Home
Forums
New posts
Search forums
What's new
New posts
Latest activity
Members
Current visitors
Log in
Register
What's new
Search
Search
Search titles only
By:
New posts
Search forums
Menu
Log in
Register
Install the app
Install
Home
Forums
The Competition
FedEx Discussions
The Big News
JavaScript is disabled. For a better experience, please enable JavaScript in your browser before proceeding.
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an
alternative browser
.
Reply to thread
Message
<blockquote data-quote="Ricochet1a" data-source="post: 867752" data-attributes="member: 22880"><p>Outside any minor differences in fuel cost due to MEM being able to get jet fuel in a bit more cheaply than the rest of the country (due to being just slightly up river from the refineries in LA), FedEx pays the same relative cost for fuel, same relative costs for technology and same relative costs for equipment purchases - as UPS does. UPS does have some economies of scale.</p><p></p><p>UPS delivers approximately 13 million pieces (uncertain if that is worldwide or US domestic). It delivers 2.2 million AIR pieces a day (believe this is US domestic). To compare FedEx directly, FedEx delivers 3.5 million by Ground and another 3.5 milliion by Express (using worldwide figures for Express). So UPS has roughly twice the throughput of FedEx Corporation.</p><p></p><p>While this does grant UPS a certain economy of scale when directly competing with FedEx Corp, it isn't enough to explain why FedEx isn't extremely <u>more</u> profitable when:</p><p></p><p>1. Express Couriers (roughly one quarter of Express employees) are compensated at a rate approximately half that of UPS drivers. </p><p></p><p>2. Ground drivers are misclassified and compensated at a rate approximately one-third that of UPS drivers - in some instances as low as one-quarter the rate. </p><p></p><p>3. All Express employees (except executive management and the pilots) lost their pension plan a few years ago and now get (for those under 50), 5% of their annual gross put into a fund controlled by FedEx. By the way, UPS drivers get 13% of the gross (up to 45 hours per week) put into their pension fund. </p><p></p><p>With just these three advantages I listed - keeping all other factors relatively equal between the companies - FedEx Corp should be running away from UPS - it isn't. With labor being the MAJOR component in UPS cost structure, but FedEx's being somewhere in the 40% range for Express - but higher for the Ground segment (not nearly the equipment and fuel overhead) - FedEx should be severely outpacing UPS. It isn't (right now at least). Give it a few years and it will...</p><p></p><p>So... I'll let you reach your own conclusion as to why FedEx isn't running away from UPS. It has the one-two punch of the RLA and the IC/ISP contractor model keeping its wage labor cost very low compared to UPS. Why aren't those savings showing up in the final operating margin? UPS moves volume by air - they seem to create a profit when doing it. </p><p></p><p>A small part of FedEx's problem is duplicated effort - having Ground and Express trucks covering the same territory. But there is no way around this and keep the RLA for Express, while paying the Ground drivers peanuts. It is an expense which FedEx accepts to get what it wants. </p><p></p><p>However, Ground has matured to the point where FedEx is comfortable enough to think about having Ground move some of its Express volume - kicking up the profitability of FedEx Corp. Its time for all those lobbying expenses and perks handed out to start paying for themselves in a big way...</p><p></p><p>The IBT and some of its membership don't see this storm coming their way. Once FedEx is able to start pulling in 10, 12.5 and possibly 15% operating margins once the economy picks up AND FedEx gets part of their restructuring underway, UPS will have no choice but to react - by slashing labor costs themselves in a BIG way. </p><p></p><p>I've stated it many times before on this forum, often times one MUST use inductive reasoning to get a better understanding of what is going on. Often times one can't point to something directly and have that "Eureka" moment, but rather must observe the condition of the whole - then combine that with knowledge which is in black and white to make an accurate assessment. It is definately easier when one has access to non-public information, but the dots can be put together with some observation, analysis and inductive reasoning. </p><p></p><p>So, I'll flip it back on you.... </p><p></p><p>With FedEx Corporation having wage labor costs (combining Express and Ground in the picture) roughly half that of UPS, while having virtually all the other costs being identical - why isn't FedEx mopping up the floor with UPS? Is UPS really that much more efficient than FedEx Corp when it comes to moving volume? I don't think so...</p><p></p><p>I don't have detailed specs in front of me at this moment - so I'll use this thumbnail analysis:</p><p></p><p>Assume Express has TOTAL (salaried & wage) labor cost of 45% of its cost structure. I'm going to make a big assumption for this thumbnail analysis and state that half of it labor cost is wage labor. This would mean that wage labor is roughly 22.5% of total Express cost. </p><p></p><p></p><p>UPS has a TOTAL labor cost in the ballpark of 57% or so (again, no hard stats in front of me as I write, this is approximated from recollection). Doing some reverse calculations:</p><p></p><p>Since there are handlers, RTDs - Feeder drivers and others in the wage force of each company, the next assumption is real speculative, but assume that UPS ON AVERAGE pays their wage force roughly 50% more than FedEx Express does. Again, this is across ALL crafts - so particular crafts within each Express and UPS may be paid roughly equivalent compensation, while others may see a difference of upwards of double (typical Express Courier and UPS driver). </p><p></p><p>So if the corporate "game" were to be evened up, Express wage employees would need to have their compensation increased from 22.5% of Express expenses to what would be almost 34% of Express expenses. This would put a dent in Express' final margin of (simple subtraction) 34%-22.5% = 11.5%. Put another way, if Express wage employees were compensated at comparable levels as UPS wage employees, Express' final margin would be - using the data for FY 10...</p><p></p><p>5.2% - 11.5% = -6.3%</p><p></p><p></p><p></p><p>I hope some thoughs are racing through your head right now...</p><p></p><p>This is just thumbnail analysis, but it is easy to see that the current profitability of FedEx is due SOLELY to it lower wage employee compensation structure (which has been true since the late 90's, but really started to jump up after the pension expense was slashed). </p><p></p><p>Back to you...</p><p></p><p>There is about 10% missing there. FedEx should have a final margin that is 10 points highter than it is - or even UPS's. This means that somewhere within Express, there is an expense which FedEx is carrying which UPS isn't. UPS has aircraft purchasing expense, fuel expense, technology expense. UPS has expenses for all these items which Express has, and doesn't receive any special pricing. So where is the inefficiency within FedEx? </p><p></p><p>Hint, it is within the business model as structured.</p></blockquote><p></p>
[QUOTE="Ricochet1a, post: 867752, member: 22880"] Outside any minor differences in fuel cost due to MEM being able to get jet fuel in a bit more cheaply than the rest of the country (due to being just slightly up river from the refineries in LA), FedEx pays the same relative cost for fuel, same relative costs for technology and same relative costs for equipment purchases - as UPS does. UPS does have some economies of scale. UPS delivers approximately 13 million pieces (uncertain if that is worldwide or US domestic). It delivers 2.2 million AIR pieces a day (believe this is US domestic). To compare FedEx directly, FedEx delivers 3.5 million by Ground and another 3.5 milliion by Express (using worldwide figures for Express). So UPS has roughly twice the throughput of FedEx Corporation. While this does grant UPS a certain economy of scale when directly competing with FedEx Corp, it isn't enough to explain why FedEx isn't extremely [U]more[/U] profitable when: 1. Express Couriers (roughly one quarter of Express employees) are compensated at a rate approximately half that of UPS drivers. 2. Ground drivers are misclassified and compensated at a rate approximately one-third that of UPS drivers - in some instances as low as one-quarter the rate. 3. All Express employees (except executive management and the pilots) lost their pension plan a few years ago and now get (for those under 50), 5% of their annual gross put into a fund controlled by FedEx. By the way, UPS drivers get 13% of the gross (up to 45 hours per week) put into their pension fund. With just these three advantages I listed - keeping all other factors relatively equal between the companies - FedEx Corp should be running away from UPS - it isn't. With labor being the MAJOR component in UPS cost structure, but FedEx's being somewhere in the 40% range for Express - but higher for the Ground segment (not nearly the equipment and fuel overhead) - FedEx should be severely outpacing UPS. It isn't (right now at least). Give it a few years and it will... So... I'll let you reach your own conclusion as to why FedEx isn't running away from UPS. It has the one-two punch of the RLA and the IC/ISP contractor model keeping its wage labor cost very low compared to UPS. Why aren't those savings showing up in the final operating margin? UPS moves volume by air - they seem to create a profit when doing it. A small part of FedEx's problem is duplicated effort - having Ground and Express trucks covering the same territory. But there is no way around this and keep the RLA for Express, while paying the Ground drivers peanuts. It is an expense which FedEx accepts to get what it wants. However, Ground has matured to the point where FedEx is comfortable enough to think about having Ground move some of its Express volume - kicking up the profitability of FedEx Corp. Its time for all those lobbying expenses and perks handed out to start paying for themselves in a big way... The IBT and some of its membership don't see this storm coming their way. Once FedEx is able to start pulling in 10, 12.5 and possibly 15% operating margins once the economy picks up AND FedEx gets part of their restructuring underway, UPS will have no choice but to react - by slashing labor costs themselves in a BIG way. I've stated it many times before on this forum, often times one MUST use inductive reasoning to get a better understanding of what is going on. Often times one can't point to something directly and have that "Eureka" moment, but rather must observe the condition of the whole - then combine that with knowledge which is in black and white to make an accurate assessment. It is definately easier when one has access to non-public information, but the dots can be put together with some observation, analysis and inductive reasoning. So, I'll flip it back on you.... With FedEx Corporation having wage labor costs (combining Express and Ground in the picture) roughly half that of UPS, while having virtually all the other costs being identical - why isn't FedEx mopping up the floor with UPS? Is UPS really that much more efficient than FedEx Corp when it comes to moving volume? I don't think so... I don't have detailed specs in front of me at this moment - so I'll use this thumbnail analysis: Assume Express has TOTAL (salaried & wage) labor cost of 45% of its cost structure. I'm going to make a big assumption for this thumbnail analysis and state that half of it labor cost is wage labor. This would mean that wage labor is roughly 22.5% of total Express cost. UPS has a TOTAL labor cost in the ballpark of 57% or so (again, no hard stats in front of me as I write, this is approximated from recollection). Doing some reverse calculations: Since there are handlers, RTDs - Feeder drivers and others in the wage force of each company, the next assumption is real speculative, but assume that UPS ON AVERAGE pays their wage force roughly 50% more than FedEx Express does. Again, this is across ALL crafts - so particular crafts within each Express and UPS may be paid roughly equivalent compensation, while others may see a difference of upwards of double (typical Express Courier and UPS driver). So if the corporate "game" were to be evened up, Express wage employees would need to have their compensation increased from 22.5% of Express expenses to what would be almost 34% of Express expenses. This would put a dent in Express' final margin of (simple subtraction) 34%-22.5% = 11.5%. Put another way, if Express wage employees were compensated at comparable levels as UPS wage employees, Express' final margin would be - using the data for FY 10... 5.2% - 11.5% = -6.3% I hope some thoughs are racing through your head right now... This is just thumbnail analysis, but it is easy to see that the current profitability of FedEx is due SOLELY to it lower wage employee compensation structure (which has been true since the late 90's, but really started to jump up after the pension expense was slashed). Back to you... There is about 10% missing there. FedEx should have a final margin that is 10 points highter than it is - or even UPS's. This means that somewhere within Express, there is an expense which FedEx is carrying which UPS isn't. UPS has aircraft purchasing expense, fuel expense, technology expense. UPS has expenses for all these items which Express has, and doesn't receive any special pricing. So where is the inefficiency within FedEx? Hint, it is within the business model as structured. [/QUOTE]
Insert quotes…
Verification
Post reply
Home
Forums
The Competition
FedEx Discussions
The Big News
Top