Strangely, the Teamsters Union could help FedEx (FDX) win the shipping wars. To explain, the Teamsters are about to strike at FedEx’s biggest private competitor, UPS (UPS).
Specifically, UPS negotiators walked away from strike settlement talks on 5 July 2023. Notably, Teamsters leaders became so frustrated with UPS executives’ behavior they sent out a press release attacking the company.
“Following marathon negotiations, UPS refused to give the Teamsters a last, best, and final offer, telling the union the company had nothing more to give,” the press release states. “The UPS-Teamsters contract covering more than 340,000 full and part-time workers expires July 31. No additional negotiations are scheduled.”*
“The Teamsters have repeatedly made clear that UPS members will not work beyond the expiration of the current contract,” the press release notes. “In June, rank-and-file UPS Teamsters authorized a strike by an overwhelming 97 percent.”*
How a UPS (UPS) Strike can help FedEx
Thus, a Teamsters strike against UPS (UPS) looks probable. Consequently, investors will wonder if a UPS Strike can help Federal Express (FDX)?
To elaborate, UPS is America’s largest private shipping service with a 24% share of the US parcel volume in 2021, Pitney Bowes estimates. In contrast, FedEx had a 19% share of the US parcel shipping market in 2021.
Conversely, the largest American shipping service is the United States Postal Service (USPS) or post office, with a 32% share in 2021. Notably, the second largest US second shipping service was Amazon Logistics, with 22% of parcel volume in 2021.
A Teamsters strike can shut down UPS, creating opportunities for the nonunion FedEx and Amazon (AMZN). Notably, I think the post office is incapable of handling the package volume a strike will create.
Can the Post Office Handle a UPS Strike?
For example, staffing shortages at several Colorado post offices reached a “crisis level” in February 2023, CPR News observes. Customers complained of two-hour waits for service and mail delayed for months.* In Steamboat Springs, customers cleaned the local Post Office because nobody was cleaning it.
Moreover, in Peyton, Colorado, mail delivery ceased because there were no letter carriers to cover routes, CBS 11 reporters. The USPS had to move carriers from Colorado Springs to keep the mail moving.* Several Colorado town governments threatened to sue the USPS* because of terrible mail service, The Colorado Sun reports.
Customers in several states including California, Wyoming, and Idaho, have reported similar mail delays and problems, NPR reports. Postmasters blame staffing shortages for the delays.*
The UPS strike could create an opportunity for FedEx because it appears the USPS lacks the resources to cover lost UPS service.
Can FedEx fill UPS’s shoes?
FedEx (FDX) could lack the resources to cover lost UPS service. To explain, FedEx’s total fleet contained 86,100 vehicles in 2022, Statista estimates.*
However, FedEx’s total vehicle fleet is shrinking. It fell from 87,300 in 2021 but rose from 77,800 in 2020, Statista estimates. Hence, FedEx’s fleet can grow and fall fast. Yet FedEx may not cover for UPS.
To explain, Statista estimates UPS’s US package delivery fleet had 108,000 vehicles in 2016.* In contrast, Delivery Systems Watch estimates UPS had 99,513 delivery and support vehicles and 519 supply chain vehicles in 2019. Unfortunately, I could not find recent estimates of UPS’s US delivery fleet.
Therefore, I think FedEx will need 20,000 to 50,000 vehicles to capture UPS service. I cannot imagine FedEx expanding that fast to pick up business from a strike that could end anytime.
Either side could back down or President Joe Biden (D-Delaware) and Congress could intervene to end the strike. To explain, both houses of Congress passed, and Biden signed, a federal law making it illegal for rail workers to strike in December 2022. I suspect business interests and fears of public anger could drive Congress and Biden to pass a similar law banning a Teamster’s strike.
Thus, a UPS strike may not help FedEx.
Is FedEx making money?
However, FedEx (FDX) could have the resources to expand if executives want.
For example, FedEx had $6.823 billion in cash and short-term investments on 31 May 2023. Similarly, FedEx had $87.110 billion in total assets on 31 May 2023. FedEx’s total assets grew from $8.697 billion on 31 May 2022, but its cash and short-term assets fell from $6.897 billion on 31 May 2022.
However, FedEx’s quarterly revenues fell from $24.394 billion on 31 May 2022 to $21.93 billion on 31 May 2023. Similarly, the quarterly gross profit fell from $16.688 billion on 31 May 2022 to $15.83 billion on 31 May 2023. Plus, FedEx’s quarterly operating income fell from $1.924 billion on 31 May 2022 to $1.503 billion on 31 May 2023.
Comparatively, FedEx’s quarterly operating cash flow fell from $3.502 billion on 31 May 2022 to $3.414 billion on 31 May 2023. In contrast, the quarterly ending cash flow rose from $832 million on 31 May 2022 to $1.45 billion on 31 May 2023.
However, FedEx can generate enormous amounts of cash. It reported a $6.85 billion quarterly operating cash flow on 31 August 2022.
Appealingly, FedEx is a cash-rich company with stable debts. FedEx’s total debt rose from $20.264 billion on 31 May 2022 to $20.579 billion on 31 May 2023. FedEx is making money but less money.
Thus, FedEx has the resources to take advantage of a prolonged UPS strike. However, I think Mr. Market overpriced FedEx Corp (NYSE: FDX) at $258.40 on 11 July 2023.
Can FedEx Compete with Amazon (AMZN)?
Conversely, FedEx (FDX) could have trouble keeping up with America’s second-largest private delivery service Amazon (AMZN).
Amazon Logistics delivered 23% of US parcel volume, or 4.8 billion packages, in 2022, Pitney Bowes estimates. Comparatively, FedEx delivered 19% of US parcel volume and 4.1 billion parcels in 2021.*Interestingly, Amazon’s delivery fleet could be larger than either FedEx’s or UPS’s. CNBC estimates Amazon had a fleet of 113,000 US delivery vans in 2022.*
Amazon has the resources to expand its delivery fleet fast. For example, Amazon had $64.405 billion in cash and short-term investments on 31 March 2023. The Everything Store also had $464.378 billion in Total Assets on 31 March 2023.
Thus, Amazon could buy a UPS or FedEx sized delivery fleet for cash. However, Amazon could lack the infrastructure to administer such a fleet. To explain, Amazon relies on 3,500 subcontractors to run its delivery fleet. Although it owns some vans.
This makes unionizing Amazon hard, but it also makes expanding administering the fleet difficult. I think Amazon will need to centralize its delivery fleet at some point. Which will make it easy for the Teamsters to unionize Amazon.
Conversely, Amazon could face pressure to expand its fleet from angry Prime subscribers. To explain, Amazon could start expanding and centralizing its fleet if angry Prime customers cancel subscriptions because of slow or missed deliveries.
My prediction is that it will be easier for Amazon to take advantage of a UPS strike than FedEx (FDX). However, I don’t think either company will try to take advantage of the UPS strike unless it lasts for several months.
The best course of action for investors is to watch and wait to see how the UPS strike affects the delivery wars.
*https://teamster.org/2023/07/after-marathon-sessions-ups-negotiations-collapse/
*https://www.pitneybowes.com/content/dam/pitneybowes/us/en/shipping-index/pb-2023-parcelshippingIndexInfographic-v5.pdf
*https://www.cpr.org/2023/02/07/colorado-usps-delays-lost-mail/
*https://www.kktv.com/2023/02/06/peyton-post-office-facing-staffing-shortage-help-come/
*https://www.statista.com/statistics/878521/fedex-express-total-vehicle-fleet/
*https://www.statista.com/statistics/806077/ups-ground-fleet-business-segment/
*https://www.driverwatchsystems.com/how-many-vehicles-does-ups-have-how-do-they-save-money/
*https://www.reuters.com/world/us/biden-signs-bill-block-us-railroad-strike-2022-12-02/
*https://www.cnbc.com/2023/01/14/what-its-like-to-deliver-for-amazon-in-new-rivian-electric-vans.html#:~:text=For%20now%2C%20most%20Amazon%20drivers,Benz%20Sprinters%20and%20Ram%20ProMasters.
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