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Battle of the Brands: UPS vs. FedEx

Posted May 5th 2008 5:00PM by Kevin Shult
Filed under: Competitive strategy, FedEx Corp (FDX), United Parcel'B' (UPS), Battle of the Brands

This post is part of our Battle of the Brands feature. Let us know which brand you prefer, and check out other Battle of the Brands posts.

When you need to ship a package, which company first comes to mind? According to last year's Battle of the Brands non-scientific poll, an overwhelming majority said they favored United Parcel Service Inc. (NYSE: UPS) over FedEx Corp. (NYSE: FDX). Higher fuel surcharges, a weak economy, reduced domestic package volume, and a recent push from the U.S. Postal Service have impacted both of these international shipping companies in the past year, but Americans still want the same quality service at a discount price.

Let's take a look at a few changes since last year:

The US Postal Service Tries To Gain Ground

The largest player in the U.S. overnight package delivery business is attempting to increase its market share in the fast-delivery business next month. USPS is barely holding on to its 32% market share in the business, as FedEx and UPS continue to push the envelope at 31% and 25% market share, respectively. For the first time, shippers using Express Mail, Priority Mail, and several other parcel services will be able to get lower rates for large- and medium-volume contracts, according to the agency. Will UPS and FedEx need to cut their prices further to compete with the USPS?

Large Rate Increases For 2008

This year, FedEx and UPS announced that rates for ground packages would increase an average of 4.9% on the ground and 6.9% in the air (minus a 2% cut in fuel surcharges, creating a 4.9% increase in the air as well). So what does this mean for you? The key term we need to acknowledge is averages. Rates for certain packages will increase more than 4.9%, while other shipments will increase less than 4.9%, all depending on the characteristics of the package, the distance traveling as well as the service you use (ground or air).

Fuel Surcharges

If you've studied the fine print of the pricing that both FedEx and UPS use, the key is in the fuel surcharges. Don't let the 2% cut in air fuel surcharges trick you into thinking you're saving, because you're not. In a nutshell, carriers tack on a 0.5% surcharge for every four cents of an increase in jet fuel prices -- starting at the base price of $1.14 a gallon. With jet fuel prices up nearly 70% since April of last year, you're going to be paying more to for air delivery regardless of which company you use. For every eight cent increase in standard fuel prices, there is a 0.25% jump in the fuel surcharge -- starting at the base price of $1.50 a gallon. The price of gas has jumped nearly 50 cents over the past year, so going ground will also hurt your wallet.

The Cost

Don't believe me? Here's a quick look at what sending a package could cost you. I priced another 20 lb. medium-sized company box shipped to a residence in Huntington Beach, California 92605, from Bayside, New York 11361, and compared it to last year's data.

Delivery Service

2007

2008

Difference

UPS Next Day Early AM

$146.91

$175.02

$28.11 (+19.1%)

UPS Next Day Air

$115.99

$140.82

$24.83 (+21.4%)

UPS Next Day Air Saver

$107.74

$134.40

$26.66 (+24.7%)

UPS 2nd Day Air

$81.48

$96.66

$15.18 (+18.3%)

UPS 3rd Day Select

$56.75

$67.08

$10.33 (+18.2%)

UPS Ground

$26.29

$28.19

$1.90 (+7.2%)

FedEx First Overnight

$140.40

$170.82

$30.42 (+21.6%)

FedEx Priority Overnight

$113.27

$140.82

$27.55 (+24.3%)

FedEx Standard Overnight

$102.80

$134.40

$31.60 (+30.7%)

FedEx 2Day

$68.14

$96.66

$28.52 (+41.8%)

FedEx Express Saver

$55.88

$67.08

$11.20 (+20%)

FedEx Home Delivery

$18.60

$24.27

$5.67 (+30.4%)

Result estimates calculated on Tuesday, March 27, 2007, and Tuesday, April 22, 2008, using UPS.com and Fedex.com.

The data clearly shows a significant increase from last year's rates. But what really grinds my gears is that both FedEx and UPS have exactly the same rates for four out of six delivery services. So where can you find a cheaper overnight service?

A Possible Alternative

The fourth-largest overnight service is DHL, owned by Deutsche Post World Net AG, and holds a 9% market share in the United States. In the same 2008 study, DHL's prices to Huntington Beach were slightly cheaper than UPS and FedEx. Earlier this year, however, there were reports that DHL might leave the US shipping market due to considerable losses since 2004. One industry expert believes the U.S. shipping industry needs DHL to stay; fearing competitor prices would rise with DHL out of the picture. Gerry Hempstead, an ex-DHL Executive, told Supply Chain Digest in an interview that "DHL sets the benchmark for the bottom thresholds of pricing. There are deals out there that Fed [Ex] and UPS just would not handle at the price DHL offers." DHL plans to announce their restructuring plans in May. Let's hope they plan to stay in the states a little longer.

The Bottom Line

With pricing so similar, choosing a delivery service really depends on who you can trust getting your product where it needs to be on time. Last year, hundreds of people responded to this article claiming one service was better than the other, listing a myriad of reasons. If the cost to ship a package is nearly identical, then reliability, in my opinion, is the key to choosing your provider. Now the only question is, who can I rely on?

Which company do you rely on, and why?

Vote in our poll for FedEx or UPS as your preferred brand, and let us know in the comments why you love it.

Tags: battle of the brands, dhl, fdx, fedex, package delivery, postal service, ups, USPS

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