UPS versus FedEx

Unions have their tails up. Equally, they are still copping blame for their part in ruining the US carmakers. That is why business interests are recoiling in horror as organised labour presses the new Democratic administration to make gaining union recognition easier. Yet academic research is mixed on the effect of unions on business performance. Look at UPS and FedEx. History has dealt America's two main delivery companies very different levels of unionisation among staff. UPS, with an origin in logistics, is the largest single employer of Teamsters, the union with which it collectively bargains every six years. FedEx, on the other hand, started life as an airline and so is covered by rules designed to limit railroad strikes. The bulk of its delivery van drivers are contractors, not full-time employees. The shares of both companies have fared better than the broader market since UPS listed in late 1999, but FedEx has been the better performer: up 2 per cent, compared with a 38 per cent decline for UPS. However, the larger UPS has delivered a better financial performance. Since 1995 it has reported an average operating margin of 12 per cent, to FedEx's 7 per cent. Return on equity has been consistently higher too, rarely dipping below 20 per cent, while FedEx has averaged a more pedestrian 13 per cent, in spite of employing more balance sheet leverage. The stock price performance, though, perhaps reflects FedEx being more sensitive to shareholder pressure, taking on debt and expanding aggressively in the boom, including the unwise acquisition of Kinko's, a retail printing chain, for $2bn in 2004. Since the economy began to falter in 2007, however, UPS shares have fared far better. Perhaps there is some truth to the argument that managers with unionised workforces tend not to succumb to short-term solutions to boost growth, but are forced to innovate and invest for the long term. BACKGROUND NEWS Unions are advocating passage of the Employee Free Choice Act, which would remove the requirement for an anonymous vote on whether a company's workforce should unionise. Employers' groups have argued workers would be intimidated by labour leaders if votes were held in the open and decided by a simple majority signing a card. The AFL-CIO union federation argues the so-called "card check" law is needed and accuses some companies of pressing staff not to support foundation of a union. A marketing war has erupted between unions and employers' groups, both sides buying hours of television adverts. Wal-Mart, the country's biggest retailer, was downgraded by Citigroup on the mere prospect of the bill becoming law, with the broker warning of a steep rise in costs. In January, FedEx ordered 30 Boeing 777s contingent on a piece of union friendly legislation failing. A provision in a House bill to set funding for the Federal Aviation Administration would, if passed, free workers at FedEx's express-deliver business to organise at local level. Congress passed the act to help ensure localised strikes by railroad and airline employees would not disrupt transportation. The FAA bill would strip FedEx of a similar protection.

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