clash of the Titans

The battle between FedEx and UPS shows no sign of abating. In August, FedEx announced it was buying Parcel Direct, a division of Quad/Graphics. Parcel Direct consolidates shipments that are lightweight but not time-sensitive at 12 centers throughout the country for final delivery through the U.S. Postal Service. By swallowing up Parcel Direct, FedEx will strengthen its presence in the growing e-tail and catalog industries now dominated by UPS.

Meanwhile, UPS made a move to increase its international exposure, asking and receiving tentative permission from the Department of Transportation to expand its air operations to China. UPS could triple the number of deliveries it makes to the region over the next 12 months.

FedEx hopes its acquisition will help it chip away at UPS's share of the U.S. surface transport market. And it appears to be making some headway. According to a study by The Colography Group, FedEx's ground package and less-than-truckload services gained market share in two of the key segments of U.S. surface transport last year. The research firm's data showed that FedEx Ground—FedEx's ground package unit—captured just under 15 percent of the $22.4 billion parcel market in 2003, up from 14 percent in 2002. FedEx Ground also made inroads into ground package revenue (increasing its market share to 15.5 percent in 2003 from 14.7 percent in 2002) and tonnage (17.8 percent in 2003 vs. 16.6 percent in 2002).

FedEx Ground's gains came largely at the expense of UPS, whose share of shipments, tonnage and revenue declined on a yearover- year basis. UPS's share of U.S. domestic ground parcel shipments fell to 69.3 percent. Despite the market share decline, however, UPS remains the dominant provider in the U.S. domestic ground parcel market.