Harvard Business School
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Rev. May 23, 2007
Airborne Express
1
The officers of Airborne Express could hardly be more pleased. Results for the third quarter,
1997, were spectacular. Revenues for the quarter were up by 29% over the previous year, and yearto-date net earnings had increased by more than 500%. Airborne’s management team knew that the
great results were, in part, fleeting. As the third largest player in the express mail industry, Airborne
had gotten a boost from the recent strike at rival UPS. But that seemed to account for only a small
portion of the earnings gain, perhaps one-fifth. Roy Liljebeck, the company’s chief financial officer,
commented:
While the UPS strike was the headline news in the quarter, Company operations
outside the strike window were steady, trending higher than performance in the
second quarter of 1997. Productivity gains remain strong and the overall operating
2
cost per shipment continues to improve.
Airborne had been the fastest growing company in the industry for years, but its margins had been
anemic. Now, efforts to fatten those margins finally seemed to be taking hold. Of course, it didn’t
hurt that Federal Express, the industry leader, had raised its prices.
Prospects seemed much brighter than they had a year earlier. At that time, Federal Express
and UPS were unleashing a flurry of new services and pricing schemes. One industry analyst
interpreted their moves as an effort “to sweep the corners of the market…. Fedex and UPS tower
over [Airborne]. They have saturated the core market and are looking for marginal revenue
3
opportunities.” Airborne could easily “be hammered...between the two 900-pound gorillas.”
One move by the “gorillas” required an immediate decision. For years, the industry had set
prices without regard to distance. An overnight letter sent from Boston to New York carried the
same price as one from Boston to Los Angeles. In 1996, UPS moved to distance-based pricing; prices
were raised on long-distance shipments and lowered on short shipments. Federal Express followed
suit in July, 1997. Now customers were asking Airborne’s sales people whether they too would
adjust prices to reflect shipping distance.
The Express Mail Industry in the United States
Businesses and individuals spent $16-17 billion on expedited shipments within the United
States in 1996. The flagship service of the industry promised overnight shipping with next-morning
Professor Jan W. Rivkin prepared this case as the basis for class discussion rather than to illustrate either effective or
ineffective handling of an administrative situation.
Copyright © 1998 by the President and Fellows of Harvard College. To order copies or request permission to
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permission of Harvard Business School.
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delivery. Services had proliferated, however, with some companies offering next-afternoon delivery
(for a price 10-20% lower than next-morning service), second-day service (40-50% less), third-day
delivery, and same-day or early-next-morning delivery (for several times more than next-morning
service).
Physical delivery of the package was only part of the service offered to customers. Major
delivery companies made it possible for customers to track shipments en route. They provided
consolidated information on shipments to major customers. Many offered extensive customer
service and guarantees of on-time service. For international shipments, delivery companies
expedited customs clearance. Some companies also offered warehousing services and logistics
consulting services.
Shipment volumes had risen 15-20% per year for the past decade, but, because prices had
fallen, total revenues of the industry had grown by only 10-15% each year. Industry observers
expected volumes to grow at roughly a 10% annual clip for the next five to ten years.
Customers. Virtually every business and many individuals used express delivery services to
ship their most urgent documents and parcels. Federal Express alone reported that it had two
4
million “current customers” in 1996. The highest-volume customers, including some catalog
retailers, relied on express services for the vast majority of their shipments. In industries such as
financial services and consulting, express mail had become the standard means of delivering
documents. Businesses varied significantly in terms of volume of shipments and the predictability of
volume.
Items shipped by express mail usually had a high ratio of value to weight and were
perishable in some sense of the word. Business documents, electronic components, medical samples,
and replacement parts were typical shipments. Shipments were diverse, however; one firm reported
5
that it had shipped rhinoceroses, art collections, race cars, and fishing bait. The portion of goods
considered perishable or time-sensitive had increased over time, as companies sought to drive
inventories out of their logistics systems and compete on the basis of time-to-market. A general
acceleration in the pace of business and shorter fashion cycles in some industries also tended to
broaden the customer base and to increase the express volume shipped by each customer.
A number of factors influenced the decision to ship an item by express mail rather than
normal delivery, but the urgency of the shipment and price played dominant roles. Among business
customers, some had standardized procedures for determining which items were shipped by express
mail while others left each decision in the hands of employees.
Having chosen to ship an item by express mail, the customer then had to choose among
delivery companies. Relative price, the reliability of a carrier, brand name, access to tracking and
other information, customer service, the convenience of drop-off, and sheer habit—all of these factors
affected the selection of a carrier. The weights attached to the factors differed from one setting to
another, as did the decision maker and the decision-making process. Among high-volume business
customers, shipping managers typically negotiated rates and services with sales representatives of
one or more delivery company. Discounts from list prices of 50% were not uncommon. In some
companies, all shipments went via a single carrier. In others, mail-room personnel or the individual
shipping the item selected among a set of carriers. Discounts based on volume encouraged
customers to focus on one carrier. Despite volume discounts, large customers were not known for
their fidelity. In the words of one observer, “Customers don’t have any loyalty when a contract
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comes up.”
Operations. The express companies delivered a staggering number of
packages.
Collectively, the three largest companies—Federal Express, UPS, and Airborne Express—routed
more than 5 million packages each day. Over 98% arrived on time. The physical, information, and
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human assets deployed to accomplish this feat varied from company to company, but the basic
infrastructures and activities were similar.
Each company maintained a large fleet of vans and drivers. Each afternoon, drivers in a city
left a central depot and collected packages from regular customers, from customers who had called
to schedule a pickup, from retail sites staffed by the company and allied companies, and from dropoff boxes. At the point of pickup, the driver used a hand-held computer to scan the barcode on the
package and enter data concerning the package. The data were transferred to a central computer,
which determined the routing of the package. At each subsequent transfer point, the barcode was
scanned and the computer alerted. In this way, the company could track the package’s progress.
Packages were driven to the airport and placed in containers. The containers were then
loaded onto cargo airplanes, which were operated by the company. Planes lifted off throughout the
evening and descended onto hub airports around 11 PM, usually landing 90 seconds apart. The
largest carriers used multiple hubs, but each had a central hub located in the middle of the United
States. As soon as planes landed and parked, a ground crew unloaded the cargo. Assisted by special
equipment, the crew typically could unload a full plane in 20 minutes. A second crew began to
service the plane and prepare it for an outbound flight.
Cargo containers were trucked to a hanger filled with a maze of conveyor belts, chutes,
automated guide arms, and barcode scanners. There, packages were sorted according to their final
destination. Companies differed in the degree to which they automated the sorting process, but all
employed an army of caffeinated workers to guide the process. Workers sorted packages at rates up
to 60 packages per minute. Once sorted, the packages were placed into new containers and loaded
onto planes. Plane departures typically began between 3 AM and 4 AM. The planes landed at
destination airports around 6 AM. Packages were then unloaded, distributed to vans, and delivered
to their final destinations. For the highest priority packages, companies promised delivery times
ranging from 8 AM to noon.
Lower priority packages, particularly those scheduled for second-day delivery, followed a
slightly different route. Such packages were much more likely than overnight deliveries to travel by
truck rather than air, and they were sorted in hubs during the daytime.
Hub facilities were massive. Federal’s Superhub in Memphis, for instance, had 2.4 million
square feet of floor space and gates for 147 planes. Running at capacity with over 8,500 employees, it
7
could sort 160,000 boxes and 325,000 documents per hour. A new Federal Express hub near Dallas,
slated to open in 1997 with a sorting capacity of 100,000 items per hour, was reported to cost $250
8
million. A new UPS hub, intended to sort 300,000 packages each hour, was budgeted at $860
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million. Capital expenditure for air and ground fleets were also large. A new Boeing 767 cargo
10
plane, for instance, cost $90 million.
Supporting the physical distribution network of each company was an extensive
infrastructure devoted to customer service and information management. Customer service centers
of the major companies handled hundreds of thousands of telephone calls each day. Service
representatives helped customers schedule a pickup, track packages, and obtain rate information.
Sophisticated information systems planned optimal routes for packages, assisted in billing, and
permitted the tracing of packages.
Competition. The domestic express mail market consisted of three major firms—Federal
Express, United Parcel Service (UPS), and Airborne Express—and six second-tier players—BAX
Global, DHL Worldwide Express, Emery Worldwide, Roadway Package System (RPS), TNT Express
Worldwide, and the U.S. Postal Service. The Big Three, described in detail below, together served
more than 85% of the market.
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The U.S. Postal Service served much of the rest of the market. The convenience of the post
office made the Postal Service popular among residential customers. The Postal Service was
prohibited by law, however, from offering volume discounts to business customers. Moreover, it
could not track packages efficiently and had an on-time delivery record much worse than
commercial carriers. Competitors claimed that the Postal Service maintained high prices for firstclass letters, where it had a legal monopoly, and subsidized products such as express mail, where it
had rivals.
DHL and TNT focused on the international market. Roughly 80% of DHL’s shipments
crossed an international border, and DHL handled more than 40% of all trans-border express
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shipments. With hubs in places such as Nairobi and Bahrain, DHL offered extensive service to hardto-reach portions of the globe. Speedy delivery in such areas often depended on quick customs
clearance, and DHL made a major effort to know both customs procedures and customs officials.
DHL, however, had never invested heavily in domestic U.S. capabilities. A company executive
commented, “The main reason DHL is involved in domestic shipping within the United States is to
lower the costs and increase the reliability of our international shipments.”
Like DHL, TNT
maintained a low profile in the United States. With roots in Australia and a Dutch corporate parent,
TNT focused its efforts on Europe.
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BAX Global, previously Burlington Air Express, and Emery, a former freight forwarder,
focused on heavy cargo. Neither was considered competitive for overnight letters. In a bid to
expand into the letter and small package market, Emery acquired Purolator Courier in 1987.
Company officials described the acquisition as “disastrous.” The company suffered large losses until
it specialized in heavyweight, business-to-business cargo.
RPS, a subsidiary of Caliber Systems, did not offer overnight delivery. Rather, it focused on
two-day delivery via a ground network, targeting price-sensitive business customers. RPS was
known for its efficient ground transportation and its sophisticated information technology.
Competition came not only from within the industry, but also from alternative products.
While overnight delivery of a letter might cost as much as $15, ordinary mail delivery cost only 32¢.
A five-page domestic facsimile cost roughly 50¢, and the marginal cost of document delivery via
electronic mail was essentially 0¢. Both facsimile and electronic mail were speedier than express
mail.
Major carriers competed on multiple fronts, matching each other’s prices, products, and
customer support. In the early 1990s, industry observers heralded a bloody “parcel war” between
Federal Express and UPS. Each company matched not only the other’s prices, but also the other’s
innovations; in short order, the companies introduced early-morning delivery, same-day service, and
an ability to track packages by the Internet, for example. The war subsided as the industry
consolidated and the economy picked up. In early 1997, Federal Express led a price increase,
principally for high-volume, low-margin business customers. See Exhibit 1 for the history of
revenue per package.
Major Competitors
Federal Express13
Memphis-based Federal Express held roughly 45% of the domestic express mail market and
was the (disputed) leader of the industry. Its purple and white envelopes were a familiar sight in
virtually every U.S. office, and the verb “to fedex,” meaning “to ship overnight,” was common in
business circles. (See Exhibit 2 for financial results.)
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History. Federal Express virtually invented the express mail industry. Prior to Federal’s
founding, express deliveries flew primarily as freight in the holds of passenger airplanes. Hundreds
of airfreight forwarders collected urgent cargo from customers, consolidated it, shipped it via
passenger airlines, and delivered it to final destinations. Routinely through the 1950s, 1960s, and
1970s, industry observers heralded a breakthrough in airfreight, but the delivery of mail and other
cargo by air remained a relatively small and marginally profitable business. Indeed, in the early
14
1970s, airlines began to cut back on freighter service. One industry expert observed:
Various analysts have attempted to identify a single flaw that has held back the
breakthrough in the airfreight industry. But...this industry represents a complex
system, shaped as much by pricing policies as by shipper requirements, carrier costs,
route network design, aircraft, development in ground support, airport curfews,
15
regulatory constraints, and a variety of other variables.
As far back as 1965, a Yale undergraduate had envisioned an entirely different system. In an
economics term paper, Frederick Smith proposed an airline dedicated solely to express delivery of
mail. The essay argued that airlines designed to ferry passengers were inherently suboptimal for
carrying express mail. Airlines in those days carried passengers directly from origin to destination.
They did not (as they do today) take passengers through hub cities. Unlike passengers, Smith
argued, packages do not care how far they travel. As long as a package arrives reliably and on-time,
any route is acceptable. Smith claimed that hub-and-spoke routing would be efficient for express
mail. On his all-express-mail airline, packages from across the nation would be lifted to a single
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airport, sorted, and sent to their destinations.
The term paper received a “C.”
Smith was not deterred. Following a tour of Marine duty in Vietnam, he incorporated
Federal Express in 1971. He then spent two years (and much of his family’s large fortune)
confirming the market’s desire for overnight mail delivery; refining the target market to focus on the
small packages that were largely ignored by other air carriers; assembling a fleet of executive jets and
modifying them to carry cargo; constructing a hub operation at the Memphis, Tennessee, airport;
securing initial customers; and gaining government approval, a major obstacle in the heavily
17
regulated airline industry. On April 17, 1973, Federal Express commenced service, shipping 186
18
packages to and from 25 cities.
Originally a shoestring operation (legend has it that pilots paid for fuel with their personal
credit cards and that Fred Smith turned to the Las Vegas gambling tables to cover one week’s
payroll), Federal Express gained altitude at a stunning rate. The firm reached $1 billion in revenue in
1983, the first company in American history to reach that threshold within ten years after start-up,
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without a single acquisition.
Operations. By 1997, Federal Express had become a major enterprise with revenue of $11.5
billion. Its facilities spanned the globe, with eight hubs in the United States and five more overseas.
Each day it deployed 129,000 employees, 38,000 ground vehicles, and over 600 aircraft to deliver 2.8
million packages. In the United States alone, its couriers traveled 2.5 million miles—100 times
around the globe—every day. The company maintained approximately 1,400 retail sites and 32,000
drop-off boxes. It also struck alliances with retailers whose sites served as “authorized shipcenters.”
Exhibit 3 gives one estimate of the costs incurred by Federal Express to deliver an average
overnight letter within the United States.
Technology. Federal Express was founded just as computers began to be used widely in
business, and the firm prided itself on its cutting-edge information and logistics technology. Its
central computer system, COSMOS, coordinated vehicles, people, packages, routes, and weather
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information. Supertrackers, hand-held barcode scanners and small computers, were used by couriers
to enter information about each package. A Digitally Assisted Dispatch System (DADS) connected
the central computer to the dispersed couriers. DADS directed couriers to pickup locations and
uploaded information from Supertrackers to COSMOS. Workstations in customer service centers,
tied into COSMOS, helped service representatives handle customer requests. The company
described its command and control system, which oversaw flight operations, as “the largest object20
oriented, client-server UNIX undertaking in the world.” Its hubs were among the most heavily
automated in the industry.
To complement these internal systems, Federal tried to place matching technology at
customer sites. The company gave to customers, free of charge, Powership computer terminals and
shipping software which allowed customers to prepare shipping paperwork, streamline billing, and
track shipments. As of 1997, 600,000 customers had Powership systems, and users of Powership
stations or shipping software accounted for 60% of Federal Express volume. Federal’s Internet site
(http://www.fedex.com) was acclaimed by World Wide Web observers as a rare site that allowed
users to do something useful: customers could track the status of a package, schedule a pickup, prepare
paperwork, or print a bar-coded label for a package.
Federal Express was widely recognized for its quality improvement efforts. In 1990, the
company became the first service organization to win the Malcolm Baldrige National Quality Award.
Service quality was measured on a routine basis, in a number of ways. The company tracked
delivery performance by assigning a weight on a 10-point scale to each type of failure (e.g., one point
for a late delivery on the right day, ten points for a lost package) and monitoring failure points on a
daily, weekly, and monthly basis. Similarly, the company measured how satisfied customers were
with telephone service. Forty-eight times each day, it monitored the performance of call centers—the
average speed of answers, the number of holds, the number of transfers, etc. Federal Express also
surveyed customers each quarter. The often-stated service goal was 100% customer satisfaction.
Quality Action Teams of 4 to 10 employees tackled specific obstacles to achieving 100% satisfaction.
Marketing and sales. Aggressive marketing had been a hallmark of the company since the
1970s. Its nationally advertised mottoes (“when it absolutely, positively has to be there overnight”
and, more recently, “the world on time”) were widely recognized. In 1996, advertising expenditures
topped $138 million. In addition to advertising, Federal Express deployed over 1,100 sales
representatives to canvas major business customers. Federal backed up its marketing with a moneyback guarantee.
People and culture. Fred Smith, still firmly in command of Federal Express in 1997, often
repeated the company’s mantra: “People, Service, Profit. When people are placed first, they will
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provide the highest possible service, and profits will follow.” A host of human resource policies
underpinned this philosophy.
Whenever possible, Federal Express promoted people from within its ranks. An internal
computer program matched employees with job openings. The company also espoused a policy of
no layoffs. To make this policy possible, Federal cross-trained employees and cultivated a large parttime workforce.
The company devoted millions of dollars to extensive training programs. Customer service
agents, for instance, attended a six-week course before fielding service calls, had several hours of
follow-up training each month, and took two computerized quizzes per year. The company tested
managers and hourly workers alike, via computers, and assigned remedial courses to employees
who failed. Many training programs focused on quality improvement.
Employees were given wide latitude to make decisions on their own. Billing center
employees, for example, could offer refunds up to $2,000 without management approval. Top
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management expected employees to take risks and resolve problems on their own. Legends of risktaking and problem-solving were common. One courier, having misplaced the key to a drop-off box,
22
loaded the entire box into his van and took it to the city sorting station, where it could be unlocked.
Federal Express emphasized communication throughout the company. An Employee
Communications department of 50 people spent roughly $70 per employee per year on hundreds of
print products and audiovisual programs. An internal closed circuit television system—FXTV—
broadcast daily company news (shipment volumes, service success levels, stock price), weather
conditions around the nation, information about the competition, and so forth. Top managers
occasionally conducted call-in talk shows via FXTV.
Managers up to Fred Smith received incentive pay based on performance against negotiated
objectives. Employee satisfaction, measured by an annual survey, played a significant role in
determining a manager’s pay. Hourly workers who performed well against objectives were also
eligible for bonuses; scores on the tests mentioned above affected these bonuses. Compensation
programs tended to emphasize measurable objectives that were linked to customer satisfaction. All
employees who worked more than 1,000 hours a year and were not covered by a union contract
automatically benefited from a profit-sharing plan. At Federal Express, only flight crew members
belonged to a union.
Recognition programs complemented the formal compensation system. Local managers had
discretion to grant a “Bravo Zulu” (Navy-speak for “well done”) award to anyone who performed
above and beyond the call of duty. The awards granted were small, but they were swift and visible.
Following the 1997 UPS strike, Federal Express distributed one-time bonuses totaling $20 million to
thank employees for extra effort exerted during the strike.
International ventures. In 1985, Federal Express began to pursue Fred Smith’s vision of
global delivery of express mail. Establishing an integrated global network proved to be prohibitively
expensive, however. After overseas operating losses topped $600 million in 1992 (see Exhibit 4), the
company scaled back its ambitions sharply. The company focused on deliveries to and from the
United States and relied on partner companies to complete deliveries in many locations. In 1997,
however, the company seemed poised to renew its global expansion. A new venture focused on intraAsia shipments, and CFO Alan Graf predicted that international earnings would surpass domestic
23
contributions within five years. Federal Express reported that its global network, including partners,
covered 211 countries and 99% of world GDP.
United Parcel Service24
Atlanta-based UPS was the largest package delivery company in the world. Its daily volume
of 12 million parcels far exceeded Federal Express’s (2.8 million), but most of that volume was not
express mail and traveled via UPS’s traditional ground network. In the domestic market for
expedited delivery, UPS held only a 25% share and took second place to Federal Express. (See
Exhibit 5 for financial results.)
History. If Federal Express was the purple and orange company of the 1970s, United Parcel
Service was the Pullman-brown firm of an earlier, humbler America. Founded in Seattle in 1907 as a
messenger service, UPS soon repositioned itself as the delivery arm of major department stores.
In 1922, in Southern California, UPS launched an experimental “common carrier” service to
deliver parcels in general, not just department store deliveries, by truck. As automobile ownership
became widespread and retail stores moved to the suburbs in the 1950s, UPS reinvented itself around
this experiment. To establish itself as a common carrier of parcels, the company had to fight dozens
of legal and regulatory battles for the right to deliver within and between states. Only in 1980 did
UPS reach its goal of complete national coverage.
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From the 1913 purchase of its first Model T Ford, UPS moved most its packages on the
ground. (Vehicles were painted brown to hide the dirt of often-unpaved roads.) In 1929, a group of
investment bankers planned a national air express company and sought UPS to provide ground
service to complete deliveries. UPS allowed itself to be bought out by the banking interests. The
onset of the Great Depression killed the infant air service, but left UPS in the hands of the bankers.
The founders and managers of the company struggled under the bankers, then celebrated, four years
later, when they bought back the company. In the words of one founder,
Four hazardous years after our first entanglement with those outside financial
interests and at the very lowest point of the general depression...we recovered for
our own people full possession of all stock in our company. we learned a lesson in
25
those four years that should never be forgotten.
Starting in 1953, UPS offered two-day service by air between major cities in the United States.
The air service coupled UPS’s ground network with the cargo services of major airlines. Only in 1981
did UPS purchase its first aircraft. The company took direct control of all air operations in 1987.
Through most of its history, UPS viewed the United States Postal Service as its main rival.
With rates heavily regulated, UPS focused relentlessly on reducing costs. The founders of the firm
admired the scientific management principles of Frederick Taylor and employed Taylor’s disciples to
26
apply the principles to UPS. Time-motion studies identified the most efficient practices for drivers
to follow. Drivers were instructed, for instance, to maintain a brisk walking pace, to knock on the
door and ring the doorbell when making a delivery, and to get keys ready while walking back toward
the truck. The result was an extremely low cost per unit.
Like the Postal Service, UPS historically charged a single price to all customers. As one
former CEO said, “We’d always prided ourselves on saying your grandmother paid the same price
27
General Motors did.” To drive down costs, UPS picked up parcels at its own convenience, not the
customers’. Since it saw little reason to spend money collecting information, it could not track
packages easily.
The success of Federal Express in air express service and especially the success of RPS on the
ground shook UPS from its slumber in the late 1980s and early 1990s. To match competitors, UPS
refocused itself around customer service and invested billions of dollars in aircraft, sorting
infrastructure, and technology. By all accounts, the change was wrenching for a company that took
pride in its heritage. Even a proposal to paint globes on its trucks encountered opposition from
28
traditionalists. By the 1990s, however, UPS was hailed in the business press as one of a rare breed: a
29
large company that altered its course radically and successfully.
Operations. In 1996, the 336,000 employees, 160,000 trucks, and roughly 500 aircraft of UPS
delivered 12 million parcels each day and generated revenue of more than $22 billion. The company
delivered roughly 1.6 million express packages daily.
Air operations centered on a hub in Louisville, Kentucky, with five regional air hubs
distributed around the nation. As a privately held and soft-spoken company (see below), UPS
revealed few details of its operations. Judging from the sheer scale of the capital invested in facilities
during the late 1980s and 1990s, most industry observers speculated that UPS’s sorting and routing
facilities were highly automated and employed the latest technology.
Air operations shared certain facilities with UPS’s traditional ground network. Most
importantly, a single fleet of trucks handled the pickup and delivery of all UPS shipments. As a
result, UPS drivers picked up as many as three times more parcels per stop than Federal Express
drivers did.
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Technology. UPS had made a determined effort to match Federal Express’s information
30
technology prowess, investing $3 billion in advanced technology between 1990 and 1995. The
31
headcount of technical, computer, and R&D staff had swelled from 95 in 1984 to over 4,000. By
1997, the company had closed most of the technology gap. It could, for instance, track packages
efficiently, deliver proof of delivery electronically, and confidently offer a money-back guarantee of
on-time delivery. Its Internet site (http://www.ups.com) provided functions very similar to Federal
Express’. Customers could use the site to track a package, schedule a pickup, prepare shipping
paperwork, check rates, and so forth. A 35-acre site in New Jersey housed the company’s main
computer operations, and a backup site in Georgia stood ready in case a disaster hit the New Jersey
facility.
Marketing and sales. Prior to the 1980s, UPS had no marketing department and did little or
32
no advertising. By 1996, however, the press reported advertising campaigns of $80-100 million. An
agency that tracks leading national advertisers found that UPS spent nearly 80% more on media than
33
Federal Express did during 1996. Roughly 2,700 account executives were responsible for highvolume customers.
People and culture. UPS prided itself on being “owned by managers and managed by
owners.” Stock in the corporation was not traded on public exchanges. Rather, stock was issued to
company managers, who could hold onto it, sell it to the company or to other managers, or bequeath
it to heirs. The company itself made a market in the stock, setting a price at which it would purchase
a certain number of shares.
In determining the stock price, the Board of Directors considered the long-term prospects of
the company. They explicitly ignored what they considered short-term swings in the valuations of
34
comparable companies. Prior to the 1997 strike, the stock price of UPS had never fallen. Its value
rose especially quickly from January, 1995, when it stood at $23 ½, to August, 1997, when it crested at
$30 ½ .
Each year, UPS allocated up to 15% of its pre-tax profits to buy company stock. The stock
was then distributed to managers, from entry-level supervisors up to the CEO. As a result, said one
former CEO, “We have [thousands of] owner-managers who have virtually every cent they own
invested in stock of this company.” A program established in 1995 allowed non-management
employees to purchase stock as well. As of the end of 1996, 27,000 active managers owned roughly
32% of the stock and 60,000 non-managers owned 2.7%. Retired managers, their heirs, and trusts
held the rest of the equity.
UPS expected its managers to view their jobs as lifelong endeavors. Virtually all members of
the top management committee started their UPS careers as hourly employees or front-line
35
supervisors. The majority of them joined UPS as drivers. The UPS Policy Book made an explicit
pledge to promote managers from within UPS ranks whenever possible.
The Policy Book served as a virtual Bible within UPS. A former CEO (who joined UPS as a
clerk in 1925) noted that “except for editing changes to update language, our Policy Book today is
36
basically the same as the original book, distributed to 14 UPS managers in 1929.”
The Policy Book emphasized management by consensus. “Although we are organized in
corporate form, ... we make our management decisions as partners.” The book also reinforced an
ethic of humility. A visitor to corporate headquarters reported:
The buildings were stark, contemporary, and simple…. Chairs and tables were
functional. Walls, if not barren, displayed folksy, Norman Rockwell-type images of
UPS package cars serving small communities. Carpets, where they existed, were
thin and laid for the convenience of cleaning, not comfort. Offices were comparably
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sized. Parking spaces were available on strictly a first-come, first-served basis. The
parking lot was filled with conservative, mid-sized cars. People who drove flashy
37
sports cars were subject to peer teasing.
By tradition, white-collar managers cleared their desks at the end of each day, and food and drink
were not allowed at any computer terminal.
The regimented work style extended to blue-collar workers. Industrial engineers continued
to perfect the techniques of drivers and sorters, and managers rode along with drivers occasionally to
38
clock their movements and check their efficiency.
Historically, high wages had kept labor-management relationships good. In 1997, full-time
39
UPS drivers were among the best paid in the nation, earning $20 per hour plus benefits. The
International Brotherhood of Teamsters, which represented 190,000 UPS employees, had been
instrumental in establishing the high wages. In contrast, drivers at non-union Federal Express
earned $10-17 per hour.
During the late 1980s and early 1990s, the Teamsters focused on raising the wages of fulltime UPS employees, who tended to be more committed to the union. The gap between full-time and
part-time wages widened dramatically, and the company increasingly relied on part-time labor.
Because overnight mail was sorted in short, intense bursts, part-time workers were especially
important to express services. Of 5,200 workers in the Louisville air hub in 1997, 4,900 were parttimers. Part-time sorters started at $8 per hour. Roughly 10 to 20 part-time workers in the hub
moved up to full-time employment each year.
Tensions between UPS management and labor unions came to a head in August, 1997, when
UPS suffered the first national walkout in its history. The 16-day strike paralyzed the company and
caused a noticeable disruption to the U.S. economy as a whole. Customers scrambled to ship 12
million parcels per day by other means, and competitors found their systems flooded.
The contract that resolved the strike was hailed as a victory for labor. UPS agreed to create
10,000 additional full-time positions over the five years of the contract. Wages of senior part-time
employees were slated to increase 35% over five years, and full-time wages were scheduled to rise by
15%. Moreover, UPS had wanted to withdraw from a multi-employer pension plan and set up its
40
own, separate program. The contract prevented such a move.
The strike immediately cost UPS $700 million in lost revenue, and it tarnished the firm’s
reputation for absolutely reliable delivery. Following the strike, shipping volumes appeared to be
41
running at 5% lower levels than normal. On August 20, 1997, the Board of Directors reduced the
internally regulated stock price for the first time in firm history, half a point to $30.
International operations. Like Federal Express, UPS had invested heavily in constructing a
global distribution system. Overseas assets valued at nearly $2 billion served over 200 countries.
Operating losses continued to run in the hundreds of millions of dollars, but the company appeared
committed to additional investment.
Airborne Express
Seattle-based Airborne Express was the often-overlooked company in the express mail
42
business. While Federal Express made headlines and UPS reluctantly found itself in the headlines,
Airborne rarely attracted notice. Yet over the past five years, it had grown far faster than either of its
10
Airborne Express
798-070
larger, better known rivals. (See Exhibit 6.) By 1997, Airborne held roughly 16% of the domestic
express mail market.
History. The company was descended from two specialist airfreight carriers. The Airborne
Flower Traffic Association of California was founded in 1946 to ship fresh flowers from Hawaii to the
mainland. Pacific Air Freight, founded in 1949, focused on the delivery of perishables to and from
Alaska. Each diversified to become general airfreight forwarders, and the two merged in 1968 to
form the Airborne Freight Corporation. Of the hundreds of forwarders that existed before Federal
Express and the handful that entered the express mail industry in Federal’s wake, Airborne was by
far the most successful.
Early on, Airborne targeted the business customer that regularly shipped a large volume of
urgent items, primarily to other business locations. A typical customer was Xerox, which had to
deliver parts daily from central warehouses to repair technicians spread throughout the United
States. The company purposely passed over residential deliveries and infrequent shippers. In 1995,
for instance, Airborne decided to stop serving catalog companies with heavy seasonal delivery
43
requirements.
Ray Berry, vice president of Field Services Administration, emphasized the
importance of targeting particular business customers:
There’s an advantage in our being selective about the customers we serve and the
services we offer. The customer needs we have targeted to fill are what we are best
at. If, for example, we had large mail-order customers requiring nothing but
residential delivery, we might not be able to serve them as well as we know how to
serve IBM or Xerox. Since we can’t be all things to all people, we pick our kind of
44
customer deliberately.
Operations. With 12,700 full-time and 8,000 part-time employees, 13,300 vans, and a fleet of
175 aircraft, Airborne Express delivered roughly 900,000 packages and documents each day.
Unlike Federal Express and UPS, Airborne owned the airport that served as its major hub.
Airborne purchased the facility, an abandoned Strategic Air Command base in Wilmington, Ohio, for
$875,000 in 1980. As a result, it did not pay landing fees, nor did it face any obstacles to tailoring the
facility to its needs. On the other hand, it had to maintain the airport itself, and it did not share
facility expenses with other airlines.
Airborne had built warehouse space on its Wilmington property, which it leased to business
customers. For instance, a number of mail-order computer retailers stored goods in Airborne’s
“Stock Exchange” warehouses. These retailers could take orders from their customers as late as 2
AM and have goods delivered via Airborne the same day. Federal Express and UPS offered similar
warehousing options, but not on the airport site. Airborne also operated the nation’s only privately
owned foreign trade zone in Wilmington. The airport’s status as a Community Reinvestment Act
zone led to reduced property taxes.
In its sorting operations, Airborne relied less on automation and more on humans than
Federal Express and UPS did. Part-time wages for a starting position in rural Ohio were roughly $7
per hour. The Wilmington hub was not unionized. Overall, unions represented roughly half of
Airborne’s workforce, including all pilots.
Airborne’s fleet consisted primarily of used aircraft—built in the 1960s and 1970s, used by
others, purchased by Airborne, and modified for Airborne’s purposes. (See Exhibit 7.) Airborne
officials estimated that a typical used aircraft could be purchased for $5 million and refurbished for
$5-10 million. The company had recently arranged to buy and convert 12 Boeing 767s for $24 million
each. Airborne’s patented cargo containers fit through the passenger door of an aircraft; they did not
require a cargo door. Airborne managed to run its aircraft roughly 80% full. Competitors typically
11
798-070
Airborne Express
attained utilization rates of 65-70%. Industry observers estimated that 80% of the costs of a flight did
not vary with the amount of cargo carried.
Shippers and recipients of Airborne parcels were concentrated in major metropolitan areas.
(Industry experts believed that 80-85% of its volume was shipped between the top 50 metropolitan
areas. For Federal Express, this figure was below 60%; for UPS, even lower.) Moreover, a greater
portion of Airborne’s volume consisted of afternoon and second-day deliveries. As a result, Airborne
could use trucks more often than its competitors for the long-haul portion of a delivery. Roughly
45
30% of Airborne’s volume never saw the inside of an airplane (versus 15% for Federal Express).
Industry observers estimated that the costs of a truck were only one-third the cost of owning and
operating a similar amount of aircraft capacity.
In its pickup and delivery activities, Airborne differed from its rivals in at least two ways.
First, it did not maintain retail service centers. (It did, however, have roughly 11,000 drop-off boxes.)
Second, Airborne owned and operated only a portion of its delivery vans. Independent contractors,
paid by the mile or parcel, provided the balance of the pickup and delivery services. By one
estimate, contractors handled 60-65% of Airborne’s volume, and contracted pickup and delivery was
10% less expensive than company-owned pickup and delivery.
An Airborne courier typically picked up and delivered more parcels per stop than a Federal
Express driver. By one estimate, this reduced labor costs per unit by 20% for pickup and by 10% for
delivery. In contrast to UPS and Federal Express, which typically promised next-morning service by
10:30 AM, Airborne typically pledged to deliver before noon. An industry expert estimated that 9697% of all Airborne shipments arrived on time. Comparable figures for Federal Express and UPS
were 99% or higher.
Technology. Airborne invested selectively in technology. An
commented:
Airborne
manager
When it comes to technology, Airborne doesn’t add on bells and whistles. We use
our competitors as guinea pigs. Let them try out the new stuff and see what works.
We won’t introduce new technology unless there’s a clear derived benefit for our
46
customer.
Airborne’s major software system, its Freight On-Line Control and Update System (FOCUS),
provided many features comparable to Federal Express’ COSMOS. Airborne offered high-volume
shippers a number of software products and devices which tied customers directly into FOCUS.
These linkages allowed customers to trace packages themselves rather than engage service agents.
Moreover, they allowed customers to submit shipping information electronically, which eliminated
manual data entry.
A new project on call center automation ensured that many customers would speak with the
same service agent each time they called. Airborne’s Internet site (http://www.airborne.com) did
not offer as many functions as its rivals’ did. A customer could use the site to track a shipment, but
not to schedule a pickup or create shipping paperwork.
Marketing and sales. Airborne did not advertise in the mass media. Rather, it targeted
logistics managers of major shippers, primarily via a 500-person sales force. Senior managers also
took an active role in courting major accounts.
Prior to 1996, salespeople operated relatively autonomously. They had wide latitude to set
prices and were compensated largely on sales volume. Starting in 1996, incentives were shifted to
encourage sales of higher margin products. Corporate headquarters also began to review volume
discounts and the pricing of large accounts.
12
Airborne Express
798-070
Airborne was known for its low prices. Exhibit 8 compares the list prices quoted by
competitors for various services and shipment weights.
Starting in the mid-1990s, Airborne had begun to bill itself as “the flexible, solution-oriented
express carrier” with an ability to tailor its services to the needs of particular large business
47
customers. The firm touted highly customized services for companies such as Nike, Compaq,
Technicolor, and Xerox. Xerox, for instance, needed its spare parts delivered to technicians very
early; its technicians could not start their workday without the parts. To accommodate early
delivery, Airborne created special sort codes, programmed each courier’s barcode scanner to emit a
special beep when it scanned a Xerox package, and instructed couriers to deliver Xerox packages
first. As a result, Airborne could make Xerox deliveries as early as 8 AM. This customization helped
Airborne win the Xerox account in 1988. By the mid-1990s, however, Federal Express and UPS
offered 8 AM delivery to any customer for a surcharge. Moreover, both rivals claimed to be able to
tailor services to customer needs.
People and culture. Airborne employees described the company as “strait-laced,” “frugal,”
48
and “very conservative.” In a headquarters designed to be functional, top executives answered
their own telephones, discouraged perquisites, and shied away from interviews. Both the facilities
and the statements of the company reflected humility. President and COO Robert Brazier
commented on the year’s great financial results to date:
It wasn’t that we were so smart, that we knew this was going to happen. It’s just one
of those things that works out. I’d love to sit here and tell you we planned it, but
that would be a bald-faced lie…. Anyone who’s been in this business very long
knows that situations change in a heartbeat. You just take what you have at the
moment and plan as far as you think you can be realistic. Just don’t get too strung
out. And, for God’s sake, don’t get arrogant or cocky, because that’s not the way to
49
be.
International operations. Airborne’s overseas ambitions were far more modest than the
aims of Federal Express or UPS. Assets invested in international operations were a mere $78 million
in 1996, 6% of total identifiable assets. (Comparable figures for Federal Express and UPS were 19%
and 12%, respectively.) Airborne took a “variable-cost approach” to international shipments, using
commercial airlines and local partners to complete shipments. Senior officers believed that “there are
no significant service advantages which would justify the operation of [our] own aircraft on
50
international routes.”
RPS Relationship
In 1995 and 1996, Airborne began to forge a relationship with Roadway Package System
(RPS), a subsidiary of Caliber Systems. By targeting the ground transport needs of large-volume
business customers, RPS had made deep inroads into UPS’s traditional customer base. RPS offered
shippers low prices and superior information and tracking capabilities. RPS’s parent company had
tried to introduce air operations, but folded its startup, Roadway Global Air, in 1995 after hundreds
51
of millions of dollars of losses.
The combination of RPS on the ground and Airborne in the air had a strong appeal. A traffic
manager at a large shipper commented:
RPS is far and away the package delivery information leader. But they have had to
find a way to offer one-stop shopping. Airborne does not get the publicity that UPS
and Federal Express get, but they are a major player. So this could be a real
52
broadside against those carriers.
13
798-070
Airborne Express
The relationship between the two companies remained an arms-length affair, with joint offers to
customers on a case-by-case basis. The companies’ physical distribution systems remained entirely
separate. Most of the cooperation occurred in the marketing process and in the sharing of shipment
information. Officials of both companies, however, hinted at a closer alliance, perhaps with an
integrated pickup and delivery system.
Airborne’s Future
In the wake of the UPS strike—and those terrific financial results—Airborne’s senior
management team paused to review its situation. Was its position in the industry as secure as it
hoped? How dangerous, and how agitated, were the two “900-pound gorillas”? Was its approach to
the international market sound? And how important was the RPS partnership to its future?
More tactically, should Airborne follow the lead of UPS and Federal Express and move
toward distance-based pricing? Unless it did so, its discount versus the competition would be much
larger on coast-to-coast traffic than on intra-regional shipments.
A few features of the competitive landscape seemed to be shifting. The Postal Service had
performed admirably during the UPS strike, and its success seemed to have reawakened its
ambitions, particularly those of its chief officer Marvin Runyon, a former Ford Motor Company
executive. The Service planned a major advertising blitz to promote its express services. It was also
53
petitioning Congress for the right to grant volume discounts. In addition, industry analysts were
confident that UPS would make some play to recoup its lost volume. Customers, especially those
that relied heavily on a single company for shipping, were shaken by the strike. “Single-sourcing as
a buzzword lost its buzz,” said Ivan Hofmann, president of RPS. “That’s good for us and it’s good
54
for the industry.”
14
Airborne Express
798-070
Exhibit 1: Revenue and Pounds Per Shipment, 1985-1997
Federal Express*
Year
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Revenue per
shipment
19.19
17.92
16.97
16.32
16.28
16.76
17.33
16.38
15.30
15.12
14.62
14.87
15.11
Pounds per
shipment
5.6
5.3
5.1
5.3
5.4
5.4
5.6
5.7
5.8
6.0
6.3
6.4
7.2
Airborne Express**
Revenue per
shipment
19.37
16.24
14.20
12.73
11.73
11.43
10.78
9.68
9.23
8.84
8.24
8.25
NA
Pounds per
shipment
7.3
6.4
6.1
5.7
5.2
5.0
5.0
4.8
4.8
4.8
4.6
4.5
NA
* Includes domestic and international shipments; fiscal year ends on May 31
** Includes domestic shipments only, fiscal year ends on December 31
Source: Company annual reports
15
798-070
Airborne Express
Exhibit 2: Financial Results of Federal Express, 1986-1997
Summary
Year
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Revenue
($ mm)
2,573
3,178
3,883
5,167
7,015
7,688
7,550
7,808
8,479
9,392
10,274
11,520
Operating
income
($ mm)
344
365
379
415
387
252**
23**
377
531
591
624
699
Net income
($ mm)
132
(66)
188
166*
116
6**
(114)**
110***
204
298
308
361
Operating
margin (%)
13.4
11.5
9.8
8.0
5.5
3.3**
0.3**
4.8
6.3
6.3
6.1
6.1
Return on
equity (%)
13.8
(6.0)
15.6
11.8*
7.4
0.4**
(7.0)**
6.8***
11.4
14.3
12.8
13.0
* Excludes $18 mil accounting change
** Includes restructuring charges related to reduction of European services
*** Excludes ($56) mil accounting change
Details (millions of dollars)
Revenue
Operating expenses
Salaries and employee benefits
Rentals and landing fees
Depreciation and amortization
Fuel
Maintenance and repairs
Other
Operating income
Net income
Total assets
Total equity
Note: Fiscal year ends May 31
Source: Company annual reports
16
1997
11,520
1996
10,274
1995
9,392
5,095
1,071
777
690
724
2,462
4,620
959
720
579
618
2,155
4,425
819
652
502
544
1,858
699
361
624
308
591
298
7,625
2,963
6,699
2,576
6,433
2,246
Airborne Express
798-070
Exhibit 3: Estimated Cost Structure of Federal Express Overnight Letter
Item
Pickup
Labor
Fuel
Maintenance and depreciation
Subtotal
Cost per unit
$1.09
$0.07
$0.21
$1.37
Long-haul transport
Flight- and trucking-related expense
Hub labor
Hub depreciation
Subtotal
$2.44
$0.30
$0.25
$2.99
Delivery
Labor
Fuel
Maintenance and depreciation
Subtotal
$1.64
$0.10
$0.31
$2.05
Advertising
$0.22
Sales
$0.21
Information technology
$0.54
Customer service
$0.20
Corporate overhead
$0.97
Total cost
$8.55
Margin
$0.45
Price*
$9.00
Source: Case writer estimates, based on company documents, security analyst reports, and interviews
with industry experts
* The price reported here is lower than the list price shown in Exhibit 8 because of discounts granted
to large-volume customers.
17
798-070
Airborne Express
Exhibit 4: Federal Express Financial Performance by Geographic Segment
United States
Year
1988
1989
1990
1991
1992
1993
1994
1995
1996
Revenue
($ mm)
3,459
4,145
4,785
5,058
5,195
5,668
6,200
6,839
7,466
Operating
income
(loss) ($ mm)
410
467
608
671
636
559
560
466
542
International
Operating
margin (%)
11.9
11.3
12.7
13.3
12.2
9.9
9.0
6.8
7.3
Revenue
($ mm)
423
1,022
2,230
2,630
2,355
2,140
2,280
2,553
2,807
* Includes restructuring charges related to reduction of European services
Source: Company annual reports
18
Operating
income
(loss) ($mm)
(31)
(43)
(195)
(419)*
(613)*
(182)
(29)
126
82
Operating
margin (%)
(7.3)
(4.2)
(8.7)
(15.9)
(26.0)*
(8.5)
(1.3)
4.9
2.9
Airborne Express
798-070
Exhibit 5: Financial Results of United Parcel Service of America, 1986-1996
Summary
Year
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
Revenue
($ mm)
8,620
9,682
11,032
12,358
13,606
15,020
16,519
17,782
19,576
21,045
22,368
Operating
income
($ mm)
1,203
971
1,075
1,215
1,052
1,251
1,278
1,458
1,556
1,794
2,029
Net income
($ mm)
669
625*
759
693
597
700
765**
810
943
1,043
1,146
Operating
margin (%)
14.0
10.0
9.7
9.8
7.7
8.3
7.7
8.2
7.9
8.5
9.1
Return on
equity (%)
29.8
22.7*
24.4
20.5
16.6
18.7
20.1**
21.1
22.0
21.3
20.7
* Excludes $159 mil accounting change
** Excludes ($249) mil accounting change
Details (millions of dollars)
Revenue
1996
22,368
1995
21,045
1994
19,576
Operating expenses
Compensation and benefits
Repairs and maintenance
Depreciation and amortization
Purchased transportation
Fuel
Other occupancy expense
Other
Restructuring charge
13,305
823
936
1,306
685
388
2,896
--
12,401
809
866
1,144
621
359
2,679
372
11,727
812
786
1,206
564
361
2,564
--
2,029
1,146
1,794
1,043
1,556
943
14,954
5,901
12,645
5,151
11,182
4,647
Operating income
Net income
Total assets
Total equity
Note: Fiscal year ends December 31
Source: Company annual reports
19
798-070
Airborne Express
Exhibit 6: Financial Results of Airborne Freight Corporation, 1986-1996
Summary
Year
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
Q1-3: 1997
Revenue
($ mm)
542
632
768
950
1,182
1,367
1,484
1,720
1,971
2,239
2,484
2,157
Operating
income
($ mm)
26
19
22
46
64
59
28
83
89
69
79
171
Net income*
($ mm)
13
6
7
19
31
27
2
33**
38
24
27
89
Operating
margin (%)
4.9
3.0
2.8
4.8
5.4
4.3
1.9
4.8
4.5
3.1
3.2
7.9
Return on
equity (%)
15.2
5.5
5.6
12.9
14.4
9.9
0.8
10.8**
10.7
5.9
6.5
13.9***
* Net income available to common shareholders
** Excludes $4 mil accounting change
*** Annualized
Details (millions of dollars)
Revenue
Operating expenses
Transportation purchased
Station and ground operations
Flight operations and maintenance
General and administrative
Sales and marketing
Depreciation and amortization
Loss related to aircraft accident
Operating income
Net income
Total assets
Total equity
Note: Fiscal year ends December 31
Source: Company annual reports and 10-Q
20
1996
2,484
1995
2,239
1994
1,971
828
782
387
181
60
164
4
788
693
328
157
60
144
--
670
596
279
146
53
138
--
79
27
69
24
89
38
1,307
432
1,217
406
1,079
387
Airborne Express
798-070
Exhibit 7: Aircraft Fleet, 1997
Aircraft type
Airbus A300
Airbus A310
Boeing 727
Boeing 747
Boeing 757
Boeing 767
Cessna 208
Fokker F27
McDonnell Douglas DC8
McDonnell Douglas DC9
McDonnell Douglas DC10
McDonnell Douglas MD11
McDonnell Douglas YS11
Other
Total owned
Leased from others
Chartered
Total
Federal Express
(7/97)
20
35
163
—
—
—
264
32
—
—
49
24
—
21
489
119
—
608
UPS
(12/96)
—
—
61
14
60
15
—
—
49
—
—
—
—
330
180
19
330
529
Airborne
(12/96)
—
—
—
—
—
—
—
—
35
66
—
—
9
65
98
12
65
175
Source: Company Form 10-Ks and Internet sites
Exhibit 8: List Prices of Express Mail Carriers
Weight
Letter
1 lb.
2 lb.
5 lb.
10 lb.
50 lb.
Weight
Letter
1 lb.
2 lb.
5 lb.
10 lb.
50 lb.
Overnight, morning delivery
Fedex
UPS
Airborne
$13.86
$12.54
$10.95
$19.46
$17.54
$14.95
$21.57
$19.39
$15.75
$27.21
$24.71
$20.95
$36.96
$33.50
$30.15
$86.86
$90.18
$80.70
Overnight, afternoon delivery
Fedex
UPS
Airborne
$12.04
$10.82
$9.25
$16.93
$15.07
$12.50
$18.75
$16.68
$13.50
$23.68
$21.21
$17.75
$32.14
$28.82
$30.15
$82.54
$77.68
$80.70
Second-day delivery
Fedex
UPS
Airborne
$8.00
$6.50
$6.25
$8.00
$7.18
$6.25
$8.79
$8.00
$7.75
$12.14
$10.93
$9.75
$18.43
$16.64
$16.00
$54.89
$57.11
$58.00
Note: Federal Express and UPS figures are unweighted averages over seven distance-based zones
Source: Company price lists
21
798-070
Airborne Express
Notes
1
Though legally the “Airborne Freight Corporation,” the company used the trade name “Airborne
Express” for public purposes.
2
“Airborne Freight Corporation Reports Third Quarter 1997 Results,” company press release,
Airborne Express Internet site.
3
Brian Clancy of MergeGlobal Inc, quoted in J. Ott, “New Products, Services Put Twists in Air
Express Competition,” Aviation Week and Space Technology, August 26, 1996, pp. 47-49.
4
Federal Express Corporation, Form 10-K, 1996, p. 5.
5
Federal Express Corporation, “Information Packet,” 1997, pp. 51-52.
6
Security analyst quoted in D. Greising, “Watch Out for Flying Packages,” Business Week, November
14, 1994, p. 40.
7
Federal Express Corporation, “Information Packet,” 1997, p. 6.
8
“Why Fedex Is Flying High,” Fortune, November 10, 1997, pp. 155-160.
9
D.A. Blackmon, “UPS to Expand Its Primary Hub As Battle With FedEx Heats Up,” Wall Street
Journal, December 22, 1997, p. B4.
10
Information provided to case writer during tour of UPS Louisville facility.
11
G. Conley and J.A. Quelch, “DHL Worldwide Express,” Harvard Business School Case 593-011.
12
G. Conley and J.A. Quelch, “DHL Worldwide Express,” Harvard Business School Case 593-011.
13
This section draws especially from public documents of Federal Express as well as a number of
books concerning the company: R.A. Sigafoos, Absolutely Positively Overnight, Memphis: St. Luke’s
Press, 1983; AMA Management Briefing, Blueprints for Service Quality: The Federal Express Approach,
New York: AMA, 1991, p. 12; and V.H. Trimble, Overnight Success, New York: Crown Publishers,
1993.
14
“Emery Worldwide,” Harvard Business School Case 184-019, p. 2.
15
N.K. Taneja, The U.S. Airfreight Industry, Lexington: Lexington Books, 1979, p. xviii. Italics added.
16
V.H. Trimble, Overnight Success, New York: Crown Publishers, 1993, pp. 80-81.
17
R.A. Sigafoos, Absolutely Positively Overnight, Memphis: St. Luke’s Press, 1983.
18
Federal Express Corporation, “Information Packet,” 1997, p. 9.
19
Ibid., p. 10.
20
Federal Express Corporation, “Information Packet,” 1997.
21
AMA Management Briefing, Blueprints for Service Quality: The Federal Express Approach, New York:
AMA, 1991, p. 12.
22
AMA Management Briefing, Blueprints for Service Quality: The Federal Express Approach, New York:
AMA, 1991, p. 30.
23
“Why Fedex Is Flying High,” Fortune, November 10, 1997, pp. 155-160.
24
This section draws especially on the SEC filings of the company, internal publications concerning
the history of the company (particularly Our Partnership Legacy), and J. Sonnenfeld and M. Lazo,
“United Parcel Service (A),” Harvard Business School Case 488-016.
25
James Casey, quoted in Paul Oberkotter, “Recollections,” Our Partnership Legacy, United Parcel
Service, 1991.
26
C.W.L. Hart and B. Chew, “Productivity and Performance Systems: A Comparative Analysis of
Northern Telecom and United Parcel Service,” Harvard Business School case 689-022.
27
C. Hawkins and P. Oster, “After a U-turn, UPS Really Delivers,” Business Week, May 31, 1993. pp.
92-93.
28
D.A. Blackmon, “Out of the Box; UPS Tries to Change How It’s Perceived by the Public,” St. Louis
Post-Dispatch, p. 5C.
22
Airborne Express
798-070
29
See, for instance, Gertz and Baptista, Grow to be Great, pp. 171-175.
30
D.A. Blackmon, “Out of the Box; UPS Tries to Change How It’s Perceived by the Public,” St. Louis
Post-Dispatch, p. 5C.
31
C.R. Day, “Shape Up and Ship Out,” Industry Week, February 6, 1995, pp. 14-20.
32
D.A. Blackmon, “Out of the Box; UPS Tries to Change How It’s Perceived by the Public,” St. Louis
Post-Dispatch, p. 5C.
33
Leading National Advertisers / Mediawatch Multi-Media Service, Ad$ Summary, 1996.
34
United Parcel Service of America, Form 10-K, December 31, 1996, p. 9.
35
C.R. Day, “Shape Up and Ship Out,” Industry Week, February 6, 1995, pp. 14-20.
36
Paul Oberkotter, “Recollections,” Our Partnership Legacy, United Parcel Service, 1991, p. 26.
37
J. Sonnenfeld and M. Lazo, “United Parcel Service (A),” Harvard Business School case 488-016, p.
12.
38
A. Bernstein, “In the Line of Fire at the Teamsters,” Business Week, August 30, 1993, p. 39.
39
Data in this paragraph and the next are from A. Bernstein, “At UPS, Part-time Work Is a Full-time
Issue,” Business Week, June 16, 1997, pp. 88ff.
40
D.W. Rockel, “United Parcel Service of America—Company Report,” Furman Selz LLC, August 21,
1997.
41
N. Harris, “UPS Puts Its Back Into It,” Business Week, October 27, 1997, p. 50.
42
This section draws especially on the SEC filings and press releases of Airborne Express.
Information about the relative efficiency of Airborne comes primarily from analyst reports and
extensive interviews with security analysts who cover the express mail industry.
43
J. Bond, “The Underdogs Deliver,” Washington CEO, 1997.
44
Quoted in M. Treacy and F. Wiersema, The Discipline of Market Leaders, Reading, MA: AddisonWesley, 1995, p. 144.
45
B.R. Routledge, “Airborne Freight—Company Report,” Prudential Securities, October 4, 1996, p. 10.
46
Telephone interview with Tom Branighan, Director of Public Relations, Airborne Express.
47
Airborne Freight Corporation, Annual Report, 1996.
48
Telephone interview with Tom Branighan, Director of Public Relations, Airborne Express.
49
J. Bond, “The Underdogs Deliver,” Washington CEO, 1997.
50
Airborne Freight Corporation, Form 10-K, December 31, 1996, p. 5.
51
C. Isidore, “Roadway Getting Out of Air Cargo,” Journal of Commerce, November 7, 1995, p. 1A.
52
Quoted in P. Page, “RPS, Airborne Forge Contract Cooperation in Blended Bid for Large Shipper
Deals,” Traffic World, April 22, 1996, pp. 40-41.
53
N. Harris, “UPS Puts Its Back Into It,” Business Week, October 27, 1997, p. 50.
54
J.D. Schulz, “Up or Down? RPS’ President Sees Future Small Package Rates Increasing But
Airborne Express President Sees Them Declining,” Traffic World, September 22, 1997, p. 35.
23
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