "I feel they're less expensive," he said.
UPS has grown since its 1907 founding into the world's largest shipping carrier, with $33.5 billion in annual revenue and 357,000 employees, 60 percent of whom are part of a union. FedEx, founded in 1974, has $24 billion in annual revenue and 245,000 employees. Only its 4,000 pilots are unionized, and it uses independent contractors as drivers for its U.S. ground deliveries.
Approaches to operations
UPS and FedEx also have different operational philosophies.
UPS thinks its biggest asset is in its integrated network -- each of its drivers delivers items that were initially shipped by ground or air or from overseas. FedEx uses different drivers to deliver air and ground shipments, meaning a business could get a visit from multiple FedEx drivers in the same day.
As for management, UPS gives autonomy to its managers in units across the company, but leadership is mostly centralized at its headquarters. FedEx has a mostly decentralized management structure, with its air, ground and freight units based in separate parts of the country.
UPS spokesman Norm Black said the company thinks its strategy brings it closer to customers. "We believe it is absolutely a marketplace benefit to have a single unified work force that we have, to have men and women who spend their careers driving for this company," Black said.
FedEx thinks its approach is more cost-efficient because thousands of its drivers are independent, Margaritis said. "If you try to serve all masters with one network, you will either inject certain unnecessary costs into that model or jeopardize service," he said.
The companies' sole common thread seems to be plenty of advertising and marketing.
As for the rivalry, although they are hesitant to talk about it, both companies say it has benefited them -- and customers, by stabilizing prices.
"We view it as an intense, but healthy rivalry," said FedEx's Margaritis. "This culture thrives on competition and excels at adversity."