Modern Day Oligopoly - UPS and FedEx


Modern Day Oligopoly - UPS and FedEx

The playing field is huge but the players are few in number. Two small parcel shipping providers dominate in the United States, UPS and FedEx. Both offer discount freight services.  There are factors that created this oligopoly. Not the least of which are freight discounts over post office shipping rates. But first, a brief timeline of these two giants and the industry.

From its meager beginnings in 1907 as a messenger company and later cornering the retail delivery market, UPS grew rapidly offering discount freight services. By the mid 70's and early 80's, it had become an international company with operations throughout Europe and Asia. In 1981, UPS began offering its famous “Next Day Air” service, making it a major player. Freight discounts helped draw in big customers. The company then sent out tentacles in logistics and freight, acquiring transportation space in bulk for carriers, and asset based heavy airfreight, which merged into the overnight small parcel operations. It also added Less-than-Truckload freight services and its retail chain the UPS Store. By 2009, UPS had the lion's share of domestic package operations.



A relative newbie, Federal Express began in 1973 with the idea of improving overnight airfreight deliveries and offering freight discounts. In 1977 the company became a franchise and took advantage of deregulation in the aviation and trucking industries, which relaxed flight schedules and equipment purchasing rules. The young upstart entered international markets through acquisitions, most notably Tiger International in 1988. This gave it a solid foothold in express discount freight deliveries as well as prominence in the Asian sphere. The company next added a number of transportation products--including ground transportation, expedited freight, Less-Than-Truckload Freight, and freight forwarding and logistics. The company then hit UPS hard by instituting a discount freight structure that leveraged their new technology and made use of independent contractors.

Today, FedEx and UPS use airplanes and trucks to offer discount freight shipping--FedEx services about 80 percent air and UPS about 20 percent. FedEx has consistently ruled air shipping while UPS has been the "600-pound gorilla" in ground transport.