Blue = Leighton
Red = Karissa
Brown = Adam
Black = Jane
The Battle for Value, 2004: FedEx Corp. vs. United Parcel Service,
Inc.
FedEx will produce superior financial returns for shareowners by providing high value-added supply
chain, transportation, business, and related information services through focused operating companies
competing collectively, and managed collaboratively, under the respected FedEx brand.
FedEx Mission Statement (Excerpt)
We serve the evolving distribution, logistics, and commerce needs of our customers worldwide, offering
excellence and value in all we do. We sustain a financially strong company, with broad employee
ownership, that provides a long-term competitive return to our shareowners.
UPS Mission Statement (Excerpt)
UPS hubs in
China as of
2009:
Shanghai and
Shenzhen
FedEx hubs in
China as of
2009:
Guangzhou
Figure 1 - Source: http://www.travelchinaguide.com/map/
Introduction
June 18, 2004 marked the start of an important international trend in logistics and carrier
services. The U.S. and Chinese government came to an agreement that allowed the development
of air cargo hubs and landing rights for commercial airlines in China. This pact not only opened
up extensive new opportunities for the airborne market in general, but gave FedEx and United
Parcel Service (UPS) exclusive cargo transportation rights (Bruner & Carr, 2010). At the time,
FedEx was winning the battle for China, with its Chinese volumes nearly doubling from 2003 to
2004. Despite this, rival UPS still held the title as the world’s largest package-delivery company,
and had been active in China since the late 1980’s (Bruner & Carr, 2010). FedEx had only done
business in China since 1995 (Roth).
Because of the importance of China to the shipping and logistics industry, this paper uses the
degree to which both FedEx and UPS achieved their goals in China as an indicator of the
financial performance implications for the future as well as the ultimate impact of the intense
competition between FedEx and UPS. It also reviews the key financial data for both companies
to see if these offer any clues as to performance.
Chinese Opportunities
China has become one of the hottest countries in the race for globalization – a huge population
base combined with a strong desire to be a major player on the world market has pushed this
country to new financial heights. The national economic growth rate is about 10% a year, and
express cargo volume is growing at 30% in China (Charlotte – Business).
In response, the business world has seen China as a new and vast frontier. Logistics in particular
are growing rapidly (Frankel, 2007). As China grows, it needs to build an effective export and
import infrastructure in order to keep up with growing international demands (Frankel).
Logistics, from the roads and ports and airports to the warehouses and distribution centers, needs
to be able to expand its reach to every corner of the country (Frankel, 2007). The expansion of a
viable logistics system has kept pace with China’s overall growth (Frankel, 2007), giving it the
power it needs to become a major world player.
As the world struggles to pull out of a global crisis caused by the US recession, China has
bounced back strongly, recovering their retail sales during 2009 to almost pre-crisis levels (“New
Trade Landscape”). Various Free Trade Agreements have opened up tariff-free trading between
China and several of the wealthier Asian countries (“New Trade Landscape”), creating a huge
potential increase in overall shipping and logistics needs (Frankel, 2007).
An important point to consider is how long China will keep its reputation as a source of good,
low-cost labor (Frankel, 2007). Once the general working population in China increases in
sophistication and education, and as China becomes increasingly world-wise, labor prices may
begin to rise, decreasing some of the massive growth in exports (Frankel, 2007).
China has cultural differences even among regions. For example, in the southern part of China,
customers tend to be very open to discussion and cooperation, whereas in the Shanghai area,
customers tend to be considerably more demanding (Brewster & Dalzell, 2007).
While FedEx chose the strategy of a local partnership, UPS chose to enter the market alone. In
2005 UPS bought out the remaining shares of gained ownership of Sinotrans. This gave UPS 89
operating facilities in 45 different locations, covering over 330 cities throughout China. There are
challenges though:
o
Foreign airlines cannot run domestic routes
o
EMS, the local parcel delivery service, is less expensive than the entering international
companies (FedEx, UPS, DHL, etc.)
o
Brand recognition is low on the mainland, this goes back to Chinese culture of keeping
with tradition (including traditional companies)  UPS was able to overcome this with
their participation in the Olympic Games
(Charlotte - Business)
The air-express segment of the domestic package-delivery market – including letters and
packages, overnight, deferred and air or air-and-ground - made up $25 billion of the $45 billion
industry (Bruner & Carr, 2010) and is a key driver for both firms in Asian territories (Bruner &
Carr, 2010) along with commercial volume.
FedEx and UPS Goals: the tortoise and the hare
FedEx and UPS, although competitive and both aggressively targeting the Chinese market,
approached the challenge with slightly different goals. These goals, which coincide with the
differing corporate images of the two giants, shaped the way in which each company planned
their expansion into China. As we will see, these strategies not only affected their approach to
expansion in China, but also may ultimately determine the winner. Whose goal is more aligned
with the Chinese culture and how that may have affected the future for these two shipping titans
is discussed in the following sections.
UPS feels that Asia, along with Europe, represents the most significant areas of growth for the
company (UPS Annual Report, 2008). Hong Kong is UPS’s most mature market in China, and
customers have become very sophisticated (Brewster & Dalzell, 2007). UPS serves more than 40
Asian countries and territories (UPS Annual Report, 2008) and had 4,000 employees in China in
2006 (Brewster & Dalzell, 2007).
UPS opened a new hub in Shanghai and began working on another in Shenzhen (UPS Annual
Report, 2008). Shanghai is the first air hub in China constructed by an outside company (ibid.).
This hub serves as a focal point for all Chinese locations to link to the overall UPS global
network (UPS Annual Report, 2008), strengthening the reach of UPS into China. It is located in
Pudong International Airport and can handle sorting volumes of 17,000 packages per hour (UPS
Annual Report, 2008). UPS also partners with a Chinese cargo airline, Yangtze River Express, to
further connect the Shanghai port to the rest of China (UPS Annual Report, 2008). The Shenzhen
hub, which will be ready this year (2010) and can handle up to 18,000 packages per hour, will
replace the primary transit location formerly located in the Philippines (UPS Annual Report,
2008).
UPS has become the first wholly-owned foreign express carrier in the country of China over the
last five years (UPS Annual Report, 2008). UPS’s sponsorship of the Beijing Olympics
improved their relationships with China considerably, bringing brand recognition to a much wider
base of Chinese citizens (UPS Annual Report, 2008). 19 million items were shipped via the
efforts of thousands of employees (ibid.). Additional daily flights were added in four Chinese
cities during 2008 (UPS Annual Report, 2008). Direct air service is now available between
Shanghai and Cologne, Germany (UPS Annual Report, 2008).
Many difficulties in adapting to the Chinese way have created setbacks for both companies. UPS
learned, much to their dismay, that receiving approval from the central Chinese government
simply means that they are cleared to fight for local approvals (Brewster & Dalzell, 2007). For
either company, as with Chinese companies, challenges with the transportation, fuel, and supply
chain costs may cause an erosion of profits (Brewster & Dalzell, 2007). Despite these drawbacks,
they also ironically present both firms with competitive advantages if they succeed: at this time,
due to the fragmented and somewhat challenging logistics environment within China (Frankel,
2007), few internal competitors are likely to come into play against either FedEx or UPS.
FedEx the Hare: superior financial returns
Looking at the stock prices in 2004, it seemed FedEx had achieved their goal, at least in a
superficial way. A cursory glance at the stock price shows that FedEx’s stock price reached a
high in 2004, well above the S & P 500 and safely above that of UPS. In fact, FedEx’s stock price
rose 13.9% during this five month period, whereas UPS only saw a 3.1% increase. Put another
way, FedEx’s stock price during this time was increasing at a rate almost five times that of UPS’s
stock price (Bruner, Eades, & Schill, 2010).
But was the goal appropriate when expanding into China—the economy predicted to become the
largest globally ( Stanley St Labs.)? Cultural cues can help answer this question. China’s cultural
dimension analysis shows that China receives a fairly high uncertainty avoidance ranking. This
supports the widely held belief that Chinese people value conservatism and long term viability as
opposed to volatile situations. This may lead China to be weary of the aggressive approaches
taken by FedEx in their business and expansions (Hofstede, 2009). A goal of superior financial
returns implies a focus on the short term and a more risky business plan as more risk will lead to
greater possible returns.
This help may explain why although Fed Ex initially saw spikes in stock price and
seemingly meet their goal, UPS was able to step in and overpower them in China. Fed Ex had
emulated the JIT supply programs of the Japanese which created demand for their services
(Bruner, Eades, & Schill, 2010). This should have been Fed Ex’s golden opportunity at winning
China’s favor. Unfortunately, UPS took the action a step further by creating a better tracking
system for international shipping which eliminated much uncertainty in the shipping process, not
just inventory management (SOURCE?). The Chinese were fond of Fed Ex’s approach to put
them more in control of their inventory but fell short of establishing the security UPS extended to
the shipping realm (SOURCE?). Essentially, it looks as though UPS more successfully combated
the Chinese dislike of uncertainty (Hofstede, 2009).
UPS the Tortoise: a long term competitive return
UPS stated their goal was to establish a long term competitive return—not the biggest return, but
a healthy, sustainable return (Bruner, Eades, & Schill, 2010). This goal is more in line with the
Chinese culture and as such, may be better received. Simply put, according to Geert Hofstede, the
Chinese score highest in the area of long term orientation (Hofstede, 2009), which is essentially
the heart of the UPS goal.
It is easy to see how this goal has affected the UPS business model, especially in China. UPS has
been carefully establishing the infrastructure necessary to achieve a long term presence in China.
In addition, UPS is generally more conservative than FedEx. They are interesting in achieving
long run returns rather than maximizing the present returns and creating volatility unnecessarily
by engaging in too much risk. UPS observes this practice by following the conservative ideals
which earned them their reputation, even in an aggressive expansion campaign into China. To be
specific, they have preserved large amounts of cash, invested heavily in infrastructure, and
maintained large amounts in their retained earnings account. This conservative approach earned
them an AAA bond rating (Bruner, Eades, & Schill, 2010). This proven record of conservatism is
likely to be well received by the Chinese population who favor the consistent long term viability
of a company over present returns.
But the focus on conservatism is not the only cultural trait which lends itself well to the UPS
business model. China also ranks extremely low in individualism, meaning they are known for a
collectivist culture which emphasizes relationships and extreme loyalty (Hofstede, 2009). It is
possible that this ingrained cultural trait may better adapt itself to UPS and their goals. UPS’s
capital expenditures move them towards being an invested member of Chinese society. They are
not merely making profits, but are also helping to build the future of China and their economy as
a whole. As China continues to grow and require an increased need for international shipping,
they may ultimately be more comfortable with UPS’s conservative orientation than that of the
aggressive Fed Ex (Loyalka M. D., 2006).
If these assumptions are correct, it is likely that the loyalty and collectivist nature found within
China will play into UPS’s favor (Loyalka M. D., 2006). In China, there is a strict etiquette to
building business relationships called guanxi, in which personal relationships play a major role
(Loyalka M. D., 2006). These relationships must be built, in fact, before any business can be
conducted, and once generated, guanxi cannot simply be abandoned in favor of a cheaper
business partner (Loyalka M. D., 2006). The advantage for UPS is that for every carefully forged
relationship in China, there is one fewer for FedEx to build (Loyalka M. D., 2006).
The Beijing Olympics – UPS triumphs in 2008
It seems UPS recognized the importance of becoming a member of the Chinese community—in
addition to investing in infrastructure, they also recently sponsored the Beijing Olympics. In
2008, UPS received the honor of becoming the “Official Logistics and Express Delivery Sponsor
of the Beijing 2008 Olympic Games (UPS, 2005).” Olympics officials made a point of noting at
the time that the sponsorship would potentially have a huge impact on UPS’s ability to expand
within China itself (Loyalka M. D., 2006). This press release echoes the mentality of the country
and foreshadows the future success of UPS in China. Hosting the Olympics was a major ordeal
and accomplishment for the country of China, as it is for every host. It took a great deal of trust
for China to select UPS as their partner in hosting the Olympic Games. But perhaps most
importantly for UPS, the loyalty from establishing such a relationship is hinted at in the reference
to new opportunities this relationship will bring UPS for development and prospects in China.
During the Games, UPS aimed the bulk of their advertising at China’s new business managers,
particularly the small- to medium-sized companies poised to take full advantage of China’s new
international power (Roth). This reveals the company’s conviction that the desire for U.S. goods
would spread rapidly throughout China, therefore increasing the need for deliveries through the
region. (Roth)
FedEx Responds
Challenged with the success of their rival, FedEx shot back that they had seen success in China
and had no plans to leave any time soon (Roth). FedEx, however, had culturally-related difficulty
in launching its international hub at Guangzhou Baiyan International Airport. After delaying the
opening twice, the company failed to fully comment on any issues keeping them from moving
forward, but it was speculated that Chinese customs officials were at the center of the delay.
Statements made sited “airport specific” issues and Customs officials hindering the “time-specific
delivery guarantees FedEx offers its customers”. (Focus – FedEx remains tight-lipped…)
Actually, this may be an example of failure to establish guanxi, and the negative consequences
that can result. They are now distinctly behind their competitor in terms of Asian countries
served, with only 30 being reached through their two hubs in the area (Regional Facts: About
FedEx).
Financial Trends
Asset Trends
In terms of asset trends, the current ratio for FedEx, compared to UPS’s was low (Bruner & Carr,
2010), as shown in the table below. One possible reason for this is that FedEx has chosen to rent
many of its fixed assets, which explains why their fixed charge coverage ratio is almost 1 and
their capital expenditure ratio is very low.
Company
Fedex
UPS
Current Ratio
1.18
1.79
As a side effect of renting fixed assets, FedEx was holding significantly less cash than UPS at
year end. While the hoarding of cash could be seen as unnecessary exposure to credit risk, as the
FDIC limits the amount of cash insured to $100,000 at any given institution (FDIC.gov, 20010),
the presence of cash could potentially allow UPS to respond quickly if any new opportunities
arise. One such opportunity was the renovation of their Hong Kong hub to the tune of $100
million. The expansion saw UPS add aircraft, ground equipment, and increased space for
operations in Europe and Asia (Barling, 2003). Furthermore, the expansion at the Hong Kong hub
came as UPS announced growth of 40% for the first quarter compared to prior year (Barling,
2003). This type of opportunity to increase capacity was most likely not available to FedEx due to
their financing arrangements.
UPS Financing w/debt
At first glance, the financial position of the United Parcel Service (UPS) leading up to the
proposed expansion into China mirrored that of its main rival, FedEx Corporation. Both boasted
healthy growth numbers and similar financial positions. UPS however, was in a prime position
for raising capital at the end fiscal year 2003. UPS most likely identified their potential and
summarized it on the front page of their 10k filing by declaring, “We See a World of
Opportunity” (UPS, Inc., 2003). UPS’s options for funding the expansion into China were either
through debt, equity, or a combination of cash and retained earnings. A careful review of their
balance sheet indicated that either choice was feasible. UPS enjoyed an astounding fixed charge
coverage ratio of 36.41, meaning it was more than able to meet their minimum interest payments
(UPS, Inc., 2003).
Conversely, a review of the 2003 annual report revealed that the company had cash holdings in
excess of $2 billion, and retained earnings in excess of $14 billion. Internally funded expansion
would be the most cost effective, but the presence of debt would potentially offset any losses
from early operations in a new market in the form of tax savings. If additional funding was to be
required, the increase would drive the debt to equity ratio up from the 2003 mark of .26; this
figure was in line with the debt to equity ratio of FedEx for the same year (Bruner, Eades, &
Schill, 2010). The possibility of a seasoned equity offering was also in the realm of possibility,
but due to the large potential to incur cost, it does not appear to be an effective solution.
In 2003, UPS published an increase of capital spending over the prior year of approximately $300
million; this capital expenditure increase contributed to an increase in sales of over $2 billion
(UPS, Inc., 2003). The willingness to invest in infrastructure for the expansion into Asian markets
placed UPS in the driver’s seat in the subsequent years. This investment, partnered with the
selection of the Philippines as a hub was a key contributor to the success of UPS.
Liability Trends
When assessing the trends in the company’s financial performance the implications of expansion
predicate the requisition of additional capital. A review of the pertinent case information and the
companies’ annual reports for fiscal year end 2003 indicated no liability arrangement that would
materially affect either company’s ability to secure additional debt financing. The comparative
chart in Figure 2 below illustrates each entity’s weighted average cost of capital for debt
financing. While FedEx appeared to have an advantage in regards to their cost of capital for long
term debt, the difference between the two companies was most likely due to increased risk as
UPS held more debt than FedEx at the close of business in 2003 (FedEx Corporation Annual
Report, 2003). UPS even did FedEx one better on the debt front during 2008 – they took out $4
billion in debt, but nearly all of it went to settle domestic pension issues (UPS 2008 AR).
However, this is not likely to be a problem since UPS holds a AAA bond rating (Bruner & Carr,
2010). FedEx currently has more problems with its debt ratings than UPS (FedEx and UPS
2009/2008 ARs) – they were recently downgraded by Moody’s, while UPS retains its good
standing (ibid.).
Weighted Average Cost of Capital
5000
4500
4000
3500
3000
UPS
2500
FedEx
2000
1500
1000
500
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Figure 2 - Weighted Average Cost of Capital for both companies. Despite the fact that UPS has a higher
cost of capital, they still have financing advantages over their rivals due to better bond ratings.
Equity Trends
In lieu of debt financing, either company could choose to finance the expansion through a
seasoned equity offer. According to the case, approximately 70% of FedEx’s common shares
were held by institutional investors (Bruner & Carr, 2010). This fact is pertinent because the
overwhelming presence of institutional investors could imply a risk averse attitude by both the
Board of Directors and by management. One reason for this is the tendency for large institutional
investors such as CALPERS (the California public employee retirement fund) to meddle in daily
operations and to scrutinize earnings (Williamson, 2009). However, the information contained in
exhibit 8 of the case study shows clearly that the stock price for FedEx had been rapidly
increasing, due in part to anticipation of a jaunt into the Chinese market. Please see Appendix A
for a chart showing the historical share price movement from 1992 to 2003.
Figure 3 - FedEx Share Price from 1980 to 2010. Source: Finance.yahoo.com. Clearly, despite recent
difficulties, investors anticipate a good outcome for FedEx’s Chinese expansion.
The case for expansion being funded through equity is partially made from an analysis of ratios,
as listed below:
Ratio Name
Debt/Equity Ratio
Times Interest Earned
Fixed Charge Coverage
Capital Expenditure Ratio
Ratio
.28
10.51
.83
.22
The first two ratios clearly show that in 2003, FedEx had a manageable debt load as compared to
equity and was earning approximately 10 times the amount from operations to cover the
minimum interest payments (Bruner & Carr, 2010). The quandary then lay in the fixed charge
coverage ratio, which was very high; in addition to a high fixed charge ratio, the capital
expenditure ratio was very low. Obviously, the answer was that the company was choosing to
rent fixed assets in lieu of purchasing them outright (FedEx Corporation Annual Report, 2003).
While this practice was not necessarily detrimental to the financial health of the company, it
limited the realistic financing options of the firm.
Based on the prior analysis, FedEx would be best served by a seasoned equity offering to help
fund the expansion into China. At the close of the calendar year 2003, the company had 299
million shares outstanding with 800 million shares authorized (FedEx Corporation Annual
Report, 2003). As such, FedEx could theoretically issue the new shares at $10 par value, which
was the same par value as the existing shares, and set the price (conservatively) for new shares at
$78 per share.
Par Value
Stock Price 12/29/2003
Price of New Shares
$10
$68
$78
Disregarding issuance costs, the company could issue 400 million shares at $78 per share and
raise approximately $31.2 billion to aggressively expand into China. Although this number
appears large, FedEx boasted a solid return on assets for the decade preceding 2003 and does not
appear to be susceptible to large scale service interruptions that could put that return in jeopardy.
Finally, the average income growth of 13.64% from 1992-2003 (Bruner & Carr, 2010) implied
that FedEx would continue the trend of profitability.
While UPS could choose to match the equity offering of FedEx, UPS could finance potential
expansion with their stockpile of retained earnings. The table below shows retained earnings for
each company at the close of business in 2003; UPS clearly has twice the balance of FedEx. One
possible reason for this discrepancy was that UPS had long been described as a fiscally
conservative organization (Bruner & Carr, 2010).
12/31/2003
Retained Earnings
FedEx
$6,250 Million
UPS
$14,356 Million
Cash Flow from Operations
$1,871 Million
$4,646 Million
Finally, both companies showed positive cash flow from operations in 2003, but given the
magnitude of the difference and the aforementioned analysis, it appears that financial trends gave
UPS the advantage in expansion in to the Chinese market.
The stock price also reflects their conservatism. While FedEx had a higher stock price, UPS had
less volatility. FedEx not only saw the record high, but also achieved the record low among the
two companies (Bruner, Eades, & Schill, 2010). Understandably, we see this trend continuing in
current literature and figures. FedEx’s more aggressive approach to maximizing returns yielded a
50% change in price during the last year. Comparatively, UPS only saw a 25% change in their
stock price during the previous 12 month period (MSN Money, 2010).
For UPS, Asian exports (and most particularly China) were a bright spot on an otherwise
recession-dampered growth rate, primarily due to UPS’s investments in new hubs allowing for a
greater reach of service area (UPS Annual Report, 2008).
The Battle for China: We have a Winner
Hubs opened by FedEx since June 18, 2004 in Asia: Guangzhou (2009)
Hubs opened by UPS since June 18, 2004 in Asia: Shanghai at Pudong Int’l (2008), Shenzhen
(2010), Hong Kong, Singapore, Taiwan.
In terms of access to the Chinese mainland, UPS has been winning the battle, having opened two
in China itself, along with the Asian access granted by their Hong Kong and Singapore hubs.
Their most recently opened hub in Shenzhen considerably increased their reach into northern
China. FedEx, meanwhile, is still operating out of their original Philippines hub (which would
have been the only location available prior to June 18, 2004 (Bruner, Eades, & Schill, 2010)) and
a very new hub in Guangzhou (FedEx Annual Report, 2009).
UPS has also recently announced that the recession is over for them (Levitz). They posted a
profit in the final quarter of 2009 (Levitz & Sechler, 2010). One helpful driver of the
international recovery for UPS was that airlines began cutting back on cargo space, forcing more
people to switch to their services (Levitz & Sechler, 2010). Air freight from Asia and Europe
made up the primary reason for the increased sales (Levitz). UPS has reinstated pay raises for
40,000 employees (Levitz & Sechler, 2010). However, they admitted they had bargained with
customers on pricing during the downturn in an effort to keep their market share (Levitz &
Sechler, 2010).
Price Slashing
“FedEx China is losing money to grab market shares by lowering its prices of domestic express
service in China by more than 70% in a year to the level set by domestic private companies.”
Between October 2007 and August 2008, FedEx cut prices for its domestic delivery service four
times. The new prices were set just slightly higher than the prices of China’s domestic private
companies, which then accused FedEx of “conducting unfair competition, or dumping”. (china
economic review)
Although they have seen growth in their market share FedEx has continued to cut prices for the
domestic services it offers regardless of its increasing costs. It has been reported that FedEx
China has lost around $7.3 million from cutting costs in its domestic services. In response to the
negativity FedEx’s price slashing received Jimmy Chen, regional vice president of FedEx China’s
domestic service stated “By quoting more preferential prices, we hope more Chinese customers
can use our services to optimize their supply chain”. (chinadaily.com)
A FedEx spokeswoman said in an e-mailed statement."By offering the new rates to the market,
we aim to provide more customers with access to our reliable services so that they can optimise
their supply chains." (marketavenue)
The opening of international air hubs in China
UPS made plans to relocate its air hub from the Philippines to Shenzhen, southern China, and was
the first to officially open its hub in December 2008, placing it at the head of the rapidly
expanding Chinese market (ups.com). UPS has signed a 20 year contract for the new facility,
which cost an estimated $180 million and has the ability to sort 36,000 parcels an hour.
UPS and FedEx are not the only freight and logistics providers focusing on foreign trade in
China. DHL Express has now opened a hub in Hong Kong and is already working on another in
Shanghai, expected completion 2010. (Finance – UPS to Establish air hub in China)
While desperate times can clearly prompt such actions, FedEx may have gone UPS one better in
its bid for additional Asian market share. Operating revenues for FedEx dropped in 2008
partially as a result of costs relating to the expansion of domestic services in China (FedEx
Annual Report, 2009). In particular, FedEx was accused by local Chinese competition of
“dumping”, or lowering its domestic Express prices to below profitable levels in an attempt to
grab more market share (China Economic Review). Despite the accusations, FedEx remained
more expensive than local Chinese logistics firms (China Economic Review).
In 2008, expenses relating to a Chinese joint Express venture also hurt net income (FedEx Annual
Report, 2009). FedEx purchased a Chinese company, Tianjin Datian W. Group Co., Ltd, in
March 2007 for $427 million (FedEx Annual Report, 2009). Part of the purchase came from a $1
billion bond issue (FedEx Annual Report, 2009). $348 of the total purchase price was allocated
to goodwill (ibid). The reorganization that this prompted negatively affected FedEx’s 2008 tax
rate as well (FedEx Annual Report, 2009).
New Strategies
Both FedEx and UPS making changes to counter rising fuel costs, using unconventional means to
combat the problem (Boyle). FedEx has created a new software that is expected to decrease the
time it takes its’ larger planes to take-off and land as well as reduce idling time, making the
overall schedule more efficient. (Boyle) UPS pilots, on the other hand, are attempting a new
landing technique where the plane engines will remain idle during landing. This is expected to
save up to 70 gallons of fuel per flight. Another plan to cut costs is the use of telematics
technology which tracks data such as speed, oil pressure, number of times the truck is put in
reverse. This and other data is expected to help to reduce engine idling by 24 minutes per day,
which could save $188 per driver. With 60,000 UPS trucks on the road this could save the
company up to $11,280,000 a day (Boyle).
In addition to generally doing better financially, UPS also has an edge over FedEx when it comes
to environmental and climate sustainability. They very recently received the top award for the
consumer shipping segment from Climate Counts, an organization that ranks large companies on
climate preservation as well as transparency (UPS tops ‘Climate Counts’). In order to allow
customers to determine the impact of shipping on the environment, UPS also provides a service
that returns data on how their shipping activities create CO2 emissions (“UPS offers Shippers
Green Option”). Despite this, there is no mention on their website of their environmentallyfriendly initiatives crossing over into China (UPS Responsibility Website).
A More Appropriate Goal
It can be argued that both companies met their goal. FedEx surpassed UPS to set the record high,
they maximized their share price at certain times and hence probably did provide superior
financial returns to some investors. Unfortunately, they have not sustained their high price. With
record highs, they have also achieved record lows. So maybe a better argument is that one had a
more appropriate goal and one better achieved that goal. UPS chose a goal which coincided well
with the Chinese culture.
Unlike the American focus on price and returns, the Chinese appreciate the relationships and
sustainability that make a company great. Hence, the goal UPS set forth in part propelled them to
success. It seems they have undoubtedly met their goal by setting themselves up for a long term
relationship with China. They better aligned themselves with China and their culture. The returns
may not always surpass the returns others enjoy, but UPS seems to be enjoying the benefits of a
very loyal client base.
Their approach to investing in the country and developing themselves as a productive and
responsible member of the Chinese society is likely to ensure their continued success. With the
fast moving economy of China, this will be crucial to the health of UPS as a whole. Furthermore,
with other new and emerging economies, such as India, their success in China will likely prove an
invaluable learning experience for UPS. UPS should be able to observe the synergies created by
aligning their goals with the culture and amend those practices to best suit other expansions. Done
successfully, this goal setting should set them securely in front of the competition in the future.
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http://www.economywatch.com/world_economy/china/
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Brewster, M., & Dalzell, F. (2007). Driving Change: The UPS Approach to Business. New York:
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Bruner, R. F., & Carr, S. D. (2010). The Battle for Value, 2004: Fed Ex Corp. vs. United Parcel
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y=29_T8461708779&cisb=22_T8461708778&treeMax=true&treeWidth=0&csi=8094&docNo=14
** ADAM, I CAN’T GET SOME OF THESE INTO THE BIBLIOGRAPHY – IT SAYS THE
TAG NAMES ARE NOT UNIQUE. Highlighted in Orange. Can you help?
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FedEx Annual Report. (2009). Investor Relations. Retrieved February 5, 2009, from Fedex.com:
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FedEx Corporation Annual Report. (2003). FedEx Corporation Annual Report. Memphis: FedEx
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2010, from
http://finance.yahoo.com/echarts?s=FDX#chart3:symbol=fdx;range=19921201,20031231;indica
tor=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source=undefined
Frankel, R. a. (2007). Logistics in China: The Industry in 2006 and the Near Future. In J. E.
Michaelman, China as an emerging Superpower: Challenges for China and the United States.
Jacksonville, Florida: Center for International Business Studies, Coggin College of Business.
Hofstede, G. (2009). China. Retrieved February 9, 2010, from Geert Hofstede Cultural
Dimensions: http://www.geert-hofstede.com/hofstede_china.shtml
Levitz, J., & Sechler, B. (2010). UPS Posts Strong Net Amid Signs Recovery Taking Hold. Wall
Street Journal .
Loyalka. (n.d.). Retrieved February 2010, from BusinessWeek.com:
http://www.businessweek.com/smallbiz/content/jan2006/sb20060105_958312.htm
Loyalka, M. D. (2006, January 6). The Art of Chinese Relationships. Business Week .
MSN Money. (2010, February 15). Investing. Retrieved February 15, 2010, from MSN Money:
http://moneycentral.msn.com/investor/research
UPS Annual Report. (2008). Annual Reports. Retrieved February 5, 2009, from www.ups.com:
www.ups.com
UPS Pressroom. (2009, November 19). UPS tops "Climate Counts" Scorecard for Consumer
Shipping. Retrieved February 13, 2009, from UPS.com:
http://pressroom.ups.com/Press+Releases/Archive/2009/Q4/UPS+Tops+%27Climate+Counts%2
7+Scorecard+for+Consumer+Shipping
UPS Pressroom. (2009, October 6). UPS Offers Shippers "Green" Opetion to Offset Carbon
Dioxide. Retrieved February 13, 2010, from UPS.com:
http://www.pressroom.ups.com/Press+Releases/Archive/2009/Q4/UPS+Offers+Shippers+%22G
reen%22+Option+to+Offset+Carbon+Dioxide
UPS. (2005, July 27). UPS Pressroom: UPS to Sponsor 2008 Olympic Games in Beijing. Retrieved
February 11, 2010, from UPS:
http://www.pressroom.ups.com/Press+Releases/Archive/2005/Q3/UPS+to+Sponsor+2008+Oly
mpic+Games+in+Beijing
UPS, Inc. (2003). UPS 2003 Annual Report. Atlanta: UPS.
Williamson, C. (2009, April 20). CalPERS tightening its control over hedge funds. Retrieved
February 2, 2010, from Lexis Nexus:
http://www.lexisnexis.com.dax.lib.unf.edu/us/lnacademic/results/docview/docview.do?docLink
Ind=true&risb=21_T8461708775&format=GNBFI&sort=RELEVANCE&startDocNo=1&resultsUrlKe
y=29_T8461708779&cisb=22_T8461708778&treeMax=true&treeWidth=0&csi=8094&docNo=14