Case Study ─ FEDERAL EXPRESS AND CONGRESS
Late in the second session of the 104th Congress, a heated, partisan debate took place over an amendment to an aviation bill. The amendment had been attached at the request of federal Express Corp., a unit of FDX Corp. Republicans argued that it was a minor correction for a mistake in a previous bill. Prolabor Democrats tried to portray it as an all-out corporate and Republican assault on the working people of America.
What follows is the story of this amendment as best we can tell it. Tracing the exercise of influence in Washington, D.C., is difficult. Companies and politicians do not step forward to volunteer their motivations or the nonpublic actions that can shape outcomes. Some parts of the story remain hidden and may never be known. It requires patience to penetrate the arcane of law and bureaucracy to see the practical consequences of federal activity of the operations of a company. Yet the story is worth telling to illustrate why corporations need to be active in politics and how they flex political muscle.
Federal Express
Federal Express Corp., sometimes called FedEx, was started in 1971 by an entrepreneur named Frederick W. Smith. Since then, smith has built it into a company that is familiar to almost every American. Federal Express offers rapid transport and delivery of documents, packages, and freight in 211 countries. To move its daily average of three million items, it operates large fleets of airplanes and trucks. It owns 619 aircraft, making it the world’s sixth largest air carrier, and in 1998 it had 110 more planes on order. The truck fleet consists of 41,500 vehicles ranging from panel trucks to big tractor-trailer rigs, and drivers put in more than 2.5 million miles each day. In 1998 Federal Express ranked 134 on the Fortune 500 list and had revenues of $11.2 billion. (1)
(1) (Figures in this paragraph are from the Federal Express Web site at
http://www.fedex.com/us/about/facts.html; the company’s Form 10k405, filed on August 21, 1998, with the Securities and Exchange Commission; and “1998 Fortune five Hundred,” Fortune, April 27, 1998, pp. F5-F6. Since 1998, Federal Express has been a wholly owned subsidiary of FDX Corporation, a holding company formed with the acquisition of Caliber System, Inc.
The mail, package, and freight delivery industry is highly competitive in terms of price and service. FedEx battles for customers with firms such as Airborne Express, passenger airlines that carry freight, airfreight companies, and the U.S. Postal Service, but its strongest competitor is United Parcel Service of America, Inc. (UPS). UPS, with $22.5 billion in revenues in 1998, is twice the size of Federal Express and its operations are similar. It delivers in 200 countries, about the same number as FedEx; it operates 555 aircraft, slightly fewer than FedEx; and it runs 169,000 trucks, four times as many as FedEx. (2)
One big difference between these two rivals is that UPS’s employees are unionized, while FedEx’s are not. Although 3,000 FedEx pilots are in pilot’s union, its remaining 140,000 employees are nonunion. At UPS, on the other hand, the International Brotherhood of Teamsters represents 104,000 full-time and 151,000 part-time employees, and 2,000 pilots are in a pilot’s union. Both the Teamsters and the United Automobile Workers of America have been trying for many years to organize Federal Express, but unsuccessfully.
Management at Federal Express does not want unions and has used a range of tactics to keep organizers at bay. Some FedEx employees want a union. (3) In 1997, UPS drivers made an average $4 per hour more than FedEx drivers. But many others are satisfied with the pay and working conditions. The company has a unmber of employee-friendly policies, including a Guaranteed Fair Treatment program in which any worker can appeal a supervisor’s decision all the way up to CEO Smith. (4) Smith allocates four hours a week to acting on these appeals. In spite of strenuous efforts, unions have failed to make inroads into the FedEx labor force. This gives it a labor cost advantage over UPS.
(2) (Form 10K, United Parcel Service, Inc., March 27, 1998, pp. 1-5.)
(3) (“Fed Up” is a Web site set up to air complaints on labor issues by Federal Express employees and communicate news about organizing efforts. It is at
http://ourworld.compuserve.com/homepages/kevin_osiowy/.)
(4) (For a description of employee-friendly practices at Federal Express, see James C. Wetherbe, The World on Time: The 11 Management Principles that Made FedEx an Overnight Sensation, Santa Monica, Calif.: Knowledge Exchange, 1996.)
Two Labor Laws, Two Approaches to Labor Relations
The success that Federal Express has had in preventing unionization of its employees besides the pilots, is due in large part to the way union activity is regulated by the federal government. Two main laws guide organizing, and they are very different in philosophy.
The Railway Labor Act
The first law is the Railway Labor Act of 1923. Early in this century, labor law favored managers of companies and discouraged union activity. The Railway Labor Act was the first major statute to encourage and protect union. In it congress required that railroad managers bargain in good faith with workers about union contracts and created an agency called the Labor Mediation Board to settle union-management disputes. The law applied only to railroads but, unlike today, these were among the largest and most visible businesses of that era, and so it was very significant.
With the growth of the airline industry, the law was extended to include air carriers. It was then further extended to cover express companies. However, there was only one express company in existence, Railway Express Agency (REA), which was a unique company. The story of this firm begins during World War I when the government nationalized all the railroads, including four express companies that shipped packages by railroad. After the war, the assets of all four companies were transferred to a newly created entity named railway Express Agency, which was owned by 86 railroad companies in proportion to the amount of express business carried over their tracks. (5) Since REA was an outgrowth of existing railroads, the Railway Labor Act was extended to cover its employees. In the 1950s, REA began using trucks, and in the 1960s, it also began using planes, but as rail traffic dropped, its revenues declined and it was liquidated in 1975.
At this time, however, Federal Express came into existence with a novel method of express service that relied on the idea of bringing packages to a central hub and then flying them out to customers. Under Smith, FedEx created a new express market that combined the speed of air travel and the convenience of pick-up and delivery at the customer’s business of home. (6) FedEx started with a fleet of Falcon 20 aircraft and soon bought DC-8s and DC-8s and DC-10s. From the beginning, it was classified as an “air carrier” under railroad Labor ACT.
(5) (George Drury, “Yesterday’s FedEx: Railway Express Agency, “Trains Magazine, August 1996, p.75.)
(6) (Allan Ditter, “Express Carriers took Off after Regulation, “Air Cargo world, March 1992.)
The National Labor Relations Act
A second law that oversees management-union interactions is the National Labor Relations Act(NLRA) of 1935. The NLRA gives much more extensive protection to workers and unions than did the Railway Labor Act. It prohibited tactics that companies commonly used to stop unions, including, for example, firing union members and refusing to bargain, and it set up a powerful new agency, the National Labor Relations Board(NLRB), with strong powers to remedy unfair practices. The NLRB has jurisdiction over employees at all companies other than railroads, airlines, and express companies covered in the less stringent Railway Labor Act. (7)
It is much more difficult for a union to organize employees under the Railway Labor Act than under the NLRA. The fundamental purposes of the laws are different. The main goal of the former is to protect against labor disharmony that could disrupt the flow of interstate commerce. Thus, enforcement focuses on mediating disputes and avoiding strikes. Bargaining agreements are not allowed to expire and negotiations simply continue until a new agreement is reached. The goal of the NLRA, on the other hand, is to protect the rights of workers to organize and bargain. It is aggressively enforced to protect unions from management plots and abuses. One other key difference between the two laws is that the Railway Labor Act only allows workers to organize a national union, whereas the NLRA permits organization of local unions on a facility-by-facility basis.
Although UPS and FedEx have similar operations today, UPS began as a trucking and courier company. This means that its workers fall under the NLRA and explains why UPS workers are unionized and Federal Express workers are not.
(7) (In addition to employees of rail, air, and express companies, the NLRA also excludes agricultural and government workers.)
Union Efforts to Organize FedEx
Labor union membership in the United States is declining. In 1983, 20 percent of all wage and salary workers were union members, but that fell to 14.5 percent in 1996. (8) The decline has been steep for the two unions that have tried hardest to organize FedEx workers. In the late 1960s, United Auto Workers (UAW) had 1.5 million members; today it has only a little more than half that number. The teamsters, which had more than two million members in the 1970s, were badly hurt by trucking deregulation and today have about 1.4 million members. (9) So it would be a welcome gain for either one to grab the 93,000hourly wage earners at Federal Express Both unions have tried FedEx CEO Smith once wrote in the company newsletter that if all the company’s hourly workers were unionized, they would pay $20 million the annual dues to one union of the other. (10)
(8) (bureau of the Census, statistical Abstract of the United States: 1997, 117th ed., Washington, D.C., 1997, table 688.
(9) (figures are from John H. White and Brian Jackson, “rival Unions vie for FedEx, “Chicago SunTimes, May 13, 1997, p.43.
(10 )(Ibid.)
In 1990 the United Auto Workers started a big campaign to organize FedEx workers on the East Coast. It sponsored rallies and organizing drives in Pennsylvania, New Jersey, and Delaware, but it faced a stiff task. Under the Railway Labor Act, the union had to get 35 percent of all FedEx workers nationwide to sign organizing petitions or no election could be held. It would be much easier if the workers could be organized city by city under the NLRA.
Since FedEx had far more truck drivers than pilots, the UAW petitioned the National Labor Relations Board to place the drivers under the NLRA. It argued that although FedEx was classified as an “air carrier” subject to the Railway Labor Act, most of its workers had nothing to do with airplanes. Instead, they worked at pick-up counters, sorted packages, and dispatched and drove trucks and, therefore, they should be reclassified as covered under the National Labor Relations Act.
In July 1995, after a hearing on the union’s petition, the National Labor Relations Board decided that the case was ambiguous and elected to submit the arguments of both FedEx and the UAW to the National Mediation Board, the body that resolves disputes under the Railway Labor Act, for an advisory opinion. (11) One board member, William B. Gould IV, the chairman of the NLRB, wrote a dissenting opinion in which he agreed with the union and stated that FedEx workers outside its air operations should fall under NLRA jurisdiction. His dissent was unsettling for Federal Express.
