FedEx and UPS: Sinking Ships in Troubled Waters or Salvageable?

Both UPS and FedEx are in a world of financial hurt right now. While each carrier is still profitable, longer term, negative business trends have been impacting both, and these publicly traded companies face numerous barriers to financial success:

Shared Macro Afflictions

·??????? Declining overall demand: While our economy never entered a recession, demand across nearly all transportation segments is in decline.? Soft demand has resulted in pricing power moving from the carriers to their customers and forcing UPS and FedEx to discount heavily. However, creative demand pricing and fuel surcharge increases are keeping revenue per piece relatively stable, but these carrier rate increases are also driving customers to consider alternate carriers/distribution models.?

·??????? B2B shipment trends:? The multi-piece B2B shipment, with stops in immediate proximity, drives much of a parcel carrier’s profitability. I am suggesting that this metric is flat or down, which is a huge, foundational problem for the two carriers moving forward.?

·??????? Express business in steep decline: Express shipments which drive double the revenue of a Ground shipment, are down significantly for both carriers.?

·??????? Tone deaf and arrogant: UPS and FedEx are arrogant, and because they had all the power in the customer relationship, they stopped listening to their customers a long time ago.?

·??????? Having to compete against new parcel distribution solutions and models: (Regional Carriers, Micro-Fulfillment, On Demand/Same-Day Delivery).?

·??????? More Pricing Consultants: An army of pricing consultants have descended upon US shippers, helping them to navigate the complicated UPS/FedEx pricing programs and negotiate the best rates possible.

UPS Specific Challenges:

·??????? Highest Labor Cost in the Industry.?

·??????? Partnered with the Teamsters, whose primary goal is to hurt the company as-a-way to validate their relevance and power to their members.?

·??????? Amazon Partnership: The ecommerce giant still heavily depends on UPS to support residential delivery and process return shipments at the UPS Store.? So, what we have is UPS operationally supporting and subsidizing via aggressive discounts, the service of a direct competitor, which makes no sense at all.?

·??????? Long-term defined pension benefit obligation that is far greater than that of FedEx or Amazon.

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FedEx Specific Challenges:

·??????? Monumental challenge of successfully merging Ground and Express pickup and delivery operations to reduce duplication and drive cost reduction.?

·??????? Reenergizing a demoralized employee base.?

·??????? Reducing front line employee turnover.?

·??????? Gaining back the trust and support of Wall Street.?

·??????? Pending loss of USPS Express lift agreement/revenue.?

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The Amazon Factor:

·??????? Amazon Shipping is real, and a direct competitive threat to UPS and FedEx.

·??????? Amazon can internally fund continued logistics related expansion from profits of AWS and digital advertising.

·??????? Only government led antitrust actions can derail Amazon:

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Are FedEx and UPS Fixable or Just Being Kodak?

I served FedEx during the 80’s and 90’s by guiding the development of their convenience/access point network in upstate New York, to include Rochester, the headquarters for Kodak.? The decline of Kodak dovetailed my time in Rochester, so I was able to witness first-hand the decline of this once great photographic giant.? Many factors led to Kodak’s bankruptcy.? Ultimately, corporate arrogance and the failure to quickly respond to changes in the marketplace led to the company’s decline.?

Kodak might have been so wedded to their legacy business models and old-school management behavior practices that failure of this once great American Corporate Icon was inevitable, as not everything is fixable.? So, the question looms, are FedEx and UPS Fixable?? I don’t know.? I do know that like Kodak, both UPS and FedEx are great brands and like Kodak, great brands fail all the time.

#usps #fedex #UPS #amazon #ecommerce Alec Gustafson Perry Lavergne Ian Kerr

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