The most interesting thing though was the number of truck drivers both companies reportedly employ.
UPS = 101,889
Fed Ex = 119,532
Again, richochet went over the package volumes and then questioned why FedEx is not more profitable even though it has roughly 50% of the labor cost.
When actually, if you divide labor cost by the piece, UPS comes out cheaper on a per piece basis.
What that tells me is that Fed Ex should be able to lay off a significant portion of their driver/package handler force if they were to merge ground and express.
I read the article a couple of weeks ago and was trying to figure out where it was relevant and why it mattered. This thread ties it all together for me.
Thanks to those that contributed substance to the discussion. Very interesting.
One cannot directly compare FedEx Corporation to UPS when it comes to come to a "per package cost" to move volume. Although they do the exact same thing, the convoluted method by which FedEx Corporation is setup (all to avoid unionization) makes direct comparisons using aggregate data impossible.
For example, when one compares the cost of FedEx Ground to move a package to UPS's cost, FedEx Ground has a cost advantage of about $1.25 per piece - this is due SOLELY to the much lower labor rates Ground possesses for its misclassified drivers. This is why I am amazed that the drivers in UPS don't seem to realize that the greatest threat to their future compensation isn't the management of UPS, it is the existance of the business model of FedEx Ground which allows the drivers of that op-co to be compensated at between one-third and as low as one-quarter of that of UPS drivers doing comparable work (using UPS driver compensation of approximately $90,000 including all benefits and FedEx Ground driver compensation of between $25,000 and $30,000 a year total REAL compensation).
The statistics for number of truck drivers would have to be an aggregate statistic that would include all delivery drivers in both Ground and Express, as well as all semi-truck drivers in both op-co's. Even though FedEx Corporation does indeed employ slightly more individuals in a driving capacity, the drastically lower compensation rates (especially among the Ground drivers) makes FedEx Corporation's overall labor cost much lower than UPS's. Even Express' labor costs are about half that of UPS's, when one takes into account ACTUAL labor expense and not using the incorrect statistics of topping out every Express employee - then comparing that number to UPS empolyees who are topped out very quickly compared to Express.
Most people focus on the seeming redundancy of the dual Express/Ground systems and think that costs could be further reduced by a combination of the two - much like UPS. This is absolutely incorrect.
FedEx is organized around one key principle - keep unions out no matter what. The much lower labor rates enjoyed by FedEx Corporation by keeping a non-unionized labor force more than makes up for any overlap in coverage between the two op-co's. The economic inefficiency created by this overlapping of coverage is more than compensated by the savings in wage labor compensation.
As FedEx Ground continues to take more and more market share from UPS, the cost savings that FedEx enjoys will only continue to increase. This is a key reason why FedEx has "tolerated" the lower profitability for the past few years - they are trading short term profitability for gaining an ever increasing slice of the pie - when it comes to the package shipping market. As that slice of the pie continues to grow, profitability percentages will by default increase. The fixed costs of the "network" are being supported with current volume - with increasing volume, the variable costs will increase at such a slow rate, the additional revenue will create even more profitability. This is what UPS has to compete with - and by default, the wage employees of UPS. The business model of Ground is a direct threat to your (UPS employees) future compensation levels.
Again, the question is asked to the reader; "Given the similiar package volumes moved by UPS and FedEx Corporation, taken along with the greatly reduced labor cost of FedEx Corporation - why isn't FedEx Corporation more profitable than it is?" If UPS was able to compensate its Package Car Drivers half of what it currently does, and it Feeder drivers half of what it currently does (matching Express compensation levels), UPS's profitability would increase tremendously.
Since UPS and FedEx Corporations overall profitability is comparable (at the current time), the answer lies in that UPS is structured to operate in an environment where its wage labor costs are at an industry high, so in order to maintain competitiveness, other operating costs had to be slashed. I pointed out that both companies pay the same for fuel, equipment and technology. That leaves only one place where UPS has a lower cost structure compared to FedEx (Express in particular) - the cost of salaried support staffs - fewer numbers, not lower per individual compensation.
The next question is: "Why doesn't FedEx slash its salaried support staff to a level comparable to that of UPS, in order to increase current profitability even more?" The only answer I can come up with is that FedEx accepts the greater fixed cost in the present, thinking that in the future, the increasing expansion of Ground will require those support staff to operate - thus bringing the ratio of staff to operational force down to a level which is comparable to that of UPS's. In otherwords, take the loss now, anticipating the need for the staff in the future.
Again, if this is the case, it is a gutsy move on the part of FedEx, anticipating that it will be able to grow its volumes (to the detriment of UPS) at such a rate, that in the long term, maintaining the cost inefficiency of the present will more than be made up with higher profitability levels in the future.
This is why the wage employees of UPS have a vested interest in having the misclassification of Ground drivers ended. It also explains why UPS actively lobbied to have Express' RLA status pulled. UPS management doesn't give two shakes about Express employees - what they do know is that if Fred's wage compensation levels were to increase by about 50% overnight, their (UPS mgt) task of creating profitability for UPS would be much easier.
If a company has reached the limit of cutting its costs (as UPS has) - and its competition enjoyes lower compensation rates for its employees (as FedEx does) - the only solution in keeping the playing field leveled is to somehow increase the wage costs for the competition.
The real solution to this whole issue is to have the RLA pulled from Express and the drivers of Ground properly classified as employees - then balance will be restored. This explains why Fred spends MILLIONS per year in lobbying expense and providing perks to Members of Congress in order to maintain his dual special deal - it is more cost effective for him to spend millions on Congress, than to spend what would be close to $1.5 BILLION in additional compensation for the wage employees of Ground and Express otherwise.