Parcel delivery giants UPS and FedEx have long been synonymous with the efficient and reliable transportation of packages across the United States and around the world. However, recent challenges with labor negotiations and the broader economic landscape have had a significant impact on their performance. In this blog post, we will delve into the current performance of UPS and FedEx, shedding light on the factors that have led to their varying results.
As expected, UPS has experienced a decline in parcel volume, which has had a negative impact on its earnings. This decline in volume can be attributed to several factors, including labor negotiations and the state of the economy as the primary culprits.
Labor Negotiations: Labor negotiations between UPS and its workforce have been a hot topic in recent years. Disputes over wages, working conditions, and benefits have resulted in disruptions in the company’s operations. Threats of a strike during labor negotiations shifted volume to competitors to ensure capacity in the case of a strike. UPS announced on July 25, 2023 that they would raise wages for all workers in a five-year landmark agreement. According to CEO Carol Tomé, UPS drivers will average $170,000 in pay and benefits at the end of the five-year deal.
State of the Economy: The broader economic climate has also played a role in UPS’s performance. Economic downturns after the COVID-19 pandemic have led to reduced consumer spending and business activity. This, in turn, has translated into fewer packages being shipped, further impacting UPS’s volume and earnings.
Comparatively, FedEx has fared slightly better in terms of its parcel volume and overall performance. While it has also experienced a decline in parcel volume, the extent of the decrease is slightly less severe than that of UPS.
Parcel Volume: FedEx reported a decrease in US domestic volume of 8.4% for its fiscal year ending on May 31. This decline is certainly significant, but is notably lower than UPS’s 9.9% decrease during the same period. FedEx’s ability to mitigate the volume decline can be attributed to its operational flexibility and a more favorable labor environment.
Operational Flexibility: FedEx struggled during the pandemic with service levels and has yet to fully recover to pre-Covid service reliability. The announcement that Express and Ground service centers will be consolidated will likely result in continued service disruptions for business and consumer customers.
Labor Relations: The FedEx contractor model differs from UPS. Unlike UPS drivers, who are company employees, FedEx Ground drivers are employed by independent contractors. The lower-cost FedEx Ground model has been instrumental in FedEx becoming a force in ground delivery since it entered the business in 1998. It has also provided temporary protection from union-led wage negotiations. One of the downsides of this model is high driver turnover, which can typically result in lower service levels and accountability.
How it Impacts You
In summary, both UPS and FedEx have faced challenges in their parcel delivery operations due to labor negotiations and economic factors. However, FedEx has managed to weather the storm slightly better, with a smaller decline in parcel volume compared to UPS.
Rate increases from both UPS and FedEx were just announced at 5.9% on base rates, which will impact shippers across the board. Assessorial rate increases have historically been significantly higher than base rate increases, with the top surcharges increasing 14% on average year over year. It can be hard to uncover this kind of change without the proper tools in place. Contracts favor carriers, making it difficult to analyze the real impact of a rate increase, labor negotiation, or parcel carrier economic performance. ConData’s clients are protected by using a combination of analytics, consultation, and contract negotiation services.
It’s worth noting that the parcel delivery industry is highly dynamic, and these challenges are not insurmountable. Our audit and contract negotiation services are particularly essential for shippers navigating national and regional carrier relationships – we can help you get the best outcome. Please get in touch with a representative at ConData via www.condata.com/contact-us/ to learn more to improve your parcel outcomes today.