Play Fair, FedEx

What do you do when asked to make an argument that, on its face, is obviously a loser? This week, FedEx (NYSE: FDX  ) gave us the answer: Change the argument.

Over in Congress, Senators are debating the "FAA Reauthorization Act of 2009" (FRA). It's a snore of a title if ever I read one -- but for FedEx, this bill could be a game-changer. Congress has included in the FRA a provision shifting part of FedEx's business from regulation under the Railway Labor Act (RLA) to regulation under the National Labor Relations Act (NLRA).

Zzzzzzz ...
Am I losing you? Sorry, let me cut to the chase. If the FRA fails, nothing changes for FedEx. But if the law passes, FedEx workers will find it easier to unionize. And in theory, if they do unionize:

  • FedEx's labor costs could rise as workers demand better compensation, and
  • FedEx operations could be hurt by strikes if negotiations break down.

Now, there are caveats and details to the argument, of course. For example, FedEx workers can already unionize under the RLA, but it requires a nationwide vote. And only part of FedEx would be switched to NLRA jurisdiction under the law. But basically, from FedEx's point of view, it's law fail = good, law pass = bad. And FedEx is even threatening to cancel a 30-plane order from Boeing (NYSE: BA  ) worth more than $6 billion if it does pass. Simple as that.

Or not
FedEx, however, would like to muddy the waters a bit. Earlier this week, the company launched a public relations campaign assailing not the bill per se, or the legislators who sponsored it (never bite the hand you're lobbying), but rather a key beneficiary of the legislation: Archrival UPS (NYSE: UPS  ) .

You can get FedEx's perspective on its new website, brownbailout.com. But the gist of the argument goes like this:

  • Americans are sick of hearing about the bailouts of GM (NYSE: GM  ) and Chrysler, AIG (NYSE: AIG  ) and Citibank (NYSE: C  ) . Because these efforts were led by the government, and the FRA is as well, FedEx wants to characterize the legislation as a sort of "bailout" -- even though no taxpayer dollars whatsoever are involved.
  • The FedEx unit targeted by the legislation, FedEx Express, moves its packages primarily by air, and therefore should be regulated by the Railway Labor Act (which covers both air and rail transport).
  • In addition to taxpayer outrage, FedEx is banking on fears that passage of the law will lead to rapid unionization, to labor strikes, and packages not getting where they're supposed to, when they're supposed to.

Now, to my mind, a "bailout" isn't a bailout until someone in Congress tries to pick my pocket and give the money away. And as far as the FedEx being an airline, well, you can't pick up and deliver packages along the last mile without trucks.

On the other hand, I do see a risk that easing unionization at FedEx will raise the risk of a transport strike eventually happening -- but even this fear may be overblown. Asked about FedEx's assertion, International Association of Machinists VP Rich Michalski  called the campaign "silly," confiding: "The truth is that we, organized labor, have not done a very good job of organizing under the National Labor Relations Act." (On the other hand, I don't hear many chuckles from executives at "struck" companies like Harley-Davidson (NYSE: HOG  ) , where the IAM represents workers.)

The Foolish perspective
FedEx's fear of labor stoppages notwithstanding, the system as it stands really doesn't seem fair. From where I sit, this is a playing field in real need of leveling, and two possibilities come to mind. Either:

  • UPS should be subjected to the same, less burdensome regulation that currently benefits FedEx, or
  • FedEx should be subjected to the same more burdensome regulation that currently hobbles UPS.

Freedom of contract
Which do I prefer? As a Fool, I favor free markets. And therefore I also favor ... unionization. Sort of ... maybe ... it depends. To me, the concept of "freedom of contract" inherently includes the freedom of workers to join together to negotiate their contracts. If an employer treats its employees fairly, compensates them well, and so on -- no problem. Reasonable employees will not willingly pay union dues if they don't see a need for a union to defend their rights.

On the other hand, if an employer tends toward cutting salaries, for example, or eliminating 401(k) contributions, as UPS and FedEx have both done -- then by all means, workers should be able to band together and negotiate for better treatment.

Foolish takeaway
Perhaps FedEx would be better off spending less cash on legislative lobbying and focus on keeping its employees happy. In which case, the whole unionization bugaboo should become moot.

FedEx already has big problems that need fixing:

Fool contributor Rich Smith owns shares of Boeing. Meanwhile, the Fool itself has two horses in this race: FedEx is a Motley Fool Stock Advisor recommendation, while United Parcel Service is a Motley Fool Income Investor pick. The Motley Fool has a disclosure policy.


Read/Post Comments (19) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 12, 2009, at 5:06 PM, UPSPino wrote:

    I couldn't agree with you more, I think the time has come for FedEx to play by the same rules UPS does. It is as simple as "The Same Job = The Same Laws. FedEx drivers are not flying the packages to the door steps!

  • Report this Comment On June 12, 2009, at 6:45 PM, tsc67 wrote:

    I agree completely. I worked 10 years as a manager for FedEx and they spend unlimited money to deceive the public. They care nothing about their employees and incorrectly classify their Ground drivers as contractors instead of employees. They do this for one reason, GREED!

  • Report this Comment On June 13, 2009, at 12:16 AM, WarriorGrrl wrote:

    Fred's threat to cancel an order is particularly funny. Either he has the volume to use those jets, which are more fuel-efficient than many of the ones he already owns, or he doesn't.

    Even if the bill passes the Senate, any organizing campaign will take a long time to succeed. Assuming it does succeed. It's not like the day after the bill passes, FedEx employees are magically unionized, and strikes will ensure. Even under the NLRB, a unionization effort is not easy, which is the reason Labor is pushing for the card check provisions.

    So what is Fred REALLY trying to accomplish? Is there another reason he won't need those airplanes (Like maybe his competitors are kicking his butt, and market share is eroding?) and this is just a smokescreen?

  • Report this Comment On June 13, 2009, at 10:26 AM, dashups wrote:

    As a UPSer,I have competed against FDX for a long time in the field. While their tactics have fairly often been misleading, I always thought that it was more of the individual salesperson than the organization. The recent tactics embraced by FDX have convinced me that this has been a trained approach all along. Their blatant willingness to mislead - using the deliberate LIE/Implication that UPS is asking for a "bailout", implying that UPS is "lazy", and not wanting to improve their processes, among other negatives - will negatively impact their brand. I believe they are taking a poorly thought-out gamble that is doing more damage now (and in the long run) than simply bringing their a-game to a level playing field. They have relied on their unfair advantage far too long. One simple question: why is FDX so scared of being governed the same way all of it's competitors are? I think their propagandist website (brownbailout.com) reveals many of their insecurities. The video there further misleads by implying that any change to regulate FDX the same way as all other delivery companies - and there are many in this business - would provide UPS with an advantage in the market. What a twisted distortion of the facts!

  • Report this Comment On June 13, 2009, at 1:55 PM, FDX1994 wrote:

    Why is everyone saying saying that, on the hand, FedEx Express should be playing by the same rules as UPS when they don't have the same business model? Let's face it, a LOCALIZED strike (which the RLA prevents) is not as devastating to a ground company versus an air based company, because in the case of a localized strike affecting a ground based company, you would have some trucks or maybe just the trailers sitting idle during the strike. But for an airline based company, a localized strike would entail having at least one or possible more planes idle, with packages that can't be delivered. That is a HUGE cost, and makes the whole air delivery model more fragile. If it doesn't please explain why.

    That is why all of FedEx Express should remain under the RLA, not because the delivery drivers do the same exact thing, it's because the two companies' model and infrastructure are NOT the same.

    It's interesting to note that everyone is pointing out how it's not right for FedEx Express to indicate they may not purchase all 30 Boeing 777s, yet at the same time they think FedEx in the near future should be playing by the same rules as UPS. If FedEx Express is forced to play by the same labor laws as UPS, a ground-based delivery company, why would they want to INCREASE the number of expensive airplanes they have?

    Imagine an indivdual that competes in guitar contests with a 12-string guitar, but despite the difficulty of playing this guitar versus a 6-string guitar he has honed his skills to play it with the same quality (or greater quality) as a 6-string guitarist, and has shown he can win this way. Now lets just say, for whatever reasons, it is being discussed by judges that in the future, only guitars with 6 strings may be used. Would you argue that it is despical for the 12-string guitarist to consider canceling his order of a new expensive 12-string guitar until he knows what rules he will be forced to play under? I know this isn't the best analogy, but I think you can see the point.

  • Report this Comment On June 13, 2009, at 3:18 PM, WarriorGrrl wrote:

    FDX1994-

    Your statements are the same misconceptions that Fred is trying to spread.

    UPS is a fully integrated carrier: air and ground parcels are all delivered by the SAME package delivery vehicle and driver. How the packages get from NY to San Francisco depends on how much the customer choses to pay, which is generally related to how fast they want it there. Overnite? Gotta use an airplane. 3 days? MAYBE one leg on an airplane. 5 Days? Trucks or rail.

    UPS employees who fly or fix airplanes are under the RLA, everyone else, NLRA. Seems reasonable.

    FedEx, because of the way Fred built the business, has two separate divisions (Express and Ground), but even in Express, only a very small percentage of employees fly or fix airplanes. A Memphis sorter, or a Courier, is indistinguishable from their UPS counterpart.

    Even under the NLRA, it would be a long, hard, expensive slog to organize Express employees. That's why Labor is looking to card check, don't you know? So it's not like, "Hey, look, FedEx magically turned into a union company!"

    Fred is really trying to divert attention from his earnings call, and he is threatening not to buy airplanes he will need to cancel ANYWAY because he is losing market share.

  • Report this Comment On June 13, 2009, at 7:48 PM, frontline1957 wrote:

    Are the workers that FedEx moved from under FedEx Express covered by the Railway Labor Act? These employees were moved from FedEx Express to a newly created division FCIS ( FedEx Customer Information Services ) which is under FedEx Services but the workers in FCIS canot bid on jobs in FedEx Services unless they start over as a new employee of FedEx Services. It may sound confusing but if you look at the SEC report maybe you can tell me which employees of "FEDEX" will be able to become unionized. Will it only be "FedEx Express" or will all "FedEx" employees have to opportunity to unionized.

  • Report this Comment On June 14, 2009, at 12:47 AM, FedExAPVA wrote:

    As a long time FedEx employee (Express), I have to say that I don't trust Fred Smith or the Teamsters. I always enjoy reading the battle of the spin masters. Who do you believe?

  • Report this Comment On June 15, 2009, at 12:46 PM, DaHombre wrote:

    I find it laughable how Fedex is trying to convince people that UPS is getting a bailout. I for one am not a union fan - but if they do exist it should be a balanced playing field

  • Report this Comment On June 15, 2009, at 4:35 PM, skydriver1234 wrote:

    The time has come for Fedex to realize that they are, yes, an airline AND a ground shipping company just the same as UPS. They have had this unfair advantage for way too long and their days are now numbered. Fair and balanced competition is how capitalism is meant to be played. Fred Smith telling Congress that he will cancel orders if this legislation passes is a passive and childish move on his part. I wish we all had that kind of bargaining power.

    Several years ago I was a pilot with a supplemental air carrier which supplied shipping services to the USPS. Fedex took over this business and stole our legally-bound contract virtually overnight with no chance of negotiating with the USPS. They are known in the aviation community as the air-nazis. They take and do not care who they hurt in the process.

    Most of us need only look on the front porch of any post office location and see a bright and shiny Fedex box. Ever wonder why? They want to BE the post office. They have gained market share through illegal means and members of congress and the house are probably waiting on their next wad of cash under the table to decide how to vote come this summer.

  • Report this Comment On June 15, 2009, at 9:12 PM, clutedog wrote:

    I agree with everything here! FedEx needs to be unionized! Unionized companies are doing great in this economy! In times of crisis, the unions allow for a large company to be flexible and weather the storm! Just look at GM and Chrysler....oh wait...

    Sad fact is that for years UPS and FDX have played this political game. Teamsters have attacked FDX from every angle, including trying to unionize their Ground terminals, and have only successfully lobbied for a vote a handful of times, and won less than that. UPS wants the playing field level because they are not only losing market share to a bad economy and a better competitor, their financials are being dragged down by the union. If FDX were unionized BY THE SAME UNION, Teamsters could drive up labor costs there and give UPS a chance. Funny how many in this thread think that UPS is so squeaky clean.

    Also, Fred wasn't going to just cancel his plane order...he was going to cancel and buy AirBuses from the French! How's that for a slap in the face!

  • Report this Comment On June 16, 2009, at 9:05 AM, ntal24 wrote:

    I like how Fedex simply forgets where they received a large portion of the business from........ Let us not forget the large scale employee contract strikes in the 90's which opened the door for Fedex to become the competitor they are today. Does Fedex forget that when UPS employees were on strike the company as a whole lost volumes of business that had taken years to cultivate. So how does Fedex come off calling foul play when they fed off of a striking UPS to become the competitor they are today. Sounds a little rash doesn't it?

  • Report this Comment On June 16, 2009, at 12:39 PM, tdp1957 wrote:

    First of all UPS or The Teamsters did not come after Fedex. It was the employees after losing many benefits and seeing medical cost going up decided to form a union. I personally know it took much work and convincing of the teamsters to come on board and help us. I honestly believe that they did not really understand what they where up against trying to organize the only company that is under this law. We have actually had to make an act of congress to get the fair and equal treatment to have an election. How would it sound if they came out with we are screwing our employees instead of using ups as the bad guy.

    What really pisses me off is that The company does not want to give us the most important freedom we have in this country, The right to vote!!!. Fedex knows if this does not pass it would be almost impossible (I know I tried) to form a union with all the employees spread all over the country in small towns that we have no idea where they are! You chose to ignore us Fred and now that the fight has moved into a more work friendly senate and congress you decide to open your wallet. Shame on Fedex for taking profits over its employees lives.

  • Report this Comment On June 17, 2009, at 4:26 PM, scdaddyo wrote:

    After reading this there is certainly a lot of confusion and misinformation about this.

    Consider these points:

    NLRA already covers some FedEx operating companies…

    FedEx LTL operating companies are already under the NLRA. It makes sense given they are a wholly owned end-to-end trucking network.

    Differences…

    FedEx Express is the largest Airline in the world that uses trucks for it’s pick up and last leg. FedEx Ground is a franchised delivery service.

    The Ground Corporation only owns the line-haul, which is the smallest portion of the business, the rest is entirely independently owned.

    Unlike both of these operating companies UPS is the largest end-to-end trucking company in the world. UPS owns every part of their network and is a true trucking company.

    Who benefits….

    Who, other than UPS or the Teamsters, benefits by putting the largest Airline in the World under the NLRA?

    Teamsters…

    Does anyone remember what happened between August 4th and 19th of 1997 when the Teamsters strike shut down UPS. It crippled the country and people were throwing packages over the fence at FedEx stations hoping that their packages would be delivered.

    Should NLRA be imposed on FedEx the Teamsters will make unionizing FedEx a top priority. Should unionization efforts not succeed at first they will keep their unionized drivers from filling open positions at FedEx.

    What’s next…

    If the NLRA incorporates Airlines and Franchised businesses what’s next? Will it go after ocean freight just because they too offer delivery from the port to the final leg using a truck?

  • Report this Comment On June 18, 2009, at 12:04 PM, triple26n30 wrote:

    Full disclosure-I am an ex FDX'r. Why is the government getting involved in changing this classification? Aren't FedEx and UPS adequately competing for business? Does either company truly have an advantage?

    1. The government is getting involved because the unions donate so much money to politicians. Take a look at the contributors to Jim Oberstar (FAA Reauthorization Bill sponsor) http://www.opensecrets.org/politicians/summary.php?cid=N0000...

    Also, UPS has tried to get their classifiction changed and have been denied. UPS spends a LOT of money lobbying in Washington. Check out the heavy hitters list Teamsters number 11, UPS number 21, FDX 33 http://www.opensecrets.org/orgs/list.php?order=A . IS THAT FAIR? The Teamsters money train is drying up and they could be losing more rank and file with LTL and TL carriers going out of business. 2. Yes, they do adequately compete for business. Guess what they also use each other to move freight. They are competitors, but also customers of each other. In my sales experience at FDX...UPS would "buy" business. 3. Neither company has a true advantage that is why they are both still in business. Some people believe in the marketing of FedEx and some people believe in the engineering of UPS. Both have been commoditized.

    Oh and guess what every year they both raise their rates by 4-5%.

    Lastly, on the subject of unions. Presently in the parcel world their is a duopoly...would you want a monopoly of the workforce. If the Teamsters went out on strike think of the effect on our economy. I guess the best real life example of unions and business hard at work ruining our economy is the UAW and the short sighted executives at the Big Three.

  • Report this Comment On June 24, 2009, at 9:38 PM, ofb1995 wrote:

    Fedex Express could have avoided putting themselves into this situation by treating it's employees better (especially it's senior employees). Since 1988 they have been implementing policies and procedures that have set their express couriers up for wrongful termination and a diminished chance to reach retirement. 1988 - they changed the eligibility to gain maximum medical benefit coverage in retirement from 10 to 20 years. 1994/95 - they started a program called "gainsharing" which quickly turned into "Best Practices". The M.A.P.S system (Minimum Acceptable Performance Standard) was also put into use. Both M.A.P.S and Best Practices have been used to terminate (wrongfully) senior employees. It is still being used. I have been there over 20 years and have seen these changes take place and the effect it has had on Fedex's employees. Add to that Fedex taking away profit sharing early on (which we enjoyed in the 80's), and their unwillingness to compensate it's employees with at least an adequate pay rate to keep up with inflation throughout the years (even in times of record profits). Fedex employees don't want a union to "hamstring" it's operations or to stop commerce, they just want to treated fairly.

  • Report this Comment On June 24, 2009, at 9:43 PM, ofb1995 wrote:

    A website where Fedex employees voice their opinions.

    http://www.fedexaminer.com/

  • Report this Comment On June 25, 2009, at 2:49 PM, fedupfdx wrote:

    I can't believe what I am reading. As a current FDX employee and as a former Teamster with Airborne Express I see no need for a Union. For all of you socalled "Senior" employees and the employees who think they are getting treated unfairly....GROW UP!!!! Just like any other job out there...you have the right to walk away anytime you want to. Reason you don't...where else are you going to go for what you are getting paid? Where else are you going to get such poor benefits??? THAT is why you don't leave!! Everyone has choices...so do you! I bet there are about 10.6 million people out there (US Unemployed) that would LOVE to have your jobs!

  • Report this Comment On June 29, 2009, at 10:57 AM, krishnamahesh wrote:

    @Rich Smith

    As a fellow free-marketer, I support the freedom of contracts- but the Govt (and the unions) prevent the free association of employers.

    Until all employers can band together- prevented by Federal Law- I oppose the ability of labour to organize.

    Also, in a fully free market, people should be able to fire anyone for any reason- as long as there is no explicit contract forbidding it. Again, not allowed by law.

    Mr. Smith, please don't use the free market to support a union- the market isn't free until employers are far less restricted.

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