Sheet1Case Study FedEx and UPS-- The War ContinuesPlease note tha.docx

Sheet1Case Study: FedEx and UPS-- The War ContinuesPlease
note that there are dozens of points you can add to these
columns from the FedEx UPS Case Study. Below are just a few
to give you better
context.IndustryConsumerCompetitionInternalPoliticalB2B-
large, small/SMB, online merchantsFedExGave PC software to
customers for easier customizationChanging political
situation/tension between Taiwan and China Domestic and
international2000- Spent $1.3B on information tech2000- IT
expenditure in billion $ range1997- Launched software for
presence on the internet and into the field of ecommerce.1996-
Invested in package handling websiteEconomicB2C- online,
phonecall, partnership w/ websites.1998- Began distributing
APIs1997- Agreements with Infoseek, Lycos, Yahoo for greater
reach to customersRapid increase of e-commerce1999- Deal
with Netscape 1997-Developed series of APIs for better
intergration with ecommerce systems with IBM, Pandseic, SAP,
Icat, Harbinger, Lotus, MicroageCustomers like the option to
tailor and customize to their needs. 1999- Launched FedEx
MarketPlace providing customers better access to online
merchants2002- Advanced e-commerce infrastructure allowing
beter customer serviceSocial1995- Introduced CRP for increase
in employee productivity1996- Introduced scanning system for
increase in employee productivity and services offered People
getting comfortable with technologyTechnologyInformation
Tech becoming an important criteria to functionLegalNo foreign
company may own more than 25% of a US airlineEnvironmental
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This case was prepared by Jeanna Composit (MBA ’03) under
the supervision of Robert E. Spekman, Tayloe Murphy
Professor of Business Administration. It was written as a basis
for class discussion rather than to illustrate effective or
ineffective handling of an administrative situation. Copyright
Foundation, Charlottesville, VA. All rights reserved. To order
copies, send an e-mail to [email protected]
No part of this publication may be reproduced, stored in a
retrieval system, used in a spreadsheet, or transmitted in any
form or by any means—electronic, mechanical, photocopying,
recording, or otherwise—without the permission of the
Darden School Foundation.
FEDEX AND UPS—THE WAR CONTINUES
As the competition between Federal Express (FedEx) and
United Parcel Service (UPS)
escalated over the years, consumers reaped the benefits of
faster, cheaper services. The fierce
rivalry between these two companies seemed to change
direction in the mid-1990s as
opportunities to appear innovative became increasingly difficult
to achieve. Both FedEx and
UPS realized that significant changes in the way they
approached their businesses were needed.
These changes came largely in the form of information
technology, which became one of the
differentiating factors between these two powerhouses. By
enabling customers to control their
access to information, FedEx and UPS created a new

battleground, while continuing to compete
on the ground, in the air, overseas, and through a number of
expanded service offerings.
Analysts’ fear that the market would become saturated seemed
to become a reality in
1999, as FedEx’s profits plummeted while UPS saw its second
most profitable year in company
history. FedEx’s troubles, however, were somewhat short-lived,
and in a surprising resurgence
due mainly to growing ground operations, FedEx was seeing
record earnings once again by
2002.1
Information Technology
Mass customization and the World Wide Web
In the mid-1990s, mass customization provided a competitive
tool for FedEx and UPS,
thereby giving customers the ability to tailor options to their
specific needs. In 1995, FedEx and
1FedEx Annual Report, 2002.
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2019.
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UPS gave away PC software to their customers, which allowed
them to make labels, schedule
pickups, and track shipments.2 In 1995, Oz Nelson, former
chairman of UPS, commented:
It’s becoming popular now to talk about mass customization. I
thought it was
impossible . . . how can you pick up from 1.35 million
customers a day and
deliver 12 million packages a day and talk about any kind of
customization? But
I found out you can. One way is with technology.3
As Nelson suggested, technology became the key player in mass
customization, but more
specifically, information technology would play the defining
role. Frederick W. Smith, founder
and CEO of FedEx, predicted the importance of the delivery of
information as early as 1979
when he said, “information about the package will soon be just
as important as the delivery of
the package.”4 By 2000, FedEx was spending $1.3 billion
annually on information technology.5

UPS’s expenditures were also in the billion-dollar range.
By the mid-1990s, FedEx and UPS found themselves in the
midst of a “virtual” online
war. FedEx beat UPS to online tracking in 1995, but UPS leap-
frogged FedEx to the market in
March 1996 when the company rolled out a Web site capable of
handling package scheduling
and pickup from beginning to end, with payment made off-
line.6 FedEx retaliated by offering a
Web site where customers could complete all shipping
functions, including creating shipping
labels, calculating costs, and scheduling pickups without using
the telephone before UPS could
offer the same functions on its own Web site.7 By early 1997,
FedEx also introduced both FedEx
internetShip and BusinessLink software, increasing their
presence on the World Wide Web.
FedEx internetShip processed transaction data over the Internet,
thus eliminating all paperwork,
and contacted the courier to pick up the shipment.8 The
introduction of BusinessLink software
marked FedEx’s entrance into the burgeoning field of e-
commerce.9
UPS also harnessed the Web and became as pervasive on the
Internet as its brown trucks
were on the streets. In 1997, the company became more widely
available to its customers
through agreements with Infoseek, Lycos, and Yahoo to locate
package drop-off centers and
download UPS OnLine Tracking software.10 UPS announced
that they were working with
companies like IBM, Pandesic, SAP, Icat, Harbinger, Lotus, and

Microage to develop a series of
2Marc Rice, “Competition Fierce in Complex Business of
Delivering Package,” Marketing News (May 22,
1995): 5.
3Rice, 5.
4Steve Ulfelder, “35 Years of IT Leadership: Signed, Sealed
and Delivered,” Computerworld (September 30,
2002): 50.
5Susan Avery, “Transforming IT Sourcing Delivers Savings for
FedEx,” Purchasing (January 13, 2000): 121.
6Kim S. Nash, “Overnight Services Duke It Out On-Line,”
Computerworld (April 22, 1996): 1.
7Kristin S. Krause, “Battle for Cyber Space,” Traffic World
(April 19, 1999): 56.
8Pedro Pereira, “FedEx Opens Doors to World,” Computer
Reseller News (February 17, 1997): 248.
9Douglas Blackmon, “FedEx Plans to Establish a Marketplace
in Cyberspace—Shipper Aims to Deliver the
Goods As It Moves Into Internet Commerce,” Wall Street
Journal, 9 October 1996, B3.
10“UPS Strikes Deals with Three Internet Companies,” Direct
Marketing (April 1997): 8.
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application programming interfaces (APIs), which would
connect the company to other
companies’ e-commerce systems more efficiently.11 FedEx was
determined not be left behind
and began distributing its own APIs approximately one year
later. By 1999, UPS was using
APIs to provide UPS OnLine Tools, which allowed online
merchants to put their features,
including tracking and rating, directly on their Web sites.12
Tim Zach, director of electronic commerce for UPS, stated, “we
want to empower the
buyer and give them the capabilities they need for self-
service.”13 Not surprisingly, one year
later, FedEx incorporated its own APIs into a suite of products
aimed at streamlining the process
of connecting FedEx’s shipping, tracking, and rating
information, as well as its e-mail
notification capabilities, to online merchants’ Web sites.14
Amidst the explosion of e-commerce and the resulting scramble
to gain a piece of the
market, FedEx and UPS continued the race to link their tracking
capabilities and online shipping
tools all over the Web. FedEx struck a deal with Netscape in
1999 to be its exclusive

transportation provider15 and also launched FedEx
MarketPlace, which provided customers with
direct access to online merchants who used FedEx to deliver
their products.16 In another effort to
link online consumers to its services, FedEx began offering
small- and medium-sized companies
the ability to build an online store through FedEx in 2000.17
UPS, too, was busy linking its services to the World Wide Web.
By 2001, UPS’s
tracking system was linked to over 60,000 Web sites, which
allowed customers to locate
packages without needing to access the UPS Web site.18 By
2002, UPS had built a world-class e-
commerce infrastructure, enabling the company to “upgrade
their 60 customer service telephone
centers so information could be scanned and ready for the 7000
customer service representatives
whenever it was needed,” eliminating $450,000 in costs each
day.19
Other technological advancements
Both companies also turned their attention to improving
technology used in their internal
operations. In 1995, FedEx introduced a new Courier Route
Planner (CRP), which improved
11Matthew Nelson, “UPS to Deliver I-commerce
Infrastructure,” InfoWorld (September 15, 1997): 1.
12Kathleen Hickey, “UPS Debuts OnLine Tools,” Traffic World

(April 12, 1999): 36.
13Hickey, “UPS Debuts OnLine Tools.”
14Jennifer Baljko Shah, “FedEx Readying Product Suite to
Provide Package Tracking—Service Claims Ship
Manager Line Enhances SC Visibility,” EBN (September 11,
2000): 82.
15Krause, “Battle for Cyber Space.”
16Linda Rosencrance, “FedEx Creates Online Shopping
Marketplace,” Computerworld (November 22, 1999):
18.
17Rick Brooks, “FedEx to Launch Service That Allows Small
Companies to Build Online Stores,” Wall Street
Journal, 12 June 2000, A6.
18Rick Brooks, “E-Commerce (A Special Report): Industry by
Industry—Overnight Delivery—Outside the
Box: The Giant Package-Delivery Firms Looked Like They
Might Be a Dying Breed; Not Even Close,” Wall Street
Journal, 12 February 2001, R20.
19Janet Perna, “Reinventing e-business,” Executive Excellence
(January 2002): 17.
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employee productivity. The system used geographic
information technology to calculate the
most efficient delivery and pickup routes, helping ground
workers decrease the number of miles
covered per parcel delivered. UPS also increased employee
productivity in 1996 with the
wearable, ring-shaped bar code scanning system provided by
Symbol Technologies. These
scanners allowed workers to scan packages at a quicker rate and
gave UPS the ability to offer its
customers new services, such as the option to re-route packages
that had already been sent.20
FedEx responded by improving its own bar code SuperTracker
scanning system that
enabled couriers to scan packages faster and begin delivery
routes quicker. In 2001, FedEx
continued to wring productivity improvements out of employees
with the deployment of its
worldwide Local Area Network (LAN)21 that utilized wireless
technology on the hub ramp to
make scanning easier and faster. Later that year, UPS not only
announced plans to deploy its
LAN network to date, but also revealed plans to establish a
short-range wireless Bluetooth
network that would replace the need for the sorters’ wearable
computers and eliminate the
troublesome cords that often broke or interfered with the
scanning process.22 UPS also

introduced the fourth version of its Delivery Information
Acquisition Device (DIAD IV), which
incorporated “new radio technology, expanded memory, and a
color screen,” ensuring that UPS
drivers had access to the most current package information.23
Corporate Transformation
UPS: initial public offering
On November 10, 1999, UPS issued the largest ever initial
public offering (IPO) in U.S.
history to date when the company issued 109.4 million shares
valued at $5.47 billion and
watched the stock rise more than 40 percent in the first few
hours of trading before settling down
to a 35 percent gain.24 At the end of the first day of trading, its
shares were selling for $67.25, up
$17.25 from the offering price. On the same day, FedEx stock
fell 75 cents to $43.25, and
Airborne Freight managed to climb only 6.25 cents to $23.9375.
Based on the New York Stock
Exchange’s closing price, the market valuation of UPS stock
was $80.9 billion, which was more
than six times FedEx’s market capitalization of $12.9 billion.25
UPS planned to use the proceeds
of its IPO to buy back internal shares, providing it with the
opportunity to make acquisitions with
stock as opposed to cash.
20Gary Forger, “First Major Roll Out of Ring Scanners Delivers

for UPS,” Modern Materials Handling (March
1997): S6.
21Bob Brewin, “UPS to Deploy Bluetooth, Wireless LAN
Network,” Computerworld (July 23, 2001): 8.
22Brewin, “UPS to Deploy Bluetooth, Wireless LAN Network.”
23“UPS Gears Up for Switch to Next-Generation Hand Helds,”
Frontline
Solution
s (July 2003): 34.
24Rick Brooks and Douglas A. Blackmon, “UPS Shares Post
35% Rise in Record IPO,” Wall Street Journal, 11
November 1999, A3.
25Brooks and Blackmon, “UPS Shares Post 35% Rise in Record
IPO.”
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In early 2001, UPS used its stock for the first time to make an
acquisition. In a deal
valued at $431 million, the company agreed to acquire Fritz
Companies, an air and ocean freight
forwarding, customs brokerage, and warehousing operation.26
Fritz Companies was renamed
UPS Freight Services. According to Satish Jindel, principal of
Pittsburgh-based SJ Consulting:
What UPS is saying with the acquisition is, “You already use us
for your express
and parcel needs, and we don’t want you to go anywhere else
for any
transportation requirements.” They are like a grocery store that
started off only
selling produce but then added a meat counter, a drug store, a

bank, a video rental
counter, a dry cleaning service, and so on. These are all stops
consumers, or in
their case, shippers, have to make.27
In the same week, UPS also agreed to acquire First International
Bancorp for $78.7
million in stock, which gave the company the ability to provide
government-backed loans to
small- and medium-sized businesses.28 UPS continued to make
acquisitions that totaled 22 by
March 2003.
UPS: acquisition of Mail Boxes Etc.
Working to improve services to small and home-based
businesses, UPS made one of its
more notable acquisitions in March of 2001.29 In an all-cash
deal valued at $191 million, UPS
acquired Mail Boxes Etc. (MBE)—the largest shipping retail
outlet in the country—that

provided packing, shipping, and mail services. At the time,
MBE was shipping more than 40-
million packages a year, 43 percent of which were being
shipped via UPS. After the deal closed,
the stores continued to offer shipping services through other
carriers such as the United States
Postal Service (USPS) and FedEx.
In 2003, FedEx announced plans to stop conducting business
with the former Mail Boxes
stores, which were now UPS Stores, claiming that they no
longer represented a “true multi-
carrier environment.”30 Besides the name change, UPS also
offered price cuts of approximately
20 percent to its customers, hoping that the lower prices would
attract more business. UPS,
however, met resistance from some MBE franchisees that
announced plans to bring a class-
action suit against them charging that the move to eliminate the
MBE brand would hurt
franchisees.31 Specifically, “MBE franchisees [were] worried
about falling profits, loss of brand
identity and loss of franchise territorial protection.” They also
argued that the mandated lower

26“UPS Agrees to Pay $431 Million in Stock For Freight Firm
Fritz,” Wall Street Journal, 11 January 2001, 10.
27Kristin S Krause, “UPS Buys Fritz for $450M,” Traffic World
(January 15, 2001): 10.
28“United Parcel Service Inc. to Acquire First Int’l Bancorp for
1.47 Times Revenue,” Weekly Corporate
Growth Report (January 29, 2001): 11143.
29Ann Carrns, “UPS Will Purchase Mail Boxes Etc. in Bid To
Expand Services,” Wall Street Journal, 5 March
2001, B7.
30Jeff Bailey, “Enterprise: Big Companies Hold Promise, Risk
as Allies—For Mail Boxes Owners, Name
Change by UPS Means No More FedEx,” Wall Street Journal, 8
April 2003, B2.
31“Mail Boxes Etc. Franchisees Want to Block UPS Plan,”
Journal of Commerce (February 24, 2003): 1.

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UPS Store rate would not bring in enough new business to make
up for the loss of both FedEx
and USPS business. Andrew Palmer, a lawyer representing
MBE, stated, “This conversion does
nothing to help MBE franchisees and everything to increase
UPS profits at the expense of
MBE.”32 Despite this resistance, 90 percent of MBE
franchisees (approximately 3,000 stores)
agreed to make the name change, which proved to be successful
because, in the words of reporter
Connie Robins Gentry, “Although the franchisees make less
money per transaction with the

lowered UPS rates, they more than make up the difference
through increased shipping volumes.33
FedEx did not respond until early winter 2003 when it
purchased Kinko’s for $2.5 billion,
a purchase that gave FedEx greater reach into the retail
marketplace. While many believe the
price was steep, there was general agreement that the fit was
good and positioned FedEx in
Kinko’s growth in digital services and its place as an “office
away from home” for the traveling
executive. This combination of services made the two
companies a one-stop office. In addition,
the 1200 locations supplemented FedEx’s surface business by
giving the company a much larger
footprint.
UPS: advertising campaign and equipment purchases
In the spring of 2002, UPS spent approximately $46 million
advertising its new tag line,
“What can Brown do for you?”34 UPS advertising spokesman,

Steve Holmes, indicated that the
new marketing blitz was a response to consumer perception that
UPS was only a ground carrier
for small packages.35 The new campaign focused on all of the
services UPS could provide
customers, including a wide range of logistical ones. UPS
credited the new advertising
campaign with helping them land some major accounts, which
included “a contract from Nikon
outsourcing distribution of its entire digital camera business to
UPS.”36
In a deal with Airbus Industrie back in 2001, UPS agreed to
purchase 60 cargo-carrying
A300-600 aircraft valued at $6 billion—the largest order in UPS
history.37 This purchase helped
UPS continue to chip away at FedEx’s lead in the express air
shipment business. UPS had
already taken measures in 1997 to better compete with FedEx in
air delivery with plans for an
$860 million expansion of its primary hub in Louisville,
Kentucky.38 After the IPO, UPS
continued to pour money into the new hub, dubbed Hub 2000,
which was finally completed in

mid-2002. The expanded hub virtually doubled the UPS sorting
capacity to 300,000 packages an
hour. The near billion-dollar project was the largest capital
expenditure UPS had made to date.
32“Mail Boxes Etc. Franchisees Want to Block UPS Plan.”
33Connie Robbins Gentry, “Building on Brand Awareness,”
Chain Store Age (July 2003): 36.
34John D Schulz, “Big Brown Buffs its Image,” Traffic World
(February 18, 2002): 31.
35Ed Lawler, “19th Annual Sawyer Awards: Integrated
Campaign Runner-Up: United Parcel Service of
America,” B to B (December 9, 2002): 21.
36Dale Buss, “Up with Brown,” Brandweek (January 27, 2003):
16.
37Rick Brooks and Jeff Cole, “UPS to Buy 60 Cargo Jets From
Airbus,” Wall Street Journal, 10 January 2001,
A3.
38Douglas A. Blackmon, “Business Brief: UPS to Expand Its
Primary Hub As Battle With FedEx Heats Up,”
Wall Street Journal, 22 December 1997, 1.

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FedEx loses battle
After UPS’s historic IPO, FedEx watched the company’s
earnings soar as it spent
lavishly on acquisitions, better aircraft, and sophisticated
information technology. In 2000, UPS
saw record second-quarter profits and growth across all

segments. Revenue rose 11 percent, and
profit grew to $695 million, up 18 percent from $588 million in
the same period the year before,
despite paying an unplanned $100 million for fuel.39 UPS also
saw significant increases in
domestic ground volume, domestic package revenue, overnight
service revenue, and
international revenue. Meanwhile, FedEx watched its own
earnings plummet. It was already
seeing a decline in demand and earnings before UPS’s IPO, and
in its fiscal second quarter
ending November 30, 1999, earnings declined another six
percent to $171 million from $183
million a year earlier.40 FedEx blamed its financial woes on
increasing fuel costs—a bullet UPS
managed to dodge. UPS bought more than half of its fuel in
advance at a set price while FedEx
routinely bought fuel on the spot market.41 This gamble cost
FedEx an estimated $55 million
more than it had in the same period the year before.42 FedEx
still managed to see a nine percent
increase in net income at the end of fiscal 2000, but by the end
of fiscal 2001, FedEx’s net
income was down 15 percent to approximately $584 million
from $688 million the year before.

According to reporter Charles Haddad, “To Wall Street, it
looked as if FedEx was doomed to
years of shrinking margins and lost business. Some analysts
even went so far as to suggest that
FedEx would disappear in a takeover.”43
… But not the war
In an attempt to gain ground in UPS territory, in 1998, FedEx
formed FDX Corp., a
holding company, in order to acquire Caliber System, Inc.,
which operated a business-to-
business ground delivery unit, RPS, Inc.44 RPS was the second
largest, small-package ground
service in the country. After acquiring Caliber, FDX’s two
primary subsidiaries were FedEx and
RPS, which for two years operated under separate sales and
marketing umbrellas. This changed
in January 2000, when FedEx announced its new re-branding
plan. FDX Corp. became FedEx
Corp., RPS was renamed FedEx Ground, Roberts Express
became FedEx Custom Critical, and

FDX Logistics changed to FedEx Global Logistics. According
to FedEx spokesperson, Shirlee
Clark, the integration of sales and marketing was integral in
satisfying customers. She said, “We
are giving customers what they asked for: a single point of
access. It’s been fragmented up to
this point.”45
39Kristin S. Krause, “UPS Looks Unstoppable,” Journal of
Commerce (July 31, 2000): 31.
40William Armbruster, “Earnings Decline on Increased Fuel
Costs,” Journal of Commerce (December 17,
1999): 5.
41Kristin S. Krause, “Revved Up,” Journal of Commerce
(October 25, 1999): 44.
42Kristin S. Krause, “FedEx Plans for 2000,” Journal of
Commerce (January 3, 2000): 35.
43Charles Haddad, “FedEx: Gaining on the Ground: Dismissed
as an Also-Ran to UPS Not Long Ago, It Has
Roared Back by Building a Bang-Up Ground Network,”
Business Week (December 16, 2002): 126.

44Jacqueline Bueno, “FedEx to Buy Caliber for $2.37 Billion,”
Wall Street Journal. 7 October 1997. 1.
45Kristin Krause, “Unleashing FedEx,” Journal of Commerce
(January 24, 2000): 11.
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FedEx Ground would become a key player in FedEx’s
resurgence after losing ground to
UPS early in the new millennium. By 2001, FedEx had spent an
estimated $4 billion building

and revamping its ground system, and, by 2002, FedEx Ground
was generating operating
margins four times the operating margins of its air express
unit.46 UPS still held nearly 80
percent of the ground market, but FedEx Ground was growing
rapidly. In the three-month
period ending August 31, 2002, its average daily package
volume rose 11.8 percent while UPS’s
fell 2.1 percent.47 In 2002, FedEx announced plans for a $1.8
billion expansion and the addition
of multiple hubs over a six-year period. The project was aimed
at strengthening its overnight
ground delivery service and boosting overall daily package
volume to nearly double its current
volume by 2009.48
In other words, FedEx was playing “catch up” in ground
delivery just as UPS was trying
to catch up in air delivery. As in the past, both companies were
trying to leap frog each other
and capture share from the part of the market where they were
not traditionally strong. FedEx’s
revamped ground system undoubtedly played a major role in its
record earnings in fiscal 2002,

which increased 22 percent from $584 million to $710
million.49 By 2003, FedEx Ground
accounted for 15 percent of the FedEx revenue.50
In March of 2000, FedEx launched another service, FedEx
Home Delivery, aimed
directly at competing with UPS’s residential service. FedEx
planned to spend an estimated $150
million over a three-year period even though it expected to lose
$15 million a year over that
same period. It initially hired 500 contract drivers, opened 67
terminals, and was the first
residential service to offer a money-back guarantee on all
residential deliveries.51 At first, FedEx
Home Delivery reached only 50 percent of the U.S. population,
but, by the end of 2002, an
additional 50 terminals were added to reach 98 percent of the
population,52 and the service
became profitable in 2003.53 UPS responded to this increase in
competition by beginning to offer
day-definite guarantees for its residential service in mid-2002,
but did not wage a price war.

Teamsters strike again
Another contributing factor to the FedEx resurgence was UPS’s
labor problems. On
August 4, 1997, the Teamsters Union, which represented
approximately 185,000 UPS workers,
went on strike for 15 days after UPS failed to meet the demand
to turn thousands of part-time
jobs into full-time jobs. Union workers returned to work on
August 18 after UPS finally agreed
to increase the number of full-time jobs and also to increase
part-time wages.54 The strike,
46Haddad, 126.
47Haddad, 126.
48“FedEx Ground Opens Expanded St. Louis Facility,” Journal
of Commerce (10 April 2003): 1.
50Sonoko Setaishi, “FedEx Profit Jumps 23% on Overseas
Strength,” Wall Street Journal, 20 March 2003, A2.
51Kristin S. Krause, “FedEx Heads Home,” Traffic World (20
March 2000): 44.
52Paul Miller, “FedEx Home Delivery Challenges UPS,”

Catalog Age (November 2002): 7.
54Jennie Walsh, “UPS Concedes Defeat over Part-Time Policy,”
People Management (28 August 1997): 17.
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however, cost UPS approximately $700 million in revenue and
simultaneously put an estimated
9.5 million extra packages in the hands of FedEx during the
two-week ordeal—15 percent of

which FedEx claimed to have retained.55 When the Teamsters
Union threatened to strike again in
2002, customers began shifting their business to rival
companies, including FedEx. This time,
UPS customers had an increased incentive to switch to FedEx.
UPS’s rival ran a ground unit
composed of nonunion drivers, which essentially eliminated the
possibility of a strike that could
have cost its customers millions.
During the contract talks, UPS’s labor-relations chief, Chris
Maloney, admitted, “the
closer we get to the expiration of the [Teamsters’] contract, the
more customers are going to be
concerned . . . and we don’t know if we’ll get those packages
back.”56 Even though UPS
ultimately avoided a strike by settling on a six-year contract
that satisfied both UPS and
Teamsters, many customers did, indeed, switch to FedEx
without returning to UPS.
FedEx and the deal with USPS

In a public-private sector alliance, FedEx and USPS completed
a $7 billion deal in
August 2001.57 In the past, both UPS and FedEx considered
USPS a rival and were determined
to prevent the company from competing in the private sector.
FedEx, however, struck a deal
with USPS that it believed would be beneficial for its customers
and the general public.
Frederick W. Smith commented on the alliance:
Whenever the public and private sectors work together, the real
beneficiary is the
American public. These two service agreements will create a
winning business
situation. The Postal Service will gain a single air
transportation provider for
most of its Express and Priority Mail, which cannot travel
solely by surface.
FedEx will gain an expanded retail network to grow our
business.58
Under this partnership that consisted of two consecutive seven-

year agreements, FedEx
would cover air transportation for USPS’s Priority and Express
Mail. Under a separate
arrangement, FedEx would be able to place approximately
10,000 drop boxes at USPS offices
across the country, spending between $126 million and $232
million (depending on the number
of boxes ultimately installed), which FedEx estimated would
pull in an extra $900 million in
revenue.59 FedEx began to see a significant impact on shipping
volume and freight revenue after
a full 12 months under the agreement. Freight revenue
increased approximately 23 percent from
2002 to 2003.
55Tim Triplett, “Teamsters Deliver Windfall to UPS
Competitors, But Can They Retain It? “Marketing News
(24 November 1997): 2.
56Rick Brooks, “UPS Customers Fearing Strike Contribute to
Declining Volume,” Wall Street Journal, 11 July
2002, B2.

57Kristin S Krause, “FedEx, USPS Strike Deal,” Traffic World
(15 January 2001): 9.
58Krause, “FedEx, USPS Strike Deal.”
59Krause, “FedEx, USPS Strike Deal.”
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The retail agreement between FedEx and USPS stated, “To
avoid upsetting customers,
USPS employees may allow customers to mistakenly hand

FedEx Packages to them. However,
USPS employees will not weigh or rate FedEx packages or
respond to customer inquiries
regarding FedEx service features.”60
Waging the service war
On the same day in April 1995, FedEx and UPS announced that
they would be providing
a new 24-hour, same-day delivery service. Both companies
charged $159 for the service, with
varying delivery times depending on the region.61 One month
later, UPS announced that it would
be extending its same-day delivery service to packages with
international destinations. In the
same year, UPS also announced plans to speed up early morning
delivery to 8 A.M. in selected
cities.62 In response to the increased competition, FedEx
launched FedEx First Overnight, which
provided 8 A.M. service from anywhere in the United States to
over 90 major markets.63 When
FedEx and UPS exhausted ways to speed up delivery, they
began offering guarantees aimed at

undercutting the other’s service. In 1997, FedEx began offering
guaranteed three-day delivery
service, which UPS had offered since 1993. A year later, UPS
undercut FedEx’s “absolutely,
positively” guarantee by offering guaranteed delivery at no
additional cost. FedEx tried to
distinguish itself once again in 1998 by offering Sunday
delivery—a market that UPS always
claimed was too small to be profitable.
Logistics and supply chain management
In 1995, UPS formed UPS Logistics Group, which provided
global supply chain
management solutions and consulting services designed to fit
the individual needs of its
customers. Under this group, UPS put its 1995 acquisition,
SonicAir, to work. By 1997,
customers could use SonicAir’s team of consultants to manage
their inventories. This team
would “work with buyers and transportation managers to
evaluate and reengineer a company’s

distribution network to manage inventory at optimal levels.”64
UPS was also investing in better
supply chain software. In 1999, it formed an alliance with
supply chain software developer,
Manhattan Associates, Inc. Its goal was not only to incorporate
Manhattan’s existing software
into the UPS Logistics Group’s operations but also to jointly
develop new applications geared
toward specific industries.65
60http://contracts.corporate.findlaw.com/agreements/fedex/usps
.sales.2001.01.10.html.
61Robert Frank, “Federal Express, Battling Against UPS, Will
Offer Same-Day Delivery Service,” Wall Street
Journal, 12 April 1995, A2.
62“United Parcel Service of America: Firm Will Speed Up Time
of Early Morning Delivery,” Wall Street
Journal, 14 June 1995, B10.
63“Federal Express Co.: Service to Provide Delivery by 8 A.M.
in Many Markets,” Wall Street Journal, 1 August

1995, B4.
64“SonicAir Takes Stock of Your Inventory,” Purchasing (April
3, 1997): 51.
65“UPS Forms Alliance with Manhattan Associates,” Logistics
Management (August 1999): 111.
2019 to Dec
2019.
UV2945
-11-
Shortly after its IPO, UPS reached an agreement to acquire a
leading French company,
Finon Sofcom. This deal expanded “the European network for

UPS Logistics Group’s emerging
service parts logistics business, which included the storage,
transport, and management of critical
parts and components, including repair operations and quality
inspection.”66 UPS’s supply chain
services received another boost with the acquisition of three
more service parts logistics firms in
2000—Miami-based Comlasa, Australia-based Computer
Logistics

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