UPS Ocean vs.FedEx Ocean - It's Close- But UPS Has 6,000 More In This Key Segment

One of the best parts of my life is running Ocean Audit. I enjoy the work, and get great delight from being recognized as an expert in my space. It is an ideal way for me personally to make a living as unlike other consultants, I don’t charge my clients unless they recover refunds. It helps to have some credibility in the space also – I have 15 of the Fortune 100 as clients.

I like to evaluate all things “ocean” and thought it might be interesting to take a different look at two companies in the supply chain space very well known to Wall Street, who also happen to operate as an NVOCC. I wanted to use “big data” to help evaluate and appreciate which of the two might have an edge in their ocean freight game. You will find that on just about any given list, these two powerhouses tend to be neck in neck in terms of containers that handle for their import client base to the USA.

A Look at the Basic Numbers

Let’s have a look at containers that are shipped through their respective NVOCC programs. Keep in mind that these are containers where UPS or FedEx issues an ocean bill of lading to their end customer.

Here are the numbers in twenty foot containers (TEUs) for the period of April 11, 2018 to April 11, 2019:

        FedEx – 122,102 TEU

        UPS – 113,674 TEU

When you look at just these numbers, it looks like it is clear that FedEx is the winner. If you are only measuring the actual number of TEUs shipped, then FedEx is shipping 8,428 more containers. Let’s round it down to 8,000 for the purposes of this evaluation.

While it seems like FedEx is the winner, you must remember that it is also important to consider other factors, such as the type of shipments and the file profitability, i.e. – how much profit they make per shipment. This helps provide us a much better overall comparison.

A Closer Look

Now that we start to dig a little deeper, we can see that out of the 8,000 TEU differential, that 3,000 of FedEx’s TEUs were composed of heavy weight lumber and cement shipments. This means that their file profitability will likely be, at max, between $300 and $400 per TEU. Of note, and to their credit, UPS carries zero lumber and cement. I like lumber and cement as base cargo, only up to the point where I can work on improving my mix. If I were FedEx, I’d start working on increasing my consolidated LCL boxes and winning easily gained enterprise client business already moving in the FedEx system via land or air. To have a network that simply by sharing information within, and using it to increase your ocean lift and profitability. I speak from experience, I know that this seems like a no-brainer, but most likely, we'd all be surprised at the ocean freight opportunities sitting right in front of both FedEx and UPS with existing enterprise clients. 

Let's get back and take a run at analyzing the 8,000 TEU differential. Let's assign FedEx a file profit margin of $350 per TEU on the lumber and cement containers, this equates to about $1 million in profitability. For the additional 5,000 TEUs that were a part of the differential, let’s assume that they received $400 in profit per TEU, or $2 million. If we can assume that the rest of the cargo mix between UPS and FedEx is similar, it means that FedEx would have at least $3 million more in file profit than UPS.

Before coming to conclusions though, it is important to look at the key metric where UPS has a serious advantage – FAK consolidated cargo where there are five to 10 importers shipping less than container load cargo in a single TEU. In this case, UPS has a 6,000 TEU advantage over FedEx, based on file profitability of at least $1,100 or so per TEU. This will provide UPS with a $6 million profit advantage.

Keep in mind that this is just one way to illustrate how having more TEUs is not the most reliable way to determine revenue and file profitability. Other factors, such as the cost of sales, onboarding of new clients, client retention, loss of clients in RFP bids, and performances either pro or con by other services that UPS or FedEx might offer their client base, are all influencers, as well.

While both of these companies are doing quite well, and they are among the top 20 NVOs in the United States, there is the potential for them to grow even more. How might they achieve this? Let’s find out.

The Client Mix

When I looked at the top 50 clients for both UPS and FedEx, I noticed that there were some dramatic differences.

        FedEx: Top 50 clients make up 8.8% of their total TEUs

        UPS: Top 50 clients make up 14.9% of their total TEUs

What the data suggests is that if there were a defection of clients in their top 50, it might have more of an effect on UPS than it would on FedEx. However, this fact ignores that UPS has done an excellent job in attracting many smaller and highly profitable importers. Potential defections are always less likely in the LCL trade compared to the full container load world.

Organic Business Development Can Be a Challenge

People tend to like what they know, and when companies like FedEx or UPS try to offer end to end services, it can cause some of their legacy customers to worry. Many people who have used those infamous brown trucks from UPS, or the white, purple, and orange trucks from FedEx have come to know and feel comfortable with their shipping methods… at least when it comes to shipping on the ground and through the air.

The branding that those companies have done for ground/air shipping shines through, and they are two of the most famous companies in the field. They own their own trucks and their own planes. What they do not own are their own ships. They both lose a little of their star power that their Enterprise customers know and love. It’s my personal sense that this is one of the primary reasons why UPS and FedEx are not higher in the TEU rankings. And – it’s why they need some help to grow, because they are both great companies that have an organizational structure that can support the…..

Feeder Fund Concept

In my lab at Ocean Audit – Europe, I have a backroom program up and running that is a client acquisition program like none other in the ocean freight industry. This program greatly reduces sales cycle time, and it does this by using techniques developed for me by the best on Madison Avenue and in Silicon Valley. The grandeur of the program is its ability to laser target high percentage wins from day one. This takes the client acquisition cycle down from weeks to mere days. Simply put, it attracts ocean freight importers to a program, process or enterprise. It’s scaleable, flexible and flat out works.

The process is simple to explain, but proprietary, so I’ll keep the details minimized here. Using a type of A.I., potential clients are pre-screened to determine if a set of conditions exist within the beneficial cargo owner and their buyer persona. The client learns of the unique differentiators scheduled to be shared with them and in short order is onboarded. Using this type of approach for client acquisition can help companies like FedEx and UPS, as well as others, to increase their number of clients, and more importantly, drive higher per file profitability.

Who Is the Winner?

With the baseline metrics that are discussed above, it is too close to call. Keep a look out for how the two companies differentiate their services either organically or via a Feeder Fund type concept. Watch for the blending of how each attempt to provide end to end client services. Both UPS and FedEx could benefit from a “running start” now, in order to compete and thrive against emerging operational networks being offered by Maersk and CMA-CGM/Ceva, as two examples.

Customer delight is essential. Even Hyundai’s new CEO is laser focused on improving the customer experience. Analyzing UPS and FedEx, the tide may tip in the favor of the company who can most rapidly expand and maximize file profitability by offering end-to-end services. The true winner for ocean freight supremacy between these two heavyweights is ultimately going to be the company who can rapidly on board new clients, expand their base organically and works with metrics that lead to client selectivity in both volume, rate and margin.

About the Author

Steve Ferreira has a 37-year background in global container shipping. He established Ocean Audit in 1994 and his clients include 15 Fortune 100 organizations. Steve is often cited in leading business publications, including The Journal of Commerce, The Wall Street Journal, USA Today, CNBC and Forbes. To learn more about Ocean Audit, head to www.oceanaudit.com.