FedEx vs. UPS
FedExand UPS are two major public firms that offer courier service. Theirheadquarters are located in the US. UPS, which stands for UnitedParcel Service, was started in the year 1907. It has its large marketshare in Europe where it derives most of its revenue. FedEx, whichstands for Federal Express, started in the year 1971 and operateswithin the US. It has a large fleet of airplanes while UPS mostlyoperates with ground vehicles.
Lookingat both companies` income, UPS makes more substantial net income ofabout $3 billion with revenue of about $53 billion while FedExreceives a net income of around $2 billion with revenue of $42billion. FedEx has a good deal with Americans post services, andsmart post services whereby they pick their e-commerce shipment anddeliver them to their location using a jet and USPS makes the finaldelivery to the clients. UPS uses Amazon much more often than theFedEx. Both companies deal with courier services besides otherbusinesses. FedEx offers overnight courier services with guaranteedday services within the US and international services. They alsoprovide a day -definite domestic delivery at a favorable price withinthe US and Canada using their trucks. They also offer FedExInternational next flight for international deliveries as well as theprovision of freight services. On the other hand, UPS provides twotypes of Day –definite deliveries. Domestic day delivery includesletters, documents, and packages in the US while the internationaldelivery package is done in over 220 countries around the world(Bowen,2012).UPS also supplies freight services and supply chains whichinclude execution and management, supply chain designs, customsbrokerage and freight distribution.
Bothfirms offer other kinds of businesses locally. Example, the FedExCompany, provides services like access to internet, copying andprinting, signs and graphics, and renting out computers. UPS providesother businesses, which have similar business services and shippingmaterials. FedEx seemed to do extremely well compared to UPS in otherbusinesses especially when FedEx introduced the Kinko`s, theprinting services division.
Politically,another competition and controversy are building up. FedEx, throughthe emailBrownBailout.com, claimed that the UPS is trying to get abailout design from the government to limit the competition inovernight deliveries. The disagreement is because of the introductionof Federal Aviation Administration reauthorization bill, which wouldreclassify the FedEx company ground employees in National LaborRelations Act as a replacement for Railway Labor Act, which will givethem a go ahead to form local unions. Railway Labor Act covers UPSground employees, and thus they want the same for the FedEx employeesso that they can have equal rights. However, FedEx viewed this as athreat they argued that UPS wanted to expose the customers to localwork go-slow that would prevent delivery of time sensitive shipmentto lower competition. The government had to intervene and after along timer of lobbying, the FedEx employees remained under the coverof Railway Labor Act (Bowen, 2012).
FedExis about to win the regulatory approval for the proposedacquisitions. This followed when the FedEx took the world largestpotential delivery and won the battle in gaining the much-neededmarket share from their rivals UPS. Once the FedEx is declaredwinners, they will have taken number two spot after DHL on theEuropean market with 17% share putting them ahead of UPS in Europe(Bowen, 2012). This is creating a challenge to the UPS, who said thatthey would not renew their bids for TNT, and they would only invest$1 billion over four years with an intention of expanding theirprojects to grow their business organically. According to an analysisdone by Bowen(2012),FedEx is having a better try in getting regulatory approval partlybecause the TNT had lost shares since the UPS bid. It seems FedExcame in and got something UPS has never gotten, which reduced thesupply chain spending and they paid less putting them in a sweetposition.
Economically,both UPS and FedEx are facing significant competition from theirupcoming rivals. Major US merchants are trying to experiment on thee-commerce strategies that would result in a knock in demand forpackage delivery services especially long-distance shipment. Amazon,one of the rivals and the world’s largest merchant, is building upwarehouses near the clients to cut the transportation and shippingcosts, and they are increasingly relying on their delivery trucksthus keeping UPS and FedEx out of their fulfillment networks. In themeantime, other strong retailers like Wal-mart stores, Best Buy, andGap Inc are doing online orders that are near the shoppers ratherthan the warehouses that are far away (Bowen, 2012).. UPS is cuttingits earning forecasts putting the blame on overcapacity in the globalairfreight market and the many customers who are going to slower butcheaper shipping services. For the reason that of increased shipmentin the air freight market, FedEx announced in June that they wouldraise the shipping costs and cut jobs and rates. Both companies haveended up setting rates equivalent to the distance a package has totravel.
PresentValue and Current Value
Allthe same, both companies are benefiting majorly on the customersshift to online sales. FedEx is more on business with around 60%revenue coming from express services. UPS is more on consumerderiving about 40% of the revenue from the domestic ground services.Applying financial metrics gives a better bet to differentiatebetween the two, which offers the best business and a better modelbefore the holiday season revenue becomes tallied.
Regardingthe industry`s price to earnings ratio, FedEx stands at 26:1 and UPSreads 26:6. When evaluating these companies, basing on the amount tothe price earnings ratio that is 26 in both, the companies areperforming poorly. However, a great divergence of these numbers isexpected once the FedEx will announce the results on December 17. UPSis not expected to announce results anytime soon. The results arestill not pleasing when the ratio is based on pricing for earnings togrowth. None of the companies have untapped growth, both have troublein improving their capacities and presence in the market. From this,they end up competing with each other for the market shares.
Insustainable growth, FedEx stands at 0.6% while UPS is at 7.8%.Erratic earnings by the FedEx have led to poor performance ascompared to UPS(Kenny, 2003).UPS is more profitable to its equity compared to FedEx, and it canpay higher profits to its shareholders making it have a highersustainable growth. FedEx has an outstanding conservative capitalstructures thus outshines the UPS when it comes to interest coverageratio, which stands at FedEx: 35.6 UPS: 7.33. Present value of GrowthOpportunities is FedEx: $29.87 (66.8%) UPS: $27.49 (52.2%). Bothstocks are rich and current prices are not attractive(Kenny, 2003).UPS might be the favorite to many customers due to its decent profitsand ability to pay attractive dividends and have the fair flow ofcash. In the next five years, UPS is likely to experience highergrowth compared to FedEx this is based on the assumptions that thecompany has a higher sustainability level and decent profits.
Bowen,J. T. (2012). A spatial analysis of FedEx and UPS: hubs, spokes, andnetwork structure. Journalof Transport Geography,24,419-431.
Kenny,C. (2003). Development`s False Divide. ForeignPolicy,(134), 76.