UPS Cuts Gap With FedEx in Risky Bragging-Rights Fight on Speed

(Bloomberg) -- FedEx Corp. has lorded its speed advantage over United Parcel Service Inc. for years. Now FedEx is tapping the brakes in key parts of its network amid an onslaught of packages, while UPS touts its investment in faster deliveries.

The drive to be quicker has enabled UPS to cut delivery times by a day on 10% of its ground packages, said Juan Perez, the company’s chief information and engineering officer. Meanwhile, FedEx intentionally slowed some shipping lanes by a day beginning in November, temporarily ceding the speed crown as the coronavirus pandemic spurs record demand, according to ShipMatrix.

The jockeying heralds not just a short-term fight over bragging rights, but also a battle over speed with stakes going far beyond this year’s frenetic holiday season. Both UPS and FedEx have invested billions in handling packages more efficiently amid the rise of online shopping. Now the couriers are poised to clash more sharply over small and midsize shippers, typically their most profitable clients, as they seek to extend their stock rallies into 2021.

“After listening closely to our customers and what they needed from UPS, we made the decision to speed up the network,” Perez said in an interview. “It’s a major decision for UPS because it does carry cost with it.”

Narrower Lead

UPS temporarily nosed ahead in November as it revved up its network amid FedEx’s slowdown for the peak delivery season, according to data compiled by ShipMatrix, which tracks delivery performance. That was before the first shipments of coronavirus vaccines, which have added to the couriers’ to-do lists.

FedEx said it recognizes the speed gap has narrowed but maintains it’s still faster. In a September analysis, FedEx found that it had a time advantage for about 8% of commercial shipping routes, down from almost 20% in a June presentation. The company said it didn’t have November data to compare with ShipMatrix’s calculation.

For residential packages, FedEx said its advantage widens appreciably for packages sent on Thursdays and Fridays because it handles weekend deliveries itself, in contrast with UPS’s reliance on the U.S. Postal Service on Sunday. FedEx is likely to provide additional detail when it reports quarterly results Dec. 17.

“Our investment in seven-day delivery capabilities has given us a speed advantage for e-commerce that is difficult to overcome without a solid Sunday delivery offering,” said Brie Carere, FedEx’s marketing chief.

Spending Risk

UPS’s quest for speed carries plenty of risk. The Atlanta-based company has invested heavily in automation in an effort to generate long-term savings by boosting efficiencies. Quickening the network, by contrast, boosts recurring expenses at a time when demand is so high that neither UPS nor FedEx needs to entice customers with pricey new services.

“The way the market is now with the demand outstripping capacity, neither of them needs to do anything more to improve their competitive position,” said Satish Jindel, founder of ShipMatrix. “They’ll have business without changing this value proposition.”

Nevertheless, UPS has plunged ahead with the effort to enhance speed as it positions itself for a marketplace increasingly dominated by e-commerce. The company’s moves include:

• adding evening package sorting to inject parcels into the network earlier
• hiring two-person teams to truck packages across the country instead of relying on slower-but-cheaper trains
• wringing velocity gains from newly added weekend service

UPS spent $179 million in the third quarter to step up its effort to quicken ground deliveries, and said it would spend heavily as well in the fourth quarter. The extra outlays worsened cost pressures that spurred UPS’s biggest stock drop in five years after Chief Executive Officer Carol Tome and her colleagues detailed them in October.

Perez, the UPS engineering executive, said the payoff is the ability to win more commercial packages from small- and medium-size businesses. The faster speeds also add capacity to the network while spurring more air deliveries, which are a higher priced offering, he said.

“This is profitable for UPS,” Perez said. “It actually offers significant growth opportunities for us.”

©2020 Bloomberg L.P.