UPS vs. FDX

[UpstateNYUPSer(Ret)]

I am of the mindset, however, that no debt brings the level of RISK to zero.If you owe no one, you answer to no one. I carry this philosophy in my personal life. One cannot imagine this strength, unless you have no payments. I realize UPS is big and complicated and successful and has lots of money. BUT, right now, UPS has notable payments and its strength is weakened.

This is a feeling that I hope to be able to enjoy by the end of 2010, thanks to Dave Ramsey's guidance and a lot of hard work and sacrifice on my part.

 

[I GOT ONE MORE]

This is a feeling that I hope to be able to enjoy by the end of 2010, thanks to Dave Ramsey's guidance and a lot of hard work and sacrifice on my part.

You are spot on. I have not had a car payment since 1996. But, I have been hearing this Dave Ramsey guy for a couple three months now and have been on to something. Solid advice. Everyone should notice this man and his show.

But, I am not quite sure what a couple three is......

 

[bbsam]

This was only for one fiscal year. The issue is far from being resolved.

Yes, for only one year, but they've done the same thing regarding several years. First 2002, then 04-06, all with the same effect. I believe they are still looking at 08.

 

[clueless]

Around 2000 there was an article in Business Week about UPS and FDX and thier differences. Among the things they discussed in the article, like the cost per package to deliver a package, and at that time are cost was half of the expense that FDX was. They also described UPS as a "cash cow". You see they said that UPS can borrow money at a smaller interest then they recieve from keeping thier liquid cash in savings. Simply put it actually cost UPS money to spend thier own money versus borowing someone elses money. I wish I knew the excact date the article came out, but it was quite an intersting read, and quite informative.

One of the main factors in determining a company's credit rating and therefore its cost of debt is a ratio called 'interest coverage'. This is earnings (EBIT) divided by interest expense. So, the higher the level of debt, the higher the interest expense, the lower the interest coverage, the lower the rating, therefore the higher the cost of debt. While UPS may have enjoyed favorable rates at the time of the debt issuance, there is no guarantee those favorable rates will exist when the debt needs to be refinanced. In fact UPS' debt was downgraded following the debt issuance. Keep in mind at the time UPS offered the notes creating the current debt levels, the economy was fairly normal--January 2008. Times have changed, quite obviously. The cash-generation abilities of most companies aren't what they used to be, UPS included. As the fineprint in the investor-oriented ads always warns 'past performance does not guarantee future results.'

The need to refinance the capital structure at less favorable rates is a risk worth noting. In addition to the refinancing risk, there is the risk (albeit low, in this case) of default. You see, bankruptcy is triggered by one thing and one thing only--the inability to pay creditors. The more you owe, the higher the risk of bankruptcy. Owe no one, and no chance of bankruptcy. Of course, there is always someone to pay, even without long-term debt--current accounts payable, for example. But simply put a more-levered UPS is more at risk.

As far as the company's choice of debt financing vs. equity financing--there is a prominent view (from Modigliani & Miller) that capital structure is irrelevant. Because debtholders are ahead of equityholders in terms of being paid, the cost of debt (based on risk) is always lower than cost of equity (equity holders require greater return to offset more risk). Therefore, a higher proportion of low-cost debt in the capital structure does not lower a company's total cost of financing since the presence of that debt creates an increase in the cost of equity.

BTW--I believe this is the BusinessWeek article to which you are referring:

http://www.businessweek.com/magazine/content/01_21/b3733084.htm

It's from May 2001- a bit outdated, so I would not assume it reflects current conditions, but yes, an interesting read nonetheless.

 

[IWorkAsDirected]

I choose to disagree with your assumtion of why UPS wanted control of the pension. If you recall that only a few years earlier the Teamsters had just gotten control of thier books back from the government due to thier mis-management of thier finances. How ever with this all said we should quickly point out the global expansion that UPS has undertaken since the IPO. This all cost money and you cant ignore the finale tally that will be put upon FDX when thier IRS problems are finally drawn out.

I guess we'll continue to disagree, what happened right after the strike? They didn't get the pension money so they went public to raise the cash

 

[hdkappler]

Hey Satellite Driver. Is it OK if I respond to this thread, or are you going to get your panties in a knot? I'll guess it's OK, and then wait for you to slap me down (as usual) for daring to cross-over into "your" forum.

Historically, UPS has been cash-rich and FedEx cash-poor. We have to finance it while UPS just pulls-out the checkbook. This is amazing, because everyone "knows" that a heavily unionized company can't possibly succeed while paying excellent wages and benefits....it just can't be done. Maybe it's because one company is much better managed than the other one and those "lazy" Teamster workers are actually extremely productive. Nah...that can't be it.

if it was up to me fedx shouldn't be on brown cafe(unless they join the union).you have no job security,retirement etc.ground drivers buy there own trucks.the union nationation wide needs to sent an information line in front of all fedx centers.

 

[UpstateNYUPSer(Ret)]

if it was up to me fedx shouldn't be on brown cafe(unless they join the union).you have no job security,retirement etc.ground drivers buy there own trucks.the union nationation wide needs to sent an information line in front of all fedx centers.

I happen to enjoy most of the input from our Purple friends, especially bbsam, as they give me an insight that I would not normally be given, so I disagree with you there. Don't you find it a bit ironic that it is their non-Union status that is beginning to give them a competitive edge over us, especially in terms of labor cost? In a down ecomony, price will almost always win over service. I can't count how many potential sales leads I have submitted that have been closed as we are simply not competitive on price.

An informational picket will simply be a waste of time until the RLA exemption issue is resolved.

 

[Brown287]

One of the main factors in determining a company's credit rating and therefore its cost of debt is a ratio called 'interest coverage'. This is earnings (EBIT) divided by interest expense. So, the higher the level of debt, the higher the interest expense, the lower the interest coverage, the lower the rating, therefore the higher the cost of debt. While UPS may have enjoyed favorable rates at the time of the debt issuance, there is no guarantee those favorable rates will exist when the debt needs to be refinanced. In fact UPS' debt was downgraded following the debt issuance. Keep in mind at the time UPS offered the notes creating the current debt levels, the economy was fairly normal--January 2008. Times have changed, quite obviously. The cash-generation abilities of most companies aren't what they used to be, UPS included. As the fineprint in the investor-oriented ads always warns 'past performance does not guarantee future results.'

The need to refinance the capital structure at less favorable rates is a risk worth noting. In addition to the refinancing risk, there is the risk (albeit low, in this case) of default. You see, bankruptcy is triggered by one thing and one thing only--the inability to pay creditors. The more you owe, the higher the risk of bankruptcy. Owe no one, and no chance of bankruptcy. Of course, there is always someone to pay, even without long-term debt--current accounts payable, for example. But simply put a more-levered UPS is more at risk.

As far as the company's choice of debt financing vs. equity financing--there is a prominent view (from Modigliani & Miller) that capital structure is irrelevant. Because debtholders are ahead of equityholders in terms of being paid, the cost of debt (based on risk) is always lower than cost of equity (equity holders require greater return to offset more risk). Therefore, a higher proportion of low-cost debt in the capital structure does not lower a company's total cost of financing since the presence of that debt creates an increase in the cost of equity.

BTW--I believe this is the BusinessWeek article to which you are referring:

http://www.businessweek.com/magazine/content/01_21/b3733084.htm

It's from May 2001- a bit outdated, so I would not assume it reflects current conditions, but yes, an interesting read nonetheless.

Thank you, I knew someone would find it. I remember to this day that I was delivering to a Dentist on my route and there was the magazine sitting on thier counter and I actually(don't tell management) sat down and read it completely in thier office. I agree that conditions have most surely changed a bit but I would still bet on Brown. I agree that Im a little bias but there are a lot of long term fundamentals that point in UPS favor. Besides Warren Buffett is UPS B shares single largest holder, and he's considered the smartest investor on earth.

 

[MrFedEx]

if it was up to me fedx shouldn't be on brown cafe(unless they join the union).you have no job security,retirement etc.ground drivers buy there own trucks.the union nationation wide needs to sent an information line in front of all fedx centers.

All Express workers are true employees, with benefits (lousy), decent job security, and a pretend pension plan (the PPP). Ground drivers are all contractors, with no benefits at all. I don't know the arrangement for hub and sort center employees at Ground.

Believe me, some of us are trying very hard to get a union over here, and management is trying even harder to keep it out.

While I fully understand that there are still plenty of BC members who resent any purple presence on this site (including some moderators), I think we have a lot more in common than you might think.

Please remember, that FedEx Express shamelessly copied most UPS policies verbatim, hired a bunch of ex-UPS managers to run it, and then duplicated your ground system with FedEx Ground. In my 20+ years at FedEx, I have had about a dozen managers who were ex-UPS. In my case, I've actually worked for UPS, so I can say (IMO) that, other than the union, the differences aren't that vast.

 

[overallowed]

Don't you find it a bit ironic that it is their non-Union status that is beginning to give them a competitive edge over us, especially in terms of labor cost? In a down ecomony, price will almost always win over service. I can't count how many potential sales leads I have submitted that have been closed as we are simply not competitive on price.

An informational picket will simply be a waste of time until the RLA exemption issue is resolved.

I don't know that their lower labor cost, where it might give them a little extra consideration, is a deal-closer. DHL had a non-union, low cost business model, and they are no longer a player in the US market. FedEx ground is simply unable to provide our level of service. I have a industrial park on my route that another driver delivers to in the morning and I pickup in the evening. When I am picking up between 4-5, FedEx ground is making deliveries. Every place says it is like waiting an extra day to get packages. Some of the businesses moved over to FedEx as soon as they took over RPS, but came right back as a result of this practice.
Price is not everything. Sometimes you get exactly what you pay for.

 

[Brown287]

I don't know that their lower labor cost, where it might give them a little extra consideration, is a deal-closer. DHL had a non-union, low cost business model, and they are no longer a player in the US market. FedEx ground is simply unable to provide our level of service. I have a industrial park on my route that another driver delivers to in the morning and I pickup in the evening. When I am picking up between 4-5, FedEx ground is making deliveries. Every place says it is like waiting an extra day to get packages. Some of the businesses moved over to FedEx as soon as they took over RPS, but came right back as a result of this practice.
Price is not everything. Sometimes you get exactly what you pay for.

I would have to agree with you on this, I have had afew companies move to FDX and most have come back. The ones that have not have no say in the matter as it was a coparate decision but they are very un-sattisfied with the level of service they get from FDX. I know we have are issues as a company but you cant deny the fact that are service is much better and obviously that fact resignates with the vast majority of our customers.

 

[MrFedEx]

I would have to agree with you on this, I have had afew companies move to FDX and most have come back. The ones that have not have no say in the matter as it was a coparate decision but they are very un-sattisfied with the level of service they get from FDX. I know we have are issues as a company but you cant deny the fact that are service is much better and obviously that fact resignates with the vast majority of our customers.

Exactly. The FedEx salesperson comes in and lures the shipper away with a promise of lower rates and excellent service. When FedEx Ground shows-up, they're not timely, the driver looks like Charlie Manson,his truck looks like it belongs in Iran, and the service sucks. In the meantime, UPS, with their spotless truck, professional driver, and for-real excellent service starts looking pretty good, even if they cost a bit more.

Professionalism and great service always resonate with the customer, and that's why it's worth it for most of them to switch back. FedEx doesn't seem to understand that empty promises come back to bite them in the butt.

 

[hdkappler]

I happen to enjoy most of the input from our Purple friends, especially bbsam, as they give me an insight that I would not normally be given, so I disagree with you there. Don't you find it a bit ironic that it is their non-Union status that is beginning to give them a competitive edge over us, especially in terms of labor cost? In a down ecomony, price will almost always win over service. I can't count how many potential sales leads I have submitted that have been closed as we are simply not competitive on price.

An informational picket will simply be a waste of time until the RLA exemption issue is resolved.

why does ups have to raise there rates ever year.

 

[Dis-organized Labor]

why does ups have to raise there rates ever year.

Uh, to make more money?????

 

[Signature Only]

This was only for one fiscal year. The issue is far from being resolved.

Sounds like good old fashioned Washington politics to me. Someone made a big payoff or called in a marker.

 

[Signature Only]

Exactly. The FedEx salesperson comes in and lures the shipper away with a promise of lower rates and excellent service. When FedEx Ground shows-up, they're not timely, the driver looks like Charlie Manson,his truck looks like it belongs in Iran, and the service sucks. In the meantime, UPS, with their spotless truck, professional driver, and for-real excellent service starts looking pretty good, even if they cost a bit more.

Professionalism and great service always resonate with the customer, and that's why it's worth it for most of them to switch back. FedEx doesn't seem to understand that empty promises come back to bite them in the butt.

I agree. One of my customers uses Fed-ex because one of the partners personally knows the driver. They also have a daily UPS pickup. There has been an outbound FedEx package sitting in their office for a week. And this is not unusual.

 

[hdkappler]

All Express workers are true employees, with benefits (lousy), decent job security, and a pretend pension plan (the PPP). Ground drivers are all contractors, with no benefits at all. I don't know the arrangement for hub and sort center employees at Ground.

Believe me, some of us are trying very hard to get a union over here, and management is trying even harder to keep it out.

While I fully understand that there are still plenty of BC members who resent any purple presence on this site (including some moderators), I think we have a lot more in common than you might think.

Please remember, that FedEx Express shamelessly copied most UPS policies verbatim, hired a bunch of ex-UPS managers to run it, and then duplicated your ground system with FedEx Ground. In my 20+ years at FedEx, I have had about a dozen managers who were ex-UPS. In my case, I've actually worked for UPS, so I can say (IMO) that, other than the union, the differences aren't that vast.

you worked for 12ex-ups managers?wonder how many of them were fired from ups?looks like fedx ground was organized by ups waste.

 

[klein]

Believe me, some of us are trying very hard to get a union over here, and management is trying even harder to keep it out.

While I fully understand that there are still plenty of BC members who resent any purple presence on this site (including some moderators), I think we have a lot more in common than you might think.

No, you keep on posting. Never know fedex might be my new job.
Besides, we been here before.
Most do love your input, and we get to know how the grass grows on the other side .

Don't worry, be happy !

 

[BLACKBOX]

When FedEx Ground shows-up, they're not timely, the driver looks like Charlie Manson,his truck looks like it belongs in Iran, and the service sucks. In the meantime, UPS, with their spotless truck, professional driver, and for-real excellent service starts looking pretty good, even if they cost a bit more.

I just don't get this guy, always slamming FDX , then follows up by saying what a great company UPS is. His posts make me sick. Everytime someone something bad to say about FDX here come Mr. FDX to put his two cents in.

He adds nothing to this forum thats worth anything. How about stop being so kissy assy and start posting stuff thats relavant.

 

[klein]

I just don't get this guy, always slamming FDX , then follows up by saying what a great company UPS is. His posts make me sick. Everytime someone something bad to say about FDX here come Mr. FDX to put his two cents in.

He adds nothing to this forum thats worth anything. How about stop being so kissy assy and start posting stuff thats relavant.

You got a point there blackbox.
If I had so much hatred towards a company I worked for, I would quit.
My former fedex roomie loved her job.

The grass isn't always greener on the other side.