Cargo Kings Fly High

As FedEx and UPS have been building global networks, demand for these services has skyrocketed.

"What used to be a 2,000-mile supply chain between Michigan and a supplier in Monterey is now an 8,000-mile supply chain, with the supplier in Shanghai," Clancy says. "With an 8,000-mile supply chain, the probability of a screw-up goes way up. There are customs issues, security issues, chokepoints at ports and railroad issues. Express-package shipping is the mistake-recovery network for global transportation."

Meanwhile, the overnight-package carriers are spared many of the potential chokepoints that passenger airlines battle in the domestic air transportation system, such as security, competition for gate space and late-afternoon takeoffs at congested airports. They're also spared many of the demands that come with carrying passengers.

"Boxes don't have to take their shoes off to go through security, and they don't care what time they fly," Heimlich says. "Also, they don't need to be fed, they don't care if they have to connect, and they can be packed very densely."

Talking at Length

Of course, success means that you can buy what you want, when you want it. UPS' Louisville hub expansion will increase its package-sorting capacity by 60% and add aircraft-docking capacity.

The project "conveys an optimistic view of both the secular growth trend in its international-package business, as well as growth of the domestic-express market and its ability to grow domestic-express at above-market rates," wrote JPMorgan analyst Thomas Wadewitz in a recent research report.

UPS recently completed a $135 million hub expansion in Cologne, Germany, and plans to build a Shanghai hub by 2007. Wadewitz says he foresees expenditures close to $3 billion annually over the next several years as UPS "continues to focus on capacity expansion." During the past 12 months, JPMorgan has provided investment banking and other services to UPS.

FedEx also has money to spend. The company has "great free cash flow and (has made) another pledge to use it," wrote Bear Stearns analyst Edward Wolfe in a recent report. Wolfe adds that the company says it "intends to more aggressively use its balance sheet to repurchase stock and seek large acquisitions."

The purchase of Watkins, the country's ninth-largest less-than-truckload carrier, is one example. During the past 12 months, Bear Stearns has provided securities-related services to FedEx.

All the while, the pace of labor talks reflects a distinct lack of urgency. UPS and its pilots have been negotiating since October 2002. There have been no formal talks since December, but a federal mediator has denied the union's request to declare an impasse. Most recently, delays have resulted from a dispute between the union's leadership and its negotiating committee.

In the FedEx talks, company spokesman Maury Lane says pilots have rejected two offers, the latest of which would raise the average salary to $215,000 from $183,000. Pilots say the actual salary is far lower, but didn't offer a specific number. "This process can take a long time, as UPS has shown, but we are working very hard to conclude these talks," Lane says.

Webb suggests he's ready to get a deal done. "Our company is generating $30 billion a year in revenue. Two-thirds of that comes from the airline, we're 27 months into negotiations, and they have publicly declared that they want to increase our compensation," he says. "It's time for them to write the check."