By Jay Wei / www.investopedia.com / March 15th, 2019
United Parcel Service, Inc. (UPS) and FedEx Corp. (FDX) are two leading delivery services companies and main competitors to each other, at least in the public eye. But to those following them closely, the two companies are actually quite different in their business models and strategies. While UPS is widely known for its domestic ground package delivery, FedEx is mostly recognized for its worldwide air express freight. The two companies also differ in terms of their approaches to serving customers, how they have fared in the e-commerce environment, and the different business structures unique to each company.
Package delivery and express service are where the two companies have made names for themselves. Although each company has other delivery services that make everything they do seemingly overlap, such as UPS also being a common carrier in air freight and FedEx having a similar package delivery unit called FedEx Ground, the reality is UPS' ground package business and FedEx's air express operation are, respectively, the bread and butter for each company.
UPS delivers packages worldwide on every day except Sunday. In 2017, UPS delivered around 20 million packages and documents each day, which totaled 5.1 billion — a number unmatched by anyone else in the business.
The UPS Store and FedEx Office are retail outlets set up by the two companies to bring in individual shipping orders for their respective package delivery and express services. Having such stores and offices also represents the different approaches by UPS and FedEx to serve their customers. While both outlets provide shipping, packaging and certain office supply services such as copying and printing, they attract different kinds of customers because of the different nature of each company's underlying delivery business. The UPS Store is often a relatively small retail setting, independently owned by franchisees. It primarily serves retail customers and small businesses for their small package delivery needs plus certain postal and shipping-related services.
The ongoing e-commerce development has played right into UPS' core business of small package delivery. As more people make purchases regularly online, merchants on the internet are increasingly pressured to make their offline delivery of goods on time to customers. They see logistics as having a much bigger role in retail success, and to help themselves better navigate through the e-commerce way, online merchants rely on package delivery companies such as UPS to make the final connections to their customers. As a result, UPS has seen increased demand for its business and even struggled to keep up its capacity during times of heavy shipping orders.
UPS manages all its businesses, such as air, ground, domestic, international, commercial and residential, through a single pickup and delivery network. The single network structure has allowed UPS to gain competitive strengths by maximizing network efficiency and asset utilization.
FedEx in its own right generates more than half of its revenue from its flagship FedEx Express division by flying about 6 million packages a day to more than 220 countries and territories around the world. When it comes to business models, the two companies have each found their different business niches, with UPS focusing on small package delivery and FedEx specializing in time-sensitive express service.
As for stores, FedEx Offices usually occupy large spaces, really resembling big offices, and are corporate owned. FedEx Office can provide sophisticated equipment such as digital photo kiosks, laser printers or desktops with an image scanner and Adobe design software. FedEx mostly attracts retail customers and corporate clients who prefer, and can afford, the kind of express service offered.
The positive e-commerce effect has not been felt by FedEx. The company's package delivery unit, FedEx Ground, is less than half the size of its main business, FedEx Express, in terms of sales — 18.4 billion compared to 36.2 billion, respectively, in its fiscal year 2018. Online purchases require mostly regular local and regional deliveries as opposed to express, long-haul deliveries, something that FedEx does the best. To be more cost-effective, online merchants are more likely to sell through their regional fulfillment centers or local chain stores to avoid long-distance deliveries that can be time-consuming and cost-laden. As a result, FedEx's strength does not play into e-commerce development. To catch on with e-commerce's demand for shorter-distance delivery, FedEx may have to realign its business model more toward its FedEx Ground while keeping its express advantage. FedEx's strategy is for its different business units, such as express, ground, freight, and services, to operate independently.
However, 96% of FedEx's clients use two or more of the company's separate operating units, providing a different kind of competitive advantage.
Because FedEx has more dissimilar operations, from express to ground to freight, a single network strategy would not work. But for UPS, the different businesses it has are essentially all about small package delivery, and sharing a single network makes the most sense. It may be surprising to see that two delivery services companies can be so different in so many aspects of their operations. To many people, they look the same.
- UPS and FedEx have both been pioneers in the express package delivery service.
- UPS specializes in domestic ground delivery services.
- FedEx specializes in time-sensitive international air freight.
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