Why is FedEx Crying "Bailout"?

June 19, 2009 -- When I first saw the “Boycott UPS!” group on Facebook, I must admit that I was ready to believe the worst. After being redirected to www.BrownBailout.com and reading that the package-delivery company was asking the government to help them (as it has helped the financial and automotive industries), I was eager to condemn United Parcel Service for jumping on the bailout bandwagon. You see, I’ve had a couple of bad experiences in which Brown, as it turned out, did not do for me what I expected them to do for me. I’ve also heard a story or two from others who were dissatisfied with the service they got from UPS. It therefore made some intuitive sense to me that, having annoyed its customers, the company is having a hard time thriving on its own in the marketplace.

Still, a handful of anecdotes is not conclusive evidence. Wanting to keep a check on my own prejudices, I did a little bit of digging and discovered a more complicated story. One red flag is that Federal Express, another major package-delivery company, is the force behind the BrownBailout.com website. This does not prove any wrongdoing by itself—consider the source, sure, but don’t damn the speaker. But while FedEx claims that its competitor is asking for a bailout, UPS argues that it just wants to level the playing field. What’s really going on here?

TEEMING WITH TEAMSTERS

Let’s state the fact upfront: UPS is asking for a bailout only in the most metaphorical sense of the word. The banks and car companies got actual checks from the government, and this is what people naturally think when they hear the word “bailout.” UPS is asking for no such thing. What the company and its workers’ union, the International Brotherhood of Teamsters, have lobbied for is a 230-word provision in the Federal Aviation Administration Reauthorization Act of 2009 that would change the labor law covering FedEx workers . The most that can be said is that this is like a bailout because it would hurt FedEx and therefore indirectly benefit UPS.

Why did FedEx receive seemingly preferential treatment?

UPS argues, though, that it is FedEx that has been benefiting from an unfair legislative advantage for years now, and that it merely wants everybody to have to play by the same labor rules. Currently, FedEx’s relations with many of its employees are governed by the Railway Labor Act, which was designed to prevent disruptions in air and train traffic. UPS’s relations with its workers are governed by the National Labor Relations Act, under which it is much easier for unions to organize. As a result of the difference, FedEx has remained largely union-free, while UPS is heavily unionized. UPS and the Teamsters have been lobbying to have FedEx brought under the NLRA since the late 1990s.

APPLES AND ORANGES?

If we stopped the story here and didn’t think about it too much, we would be sorely tempted to side with UPS and against FedEx on this one. Clearly, FedEx is just trying to capitalize on Americans’ understandably mounting anti-bailout sentiment in order to hang on to an unfair, legislated privilege, right? UPS just wants a fair fight, and who could argue against that?

But there is still more to this controversy. To get at it, we must ask why FedEx received and continues to enjoy its seemingly preferential treatment. The reason for the initial discrepancy is that FedEx was originally founded as an airline, for the explicit purpose of rapid, overnight delivery. UPS was founded as a trucking company. According to a June 9, 2009 Washington Times editorial , there remains to this day a big difference in how the two companies operate. Even though they are both in the package delivery business, “FedEx says it ships 85 percent of its goods by air, whereas UPS sends 85 percent of its goods by truck.”

Still, it is hard not to conclude that UPS does have a legitimate gripe. Maybe the reason it does not ship more of its goods by air is that it is hampered by its unionized workforce. Although UPS remains bigger than FedEx ($10.9 billion vs. $8.14 billion in revenue last quarter) and so must be doing some things right, justice demands that competitors play by the same rules. But what should those rules be, exactly?

LEVELING DOWN

Here is what a principled case for FedEx would look like: “We, the owners of Federal Express, do not want a unionized workforce. We want to continue to be able to make our own hiring and firing decisions within our own company. It belongs to us, after all. We treat our employees fairly, and if we don’t give them value for value, they will go elsewhere on a free labor market. If they don’t give us value for value, we will tell them to go elsewhere. This is the most efficient way of doing business, and in a free market, it allows us to provide the best possible services at the lowest prices.

“If our competitors think the market is not free—if they feel hamstrung by onerous labor rules that place what are properly management decisions in the hands of the Teamsters—then they should fight and lobby for equal protection under the law. If they find that their unions force concessions on them and lock out other workers who might compete for jobs, they should argue for the abolition of the labor privileges that hobble them rather than for the equal imposition of those burdens on all. In other words, let’s level up instead of down.”

UPS implicitly admits that its unionized workforce is a burden by lobbying for equal privations on its competitor. FedEx could claim the moral high ground and argue for the rights of workers and owners to make their own employment arrangements. Instead of defending economic freedom for all, however, FedEx has chosen to cry “bailout.” Maybe they don’t think they can win their case on its actual merits. But is the American public really so pro-union? I don’t believe it is. If the FAA bill, which passed the House at the end of last month, passes the Senate too, FedEx’s misbegotten marketing strategy will have to shoulder a part of the blame for muddying, instead of clarifying, what is at stake.

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