FedEx or UPS?
That’s a question asked daily in mailrooms and shipping departments around the country. Most companies have relationships with both, and good shipping clerks know which one to use based on needs and circumstances. The two carriers have become similar, yet each one has its own strengths that can be leveraged for both cost and service advantages.
This discussion of FedEx versus UPS will focus on a service and spend management perspective. Reducing indirect spend is a critical factor in maximizing profitability, but not at the expense of inadequate service or operational glitches.
Factors that influence parcel shipping costs
Both UPS and FedEx offer nice incentives to their business clients, especially for packages in the one-to-five pound range, which is the “bread-and-butter” of parcel shipping. However, those incentives can quickly become over-ridden by exceptions and surcharges. In general, the three biggest factors that add costs to total shipping costs are:
- Package weight and footprint, known as dimensional or DIM weight
- Delivery location
- Special handling requirements
We’ll delve into more details on these three factors and others in a future article because they can greatly increase shipping costs if not monitored and audited.
Spend management considerations for FedEx and UPS
When it comes to FedEx and UPS shipping costs, you can exercise greater control when you consider the following:
- Minimum per-package rates—Both FedEx and UPS use the concept of DIM weight and have essentially the same standard DIM formulas. Yet the carriers also rely on the practice of minimum per-package rates. Knowing their zonal weight averages and negotiating accordingly is one way to reduce this added expense.
- Customized DIMs—The carrier’s standard DIM formulas can be used as a starting baseline if your volume and needs warrant customization. Even a fractional DIM change can add up to significant savings over the term of a contract. Since packaging makes a difference in calculating DIM, always aim for as small of a footprint as possible.
- Contract management—Typical contracts for FedEx and UPS enterprise clients can run well over thirty pages, and like contracts for any indirect spend category, they’re written to the vendor’s advantage. Sound contract negotiation and management principles are key to leveling the playing field and realizing the promised incentives.
- Shipping volume—Clients and prospects often ask how much they need to spend annually on shipping to be able to negotiate more favorable terms. Of course, the more you spend, the more leverage you have. In general, we have found that parcel shipping spend of about $250,000 annually is a baseline worth exploring for spend management programs and expertise.
FedEx versus UPS
In short, if a parcel is small, light and going to a rural, domestic location without time constraints, UPS is probably what your shipping department will select. If the materials are time-sensitive and also traveling farther distances, FedEx is the leader in long-haul express service.
However, FedEx also can be an excellent choice for ground service, sometimes faster for about the same price as UPS or less. The company also offers flat-rate shipping called One Rate, as long as the item fits in a standard FedEx container and weighs less than 50 pounds.
Along with ground deliveries to domestic residential and commercial addresses, UPS also offers air and international services. All of UPS’ shipping businesses operate via a single pickup and delivery network, allowing the company to maximize efficiency and utilization.
As for alternatives, UPS and FedEx are a modern oligopoly. Even with the explosion in small parcel shipping thanks to ecommerce growth, high barriers to entry have limited competition, leaving the US Postal Service as the only other real option for coast-to-coast domestic shipping.
Otherwise, the two carriers are essentially equal on basic features and services:
More about FedEx
“When it absolutely, positively has to be there overnight.”
That was an early advertising slogan, and even today, FedEx remains synonymous with overnight shipping. The company’s flagship air express service, flying about 6 million packages daily around the world, brings in most of the company’s revenue. Express, long-haul deliveries continue to be what FedEx does best.
The company was founded as Federal Express by Frederick Smith on the premise of a term paper he wrote while at Yale. Operations started in 1971 in Little Rock, Arkansas and were later moved to Memphis, Tennessee to take advantage of the more central location and consistent weather. In the mid-90s, the company name was abbreviated and rebranded to FedEx.
More about UPS
UPS ships more than any other carrier, delivering some 20 million packages and documents around the world, every day except Sunday. According to the annual report, in 2017 the company delivered over five billion packages.
UPS was founded in 1907 as American Messenger Company in Seattle, Washington, by an enterprising 19-year old who recognized the need for private messenger and delivery services. At that time, most deliveries were made on foot or bicycle, as few automobiles were available. In 1919, the company expanded beyond Seattle into California and adopted the name of United Parcel Service.