I. Executive Summary
In this report we focus on the two main competitors in the package delivery industry: Federal Express Corporation (FedEx) and United Parcel Service of America, Inc.
Studying FedEx, UPS and their competitive relationship in the decade from mid - 80's to mid - 90's gives a good insight for the companies' and industry's future. The two companies have different strategic goals and are operating in the same industry but in different main markets: FedEx is working on "producing outstanding financial returns" and focuses on the overnight air market while UPS is looking for "earning reasonable profit" and its core business is the two-day ground delivery. However, by 1981, the two companies started to have a strong sense of rivalry with each other and up until 1995 the race seemed to be one of how quickly each competitor could transform itself into the other. It was then when the largest distribution contract ever awarded was given to UPS. The effects on FedEx were strong.
This paper is an examination of FedEx's and UPS's financial performance from an investor's point of view and their managerial performance considering their strategic goals in the mid - 80's. We also, take an overview of the rivalry between the two companies and we put our earlier findings in this competitive framework in order to determine whether FedEx or UPS achieved Excellence in business. Our analysis concludes that between the two companies, UPS can be considered as excellent both for its good performance in the decade and for its good perspectives for the future.
II. FedEx vs. UPS: The Battle for Value
II. 1 The Effects of J.C. Penney's Announcement on FedEx from an Investor's Point of View
The decision of J.C. Penney to award the $ 1 billion 5 year contract to UPS was clearly the best choice for the company. In 1992, when J.C. Penney went into business, UPS was operating more efficiently and more profitably than FedEx.
After J.C. Penny's announcement in 1995, FedEx's stock price declined by 2.33%. The reason for the fall is the investor's non-trust in FedEx strength. Whereas it gave UPS secure earnings for 5 years as well as reviled a new image of reliability and stability. Therefore, UPS's reputation increased among the investors, possible future clients and partners while FedEx's reputation and customers' trust for high future gains declined. Moreover, as the 75% of FedEx's common shares were held by institutional investors, it was expected that they would follow discouraging news for earnings decrease that analysts gave for Federal Express in 1995. The stock became less attractive and so the price fell.
In addition to that, prior to the announcement, FedEx has undergone few noticeable losses, which de-motivated FedEx's investors. Although volume growth remained...