FedEx Could Outshine UPS

Shipping company FedEx (NYSE: FDX) has been slashing costs through two internal programs, already trimming $4 billion in costs in an effort to regain the trust of investors.

Investors might be ready to embrace FedEx’s outlook since the world’s third-largest delivery company has been reducing its expenses since 2022 when it launched DRIVE, a program to save money, increase efficiency and improve service for customers. FedEx has been able to streamline the number of flights, lower its capital expenditures and boost productivity numbers.

One issue that FedEx has been able to avoid is the unionization of its employees, which typically leads to demands for higher salaries and more benefits.

The problems facing UPS (NYSE: UPS), one of FedEx’s competitors, has been its large workforce of union employees – about 310,000 of them are International Brotherhood of Teamsters members, including those who work part-time and in its offices.

As the number of shipments have grown stagnant, UPS has wrestled with union demands and made a decision to give some drivers buyouts in July, the first instance during the company’s past 117 years. The number of drivers was not disclosed by UPS.

Union issues have long been a thorn with UPS. In 2023, the delivery company offered buyouts to its pilots and close to 200 of them accepted the offer.

Investors have not been proponents of the salaries earned by UPS drivers who will receive $170,000 on average annually. The company signed a five-year contract with the Teamsters in 2023 agreeing to salary increases annually to reach that amount. Shareholders have punished the contract decision, which drove the stock to a 45% decline since July 24, 2023, which was the day before the Teamsters agreement.

Similar to Amazon (NASDAQ: AMZN), FedEx has stuck to its nonunion model. The Teamsters have not been able to gain a foothold into FedEx which has not publicly disclosed an average hourly rate for its workers. Amazon said in May 2024 that the average pay of its delivery contractors was $20.50.

One issue plaguing Amazon and FedEx is its low retention rate of employees who deliver packages and work in its warehouses. Some of their positions are part-time only and in 2024 each of those positions were filled twice, but employees did not stick around.

Without higher retention rates, employees at FedEx have found it challenging to organize their coworkers to join a union.

FedEx has been able to save costs in employee salaries, but its fiscal fourth earnings on July 2 produced mixed results. Profits rose to $1.65 billion or $6.88 a share from $1.47 billion or $5.94 per share even though its revenue only increased by 0.45% for the period ended May 31 from a year earlier to $22.2 billion.

The company’s revenue was impacted slightly by the new tariffs enacted by the U.S., however the China-U.S. trade route consists of only 2.5% of FedEx’s revenue.

Shares of FedEx have fallen by 20.45% during the past year, slightly less than the 25.6% drop in shares of UPS shares. During the past month, shares of FedEx gained by 5.8%.

The company’s domestic package volume in the U.S. rose by 6% due to residential customers.

Despite potential geopolitical tensions, FedEx predicts that its revenue will be unchanged and could increase by a maximum of 2% for the next quarter that ends Aug. 31.

FedEx has another program named Network 2.0 that will combine its express and ground networks to cut costs even more and ramp up efficiency, the first time since the company was founded in the1970s. This consolidation program of its delivery trucks is expected to save the company $2 billion annually.

Closing one-third of its package distribution facilities in the U.S. during the next two years is estimated to save the company $200 million in savings this quarter, FedEx executives said during its earnings call.

With these changes and cost-savings measures, FedEx could emerge as the more successful shipping company.