Montgomery Ward closed its doors, Chrysler announced plant closings and the layoff of 20% of its work force, UPS profits soar nine percent, JC Penney idles thousands and closes stores, CNN cuts workforce, FedEx reports seven percent revenue increase over last year, Amazon fires thousands and UPS and FedEx order 60 and 10 Airbus jets, respectively. Notice the pattern? Why are the two parcel carriers so successful while other companies are collapsing? The answer is simple. Ruthlessly competitive industries force out those companies that are not satisfying the demands of the marketplace. The parcel and express markets are oligopoly markets. There are basically two competitors. There is a lack of intense competition. As a result, pricing is inefficient and innovation is slow, so the buyer pays more without gaining improvements. How�s that, you ask. Well, let�s take a look.
In the ground market, UPS is the price setter. Its services are priced to ensure maximum profit. FedEx Ground has been the follower since its inception in 1985. Its position is simply to go along with UPS on base rates and use incentives to lure very profitable accounts its way, mainly business-to-business. And that strategy has worked well. FedEx Ground earns huge profits. Despite this competition from FedEx Ground, companies continue to overpay for ground service thanks to steady annual rate increases by UPS.
Seeing the huge profits in the US, the German post office (Deutsche Post) is showing increasing interest in entering the market. As you may have read, the Germans have fortified themselves through a myriad of acquisitions and partnerships in recent years. Since both UPS and FedEx staunchly believe in the free enterprise model, as evidenced by their massive international expansion over the past two decades (funded by high US profits), you would expect both companies to be quiet about such developments. That�s not the case. In fact, both companies have joined forces to stave off foreign entry into the US market. The dynamic duo claim that Deutsche Post will attempt to subsidize their expansions in the USwith profits from its mail monopoly in Germany. As for the Germans, turnaround is fair play. Evidently, UPS and FedEx don�t like the idea of translucent borders working in both directions.
Whether it�s the Deutsche Post or some other carrier, the US market is in dire need of more competition. Not only for better pricing (although that, in itself, would be great) but for more customer friendliness. What exactly do I mean? For one, UPS touts the availability of technology while intimidating customers with a �per package� charge if they excessively use their Web sites to track packages. It�s not the tracking that�s the issue, but rather UPS doesn�t want to pay for refunds on late packages. More competition would eliminate such petty intimidation. While on the subject of late packages, FedEx Ground requires its valued customers to keypunch refund requests by telephone. How�s that for technological leadership? Clearly, FedEx Ground could install its sister company�s Web site entry for refund claims, but like its competitor, they want to make it difficult for customers so they don�t have to pay for poor service. More competition would eliminate such petty deterrents. And if you push hard enough and agree not to request late package refunds, both carriers will permanently pay you off for poor service by sweetening your incentive by a point or two. Nice guys! But when you are earning profits like theirs, you�d take the easy way out, too! Or would you?
Yes, good old competition is what makes this country great, and highly competitive industries provide the best products and services at the best prices to the consumer. Someday, we�ll see that in the US ground market, but we aren�t there yet!
