FedEx vs UPS Case

Topics: Stock market, Stock, United States Pages: 8 (1964 words) Published: February 9, 2014

FedEx vs. UPS
Situational analysis
The competition between FedEx and UPS started when Fred Smith came up with the idea, in his undergraduate term paper, to buy planes to ship more cargo to foreign countries and China. Fred Smith, the founder of FedEx, invested $4 million of his inheritance and raised $91 million in venture capital to create FedEx. He founded FedEx in 1971 and in 1973 started the first night of continuous operation. UPS realized that FedEx was on the rise and would soon start outperforming them if they did not find a way to compete with FedEx’s overnight delivery service. Therefore, in 1981 UPS decided they too would follow Smith’s innovative idea and buy their own planes, so they too could be a part of the overnight shipping market. They also tried to gain an advantage over FedEx by lowering their letter price to half of FedEx’s. However, FedEx’s overwhelming market control in the overnight delivery service in China made it seemed that UPS would never gain the competitive advantage.

China decided to make an agreement with FedEx and UPS which allowed them fly cargo between the U.S. and China. The agreement also allowed the institution of air-cargo hubs in China and landing right at any Chinese airport. These two postal services shared the entire market in China. China could only allocate so many flights between the two firms. This spawned a competition and an even greater rivalry between these two firms, since China was a huge source of income for the two. The question being asked here is which of these two firms should China pick and how should they allocate their cargo routes among these two, given their brief history and statistical evidence. Also, which company was better positioned to attract the capital necessary to win this competitive battle? In order to find this out, China would need an understanding of the two firms’ competitive strategies and some financial historical evidence. Alternatives, including the analysis of these alternatives.

These two firms history give a good picture of where they lack and where they are strong financially. Since, FedEx innovated the overnight delivery service with their purchase of a group of Boeing 747’s, they gained a huge competitive advantage over UPS and China was aware of this. Once the overnight delivery service by air information was leaked, both of their stock price rapidly increased and FedEx’s share price nearly doubled UPS’s. FedEx’s share prices rose this fast due to their well-known competitive advantage in the overnight delivery service field. FedEx also gained the upper hand in China and were flying eleven cargo planes to china a wee; almost twice as many flights as UPS. This is one strength and reason FedEx’s growth increased so rapidly, due to its large foreign presence in China.

Although UPS did not have the competitive advantage in the overnight delivery service, they were still the most dominant delivery service in America and they were the first to offer nonstop delivery service to China. They had their foot in the door first in China, however, they lacked the innovative idea that smith came up with. Although they did not have the competitive advantage in the overnight delivery service they still had the advantage in America and they were still the leading provider of logistics and supply-chain management. Their biggest strength was America and on ground services, but what they lacked was a greater foreign presence in China.

There are a couple of strategies UPS could use that may increase their presence in China. In order to come up with strategies, we need to find what UPS was lacking over FedEx throughout history. What UPS needed in China was their own air service. FedEx had already established their own air service there which allowed them to be more logistically versatile. UPS also had less brand awareness in China, since they did not have many “brown” trucks shipping their cargo off...
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