UPS is an interesting company. It is heavily unionized–240,000 of its 400,000+ employees are members of the International Brotherhood of Teamsters. It is also wildly successful, weathering the storm of the recession with aplomb. UPS had $54 billion in revenues last year (versus $43 billion for non-union FedEx) but here’s the big difference between the two: as you would expect for a non-union firm, FedEx’s profitability is higher (by about $1 bn, $1.8bn versus $843 million), in part because the proportion of its revenue going to employee compensation is lower.
In fact, UPS spends about 2/3rds of its revenue on employee compensation, where FedEx spends about 45% on employee compensation. UPS thereby provides a good living for unskilled workers–particularly warehouse workers and couriers. UPS workers’ collective bargaining agreement surely works an inflationary pressure on FedEx wages as well.
UPS turning a billion less in profit surely means there is less to reinvest in the company, which can inhibit growth. UPS also has a little bit of a path dependency advantage, in that they were first to the larger market; UPS started as ground freight whereas FedEx started as air freight (thus contributing to the quirks in the governing labor law). But UPS nevertheless had a 40-year jump on FedEx, which necessarily grew at UPS’s expense. But again, FedEx had a comparative cost advantage because it could keep its labor costs down (and thus its prices down). And it maintained this advantage in part because of the aforementioned labor law quirk that allows FedEx to operate under the Railway Labor Act (making it much more difficult to organize their workers) whereas UPS is governed by the National Labor Relations Act (making it–comparatively–easier). Thus it isn’t efficiency per se as a result of so-called “labor flexibility,” but a mild form of regulatory capture that helps FedEx turn that larger profit. Erase that competitive advantage, and you have a closer profit margin, only with one firm paying its employees more.
But in any case, UPS has to be considered more successful. It employs far more people and pays them better, while maintaining majority marketshare. The wealth it produces shouldn’t be measured in its per-share value, but in the wealth created for its workforce–not just its unionized workforce, but its entire workforce. Paying employees is considered a cost, but it is spending into the economy in a way that has a greater benefit than paying dividends.
Granted, the capital requirements for this industry act as a significant barrier to entry, and the fact that there are only a handful of firms that even compete in this market is a variable; presumably, this places a limit on the amount of capital expenditure (and price cutting) necessary to compete. Nevertheless, consumers seem well served by the package delivery services industry, with both UPS and FedEx ranking high.
Really, it’s just a different way to think about profitability and competitiveness; that wealth creation should be considered vis a vis the wealth it creates for workers, not only shareholders.