Author Topic: FDX - FedEx  (Read 23598 times)

Castanza

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Re: FDX - FedEx
« Reply #20 on: February 07, 2019, 06:33:46 AM »
I have a bit of an insiders perspective here. I currently work in the "industry" on the tech side of things. But in the past I worked at UPS as a driver (paid my way through college). Now I can't promise all of this information will be relevant or unbiased in anyway shape or form, but I will do my best to give my opinion on the situation.

UPS and FedEx are both great companies in the logistics industry. FedEx was founded by a former UPS official (I'm sure most of you know this). However they really are completely different in how they operate and function. This leads to advantages and disadvantages on both sides.

UPS is a very streamline company. Their ground and air services all run through the same network meaning their ground drivers deliver Next Day Air packages while delivering ground. This is an advantage because it allows fewer drivers to deliver their total ground volume. This can be a disadvantage though when it gets to busy season and their systems get bogged down. This is an ongoing issue at UPS and is something they are constantly addressing through upgrades.

UPS employees are also all under the same umbrella. So management down to the lows of the low dock workers are all under the same supervision. With the exception of UPS Freight who has their "own" management. But if you go up high enough they to are under that supervision.

FedEx on the other hand has two separate classes of drivers. One that deals exclusively in Express (Same as UPS air) and another that delivers ground pickups. Now, when seasons get slow this becomes a strain on their efficiency because they are sending out driver with partially full trucks and driving the same miles. If you haven't figured it out by now the logistics industry boils down to one metric. (Stops per mile). But on the flip side of this when times get busy, FedEx has an easier time absorbing high growth in volume because they have packages running through separate systems. Drivers don't have to break off route (like UPS drivers) to meet the time commit for an air package way out in the boonies. They simply "drive in trace."

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Let's talk pay, operating costs etc.

UPS pays their ground drivers $36.25/hr. Their pay progression is 4 years (19.50, 21.00, 25.00 36.25). It gets better  :D. Overtime is paid as time and a half on anything over 8 hours in a single day. Drivers recognize this rule and can try to use it to their advantage to "milk the system." within scope of not getting fired for poor performance. I'll put it this way. When I hit top rate as a driver I made 92k that year.

UPS also has really good benefits. I'm talking the best I've ever seen. Teamcare is the name. You know this is expensive for the company.

UPS also has a pension plan which is very costly and imo unsustainable. This is becoming a major issue and will continue to be one down the road. I talked to a driver who retired while I was a driver. His pension was going to be 55k a year. UPS does not have a matching 401k or any other savings plans. I believe some management has stock option plans and they also offer employees a 5% discount on company stock at the lowest price of the year. (Yes I took advantage of this).

Not sure how accurate this number is but I was talking to a UPS big wig who came to visit our center and he told me that as soon as a driver punches in on the clock it essentially costs the company $325 between insurance and other "costs."

Feeder drivers (not UPS freight, but dedicated ground pickup semi drivers) make well over 100k a year with similar benefits and pension. Don't know their hourly wage, but I've see their gross pay from several employees I knew. And they all work consistent hours.

UPS Pays and leases their vehicles and they also pay for the fuel. I averaged 120-150 miles a day as a driver in a truck that got 6mpg. Most are gas now.

UPS is a Union (Teamsters)

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FedEx (Mind you this is from knowing FedEx drivers.)

The way FedEx ground works is the routes are contracted out. From what I understand is FedEx "sells" an area to someone (Think garbage routes) and they are responsible for hiring drivers, leasing trucks, etc. This cost goes back through FedEx though as they are ultimately responsible for paying employees. Now employees at Fedex make far less than at UPS as they are non-union.

FedEx ground drivers make around $16-$20 top rate.

FedEx Express drivers can make up to $26ish.

The difference between these is FedEx ground is contracted out while Express is not. This makes it difficult to figure out how much they are costing the company.

FedEx ground is really weird. I knew guys who had to pay for their own fuel, vehicle maintenance and who didn't have insurance. But then there were other guys who didn't have to pay for any of that. I thin it varies based on the owner of the area.

Express drivers on the other hand don't have to pay for vehicles fuel etc. They also get insurance and have a matching 401k. No pension though. Often I remember talking with express drivers and they basically told me ground is like its own company. They never worked with or met any ground drivers etc. Just seemed odd.

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Employee perception, Customer Perception, Standards

UPS to put it nicely was the worst environment I've ever worked in. Employees were Union while management wasn't). This created all kinds of tension in the workplace. I've seen fist fights etc, and its all over the place. Go to browncafe and check it out.

UPS drivers are held to extreme standards when it comes to driving (yes there are exceptions). Drivers are well compensated and are expected to perform their job to a high degree. Management would come out and secretly follow you to make sure you're being productive and following safe work methods. They had a tier of escalation to lose your job and it wasn't that hard. (verbal warning, warning letter, fired if within a 4 month period ). And it could be something simple like not tucking your mirror at stop, or not putting your flashers on, or not backing firs so it's easier/safer to leave etc. UPS treated the smallest thing (tree branch scratches) with the utmost importance. This for the most part creates a very safe work force. That's why UPS is by far the safest logistics company.

UPS has telematics which track EVERYTHING. I'm talking if you're wearing your seat belt, using the handrail when you exit, driving with the bulk door open, how fast you were going, if you backed to your driver side and how far you backed etc. They knew when you stopped to take a piss in the woods.

ORION (route finding software) Absolutely terrible and UPS was robbed by purchasing this. The system does not work in saving miles. Often I would just deliver stuff how I saw fit and 9/10 would be the estimated building ETA and miles by a long shot. But because they purchased this they really began hammering it and forced drivers to follow it. This is costing the company more money but they are too prideful to let it go because they spend millions on it. When being forced to follow it, I worked longer hours and often drove more miles as the system couldn't account for every variable which resulted in many service failures etc.

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FedEx has almost no standards, at least in their ground department. I often saw drivers not wearing seat belts, bulk head door open, "nosing" into driveways etc. I've also seen them have "accidents" hit signs etc and just drive away. Now how this affects they company in terms of cost? No idea. They probably get away with a lot of costs haha.

Not sure if FedEx uses a route building software.


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Customer perception - UPS is hands down viewed in a better light (at least in the US). Customers were always complaining about FedEx and how they didn't show up for pickups, didn't meet their commit time etc. Businesses really do trust UPS to get it done and this can be reflected in our price. UPS charges a handsome premium and businesses still pay it. UPS drivers are required (for the most part) to be clean cut, have clean uniforms, etc. They have gotten laxed with standards over the past few years but they do run a tight ship. Shoes must be polished, only mustaches (cant extend below corner of mouth), no long hair, etc. This does have an affect on customer perception as it helps them feel like they are getting a constant service. And the ladies love them shorts  ;)


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Lets talk markets and Amazon

FedEx dominated international shipping. That is their bread and butter. However this leaves them far more exposed to tariffs than UPS.

UPS dominates ground in the US hands down. They are doing a good job at leveraging their services and marketing to new customers. They have several small business initiatives but they really focus on getting large contracts with companies like Pet Smart, Target, Wal-Mart, Pottery Barn etc. When I left (just over a year ago) They were really pushing getting into the after market auto parts industry as they saw this as one of the fastest growing industries. I can't tell you how many leaf spring packs I delivered.

Amazon and what it means to UPS and FedEx. Basically a big LOL. Amazon packages are used to fill empty volume in trucks which aren't completely full with items from factories, businesses, machine shops, etc. It's basically the cinnamon you sprinkle on top of the cream cheese you put on your bagel. I believe volume is in the 4-6% range. We often made pennies on the dollar delivering Amazon boxes and if a second attempt had to be made you were losing money for that package. I don't have details on contract pricing but I'm going to assume UPS was charging Amazon a decent sum. I do know that UPS is adjusting their pricing to "more effectively" charge Amazon as they were notorious for poorly packaging items or putting small items in large boxes, mislabeling weights etc. Well this was cutting into our profits.

This is essentially the same for FedEx.

Long story short, residential deliveries are very little profit. They are used to fill volume gaps in our package cars and basically put a little extra cheese on burgers. UPS and FedEx want to ship heavy and they want to ship in bulk. This is most effective at businesses. You do get furniture and say cleaning supplies for some homes which I'm sure are good profit.

At the end of the day UPS FedEx and Amazon are in completely different markets. Amazon is not focused on manufacturing or machine shops. They want to deliver products from their website to homes. Drivers in minivans will not be able to go to the local factory and pickup 40 boxes of hardware. So until you see Amazon begin picking up at locations like this I would not be worried about them at all.

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Investment wise. I like both FedEx and UPS. I like UPS because of their strong presence in the US and how they are less reliant on international shipping (which they are actively expanding too). But I like FedEx from a operating cost perspective as their fixed expenses are lower than UPS. That pension obligation will eventually come knocking on the door at UPS. I'll try to do more digging into that area if anyone is interested.

Cheers!

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DCG

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Re: FDX - FedEx
« Reply #21 on: February 07, 2019, 06:49:57 AM »
Wow..what a great post Catanza. Thanks for taking the time to write all that!

Liberty

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Re: FDX - FedEx
« Reply #22 on: February 07, 2019, 07:16:48 AM »
Thank you, Castanza, that was epic and very interesting.

Spekulatius

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Re: FDX - FedEx
« Reply #23 on: February 07, 2019, 08:00:46 AM »
Great write up. The pension issue with UPS is significant and one reason why I believe to be FDX a better investment. You can see UPS struggle just looking at the book value, which is about zero, mostly due to drain from pensions and also from buybacks.
FDX has pension issues too and they do MM acounting for it on their income statement. They have put $1.5 B / $2B in it the last two years to boost the pension funding level. The pension issue is much smaller with FDX than with UPS.
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gjangal

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Re: FDX - FedEx
« Reply #24 on: February 07, 2019, 08:01:33 AM »
This is a great post Castanza. Thank you.

Castanza

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Re: FDX - FedEx
« Reply #25 on: February 07, 2019, 08:30:06 AM »
Great write up. The pension issue with UPS is significant and one reason why I believe to be FDX a better investment. You can see UPS struggle just looking at the book value, which is about zero, mostly due to drain from pensions and also from buybacks.
FDX has pension issues too and they do MM acounting for it on their income statement. They have put $1.5 B / $2B in it the last two years to boost the pension funding level. The pension issue is much smaller with FDX than with UPS.

Interesting! I had no idea FedEx had a pension plan. Really though, the root of this issue is the Union. The Teamsters are nothing more than a mob which will ultimately bleed the company dry. I was told by older drivers that the union promised 14% returns in the past! How crazy is that?! Look at Central States Pension fund. UPS had to take it over because it was basically bankrupt.

Another little tidbit is the wages moving forward. by 2022 drivers will be making a base rate of $42/hr. That's what this last contract vote was about.

However they did pass the ability to add a new class of drivers which will be used to supplement the current workforce. They will be in a lower tier wage I think capped around $25/hr and are also union employees (Everyone I know voted this down, but the union disregarded its members and passed it through) In my opinion this only signifies the companies concern with meeting future pension obligations as they are trying to shrink the size of "full-time" top rate drivers. I doubt there will be many traditional drivers hired moving forward.

This does benefit the union cartel though since their union dues are based on hourly wages. This new class of drivers will be made up of part-time dock workers who drive part of the day. As you can imagine this will bring in more revenue for the union. But the catch is the way the new contract is worded, current full-time drivers are not guaranteed 40/hrs a week if they don't work on a Monday of that week. So a lot of drivers will not meet the 1800/hrs a year requirement to have that year count towards their pension.

This means a longer career, drawn out with money going into the pension. Less full-time employees retiring down the line drawing on the pension. And a lower wage work force that will have a lower draw on the net pension funds.

This is a very big concern and you can see both UPS and the Union recognize it. They are playing catch up in terms of wages compared to FedEx and Amazon.
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dwy000

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Re: FDX - FedEx
« Reply #26 on: February 07, 2019, 08:55:24 AM »
Costanza - your post was fantastic.  That's the kind of background and insight you will never be able to get from 10K's and conference calls.

bizaro86

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Re: FDX - FedEx
« Reply #27 on: February 07, 2019, 10:24:50 AM »
Thanks for sharing! I would disagree on customer perception, at least where I live. A huge percentage of packages shipped to Canada come from the US. UPS is everyone's last choice because of their extremely high customs brokerage charges. I now take the time to use a 3rd party broker for everything sent to my business using UPS. Savings average 80%.

Viking

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Re: FDX - FedEx
« Reply #28 on: February 07, 2019, 10:33:37 AM »
Costanza - your post was fantastic.  That's the kind of background and insight you will never be able to get from 10K's and conference calls.

Or industry analysts. Great post; please keep them coming :-)

Castanza

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Re: FDX - FedEx
« Reply #29 on: February 07, 2019, 10:39:59 AM »
Thanks for sharing! I would disagree on customer perception, at least where I live. A huge percentage of packages shipped to Canada come from the US. UPS is everyone's last choice because of their extremely high customs brokerage charges. I now take the time to use a 3rd party broker for everything sent to my business using UPS. Savings average 80%.

In fairness I was just talking about US customer perception  :D

There is another company up there that's more common that UPS right? Purolator or something like that?

Edit: And I appreciate the sentiment everyone!
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