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companies I am going to compare are FedEx and UPS. These two companies compete in the United States and around the world, doing package delivery and other logistics services. As such, they have a lot of similarities, but they also have a lot of differences. This paper will explore both the similarities and differences between these two companies. The two companies are both American, and most of their business is domestic. However, it is valuable to look at two things that are similar in order to better understand their differences. I think that most people would see these companies as interchangeable, but it may be more that they are similar but not quite interchangeable.
There are a number of similarities between FedEx and UPS. Both companies are American, as a starting point. UPS is based in Atlanta, GA while FedEx has its headquarters in Memphis, TN, so both are in the South as well. It is worth noting, however, that neither company started in their present headquarters. FedEx started in Little Rock while UPS started in Seattle. Another commonality, then, is that both companies moved their headquarters over time. The trigger event for both companies to move to their current headquarters was the availability of airport space. As the air courier business was always dominant for FedEx and became dominant for UPS, there was a need to find a location that could handle the amount of air traffic that the hub-and-spoke system demanded. Memphis and Atlanta ended up being those places. In common, both companies also use a number of secondary hubs as part of their air networks.
Both FedEx and UPS now generally go by their abbreviated names, names that have come about because these companies are household names. So FedEx used to be called Federal Express, while UPS is still officially United Parcel Service, though most people just call it UPS.
There is a lot of similarities between the business models of these two companies. Both FedEx and UPS have an air courier business, a ground courier business, an office store business, and smaller businesses related to customs clearance and other logistics issues. Thus, both companies have achieved a similar level of horizontal integration. Neither company has a major business outside of logistics, but neither has either company diversified much into the IT side of that business. A further similarity in the business model is that both of these companies have, over the years, developed large international networks for their air courier operations. Both companies have done this in part to seek growth opportunities after the North American market became mature, but they have also done this to meet the needs of their customers, who were driving globalization. Both companies, for example, have embarked on targeted expansion plans with respect to health care and pharmaceuticals in the Chinese market (Nan, 2014; Business Wire, 2013).
In terms of their financial performance, there are some similarities as well. Both companies are generally profitable. While FedEx struggled a little bit during the recession in 2009, the company has generally been earning over $1 billion per year otherwise, with revenues between $35-45 billion. As a result of this consistent profitability, FedEx has a healthy balance sheet. UPS has a similarly good financial position. While it is larger, earning $45-55 billion in revenue per year, it is also fairly profitable. If anything, profits at UPS are both stronger and more volatile than those at FedEx. That it is more profitable is not surprising -- they have roughly the same infrastructure, so same infrastructure costs, but UPS earns more revenue.
An interesting tidbit is that both companies have been major beneficiaries of the Internet. While on the surface some experts thought that email in particular would wipe out the need for overnight shipping, the Internet has opened up new possibilities. Both companies have built entire hubs in Asia to handle the shipment of superconductors and other computer parts from Asia to North America. E-commerce has been a big winner for these companies as well. FedEx makes a lot of money shipping Apple products from China around the world, while UPS has Amazon as what is probably its biggest account. Both companies benefit from eBay and other electronic commerce as well. Thus, the Internet has been a source of opportunity for both, rather than a threat.
There are some significant differences between the two as well. One notable difference is in their area of specialization. While both compete in air and ground, FedEx specializes in air while UPS specializes in ground.
This is because these two companies actually have a lot of differences in their history. UPS is much older, dating back to 1907 when the idea of an air-based courier was rather fanciful. The company has always, therefore, had a specialization in ground shipments. Thus, UPS has a larger ground fleet and larger ground business than FedEx, which entered the ground business via acquisition of one of UPS's smaller competitors several years ago. In contrast to UPS, FedEx started as an air courier company. Because that was their first business, and indeed FedEx invented that business, FedEx has always had the better market share, and UPS didn't enter the air business until FedEx had been there for at least ten years. As an example, FedEx has an air fleet of 401, compared with 203 for UPS. UPS has over 100,000 ground vehicles, which is quite a bit more than FedEx has.
Both companies entered office services in the 2000s via acquisition, so there is not much difference between the two as far as that part of their businesses are concerned.
There are subtle differences in the way that these two companies run their business as well. FedEx places strong emphasis on international, and while UPS is becoming a player in international, this was always a weak spot for them. UPS' ground strength, however, is a major differentiator and its ground networks are superior. This has allowed it to become the bigger and more profitable of the two companies -- FedEx has never been able to grow to the same size as UPS. They are similar, however, in that they are by far and away the market leaders. There are few competitors and all of their competitors are quite a bit smaller than they are.
The level of integration between their respective operations is a key strategic difference between these two companies. Because UPS was an established ground company that has built its overnight business from scratch, that business has always been well-integrated with its ground business. They typically share facilities and the customer experience is only really differentiated by the price they pay and the delivery time they receive for that price. This is not the case with FedEx. Because its ground operation was acquired, it was never fully integrated with the overnight business. Even today, they operate as separate entities. Ground couriers will not deliver overnight packages and vice versa. So this is a key difference, because there is less cohesiveness from the customer's perspective with respect to the different sides of FedEx, whereas UPS uses their high level of integration as a source of competitive advantage.
FedEx is positioned almost as a premium company to UPS. They especially seek to be a premium service provider. FedEx has better tracking technology, for example, allowing the customer to better see where the package is at any given moment. With UPS, this can be a bit of a mystery sometimes. However, UPS seeks to be more solutions-oriented, on account of their integration. So the two companies are finding ways to differentiate themselves, despite the obvious similarities between their service offerings.
In terms of economic standing, both are healthy financially. Both companies are also bellwethers in terms of having a broad customer…[continue]
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