FedEx, The Union-Buster? (FDX, UPS)

FedEx Corporation (NYSE: FDX) may have been part of the reason for the rally late today that took markets into positive territory.  Headlines hit late in the day on the Dow Jones broad tape from Senate Commerce Committee Chairman John D. Rockefeller, a Democrat, saying that the proposed  legislation that would make it easier for FedEx workers to unionize has no chance of passing in Congress.This is an issue we have followed for some time.  United Parcel Service, Inc. (NYSE: UPS) is mostly unionized and is the number one competitor for FedEx.  If these workers in aviation and trucking are placed under the National Labor Relations Act, it would then be on the same ground (no pun intended) as UPS.

Some have maintained that if those workers are allowed to unionize that the cost would be thousands of dollars per employee per month.  Those costs are not necessarily just out-of-pocket costs based upon the potential of higher wages and higher benefits, but include the opportunity cost of less business per employee.  It is a safe bet that calculations vary greatly from source to source.

There is a risk of jobs cuts at stake and there is the issue of a per-employee cost… An article from Scripps in 2009 noted, “Thousands of FedEx’s 290,000 employees would be affected and some analysts say the company’s expenses would increase 30 percent as a result of unionization.”

The silver lining for shareholders is the dividend implications if this labor issue is resolved.  We noted after the dividend was just raised that FedEx’s dividend could stand to be greatly raised.  Then FedEx will need to catch up to UPS in its dividend.  At the time of the hike, FedEx’s dividend yield was brought to about 0.62% versus nearly 3% for shareholders of rival UPS.

Taking either side of the argument for or against unions is a tricky case.  Management wants things the way they are now.  A union often demands more for labor.  Anyhow, you know the arguments on each side.  As far as how things turned out with the stock being the judge… FedEx shares closed up $0.04 at $78.11, but they were down at the lows of the day at $77.13 around the time that the comments made by Rockefeller hit the tape.

If you ask why FedEx might have been part of reason for the rally rationale… It is rather simple, even if the argument does not want to be heard by many.  When unions have one big win, the belief on the capital side of the labor versus capital equation has the belief that other big union fights will then appear elsewhere.  And one big loss from one of America’s top employers, that in turn might calm some fears that more unions fights will arise rapidly.

JON C. OGG