Environment Analysis : Shipping Industry

Barrier to entry: - High barriers to entry, to a certain extent help understand the risks involved in operating in the aircraft industry.

Bargaining power of buyers is medium-high because of the low switching costs and wider spectrum of similar products selling at competitive prices due to the influence of developing countries

„« Barriers to entry are typically high, it requires a very large amount of money and expertise to enter the industry. The industry is consolidating not growing.

In this report we focus on the two main competitors in the package delivery industry: Federal Express Corporation (FedEx) and United Parcel Service of America, Inc.

Rivalry among established companies: This industry is highly consolidated with only 3 major players - somewhat an oligopoly. The industry is also characterized by numerous price wars between the 2 giants, namely, UPS and FedEx. Rest of the companies generally follow the trends set by these two firms or fall out. The exit barriers to this industry are high. This is due to the investments in hubs, vans, jets and other capital extensive infrastructure.

FedEx is a highly centralized organization, with decision-making for the firm centralized at the Memphis headquarters. While national branches of the company have some autonomy in hiring, head office controls hiring policy. Decision-making on large capital projects is also centralized, because the network structure of the company's distribution means that such decisions have global implications. As a result, FedEx has a heavily-centralized structure where very little power is delegated to local managers. Instead local managers are charged with operating the company's strategy efficiently and effectively.

Significant barriers to entry such as high regulatory and capital cost requirements and a fiercely competitive industry along with barriers to exit and the recent failure of airlines such as XL

FedEx is a logistical service company specialized in transportation, e-commerce and business services. The success of FedEx lies on an efficient information system. The business process is as follows:

FedEx was first established in 1973 as a logistic company with the name Federal Express that be created by founder and first CEO Frederick W Smith. The Headquarters is in Memphis, Tennessee in the US. The company became well known for its fast and reliable delivery service around the world. On its first night of operation FedEx delivered 186 bundles to 25 urban locations in the US with only 389 employees and a 15 Dassault Falcon aircraft. In 1980 FedEx purchased a system for live updates on the packages. In this system, FedEx drivers share the current locations from the trucks to provide updates of the packages to the customers. This information was sent to a central computer of FedEx then the company improved the update system by introducing FedEx.com webpage. This webpage allowed the tracking data to be easily accessible. However, recently, FedEx uses Savvy bundle for packing and tracking the products across couriers. (Baldwin, 2016)

The parcel service industry is made up of four main competitors. These competitors are UPS, FedEx, Airborne Express, and the U.S. Postal Service. Since 2000, American consumers have spent more than $50 billion to ship parcels, packages, and overnight letters. New parcel distribution patterns developed due to the way U.S. manufacturing companies are operating. The Internet has expanded the reach of direct marketing, particularly with retail transactions requiring home delivery. Globalization has also created the need for parcel carriers to expand worldwide.

FedEx has not fared as well as UPS in financial performances. FedEx¡¦s total revenue has grown 60% from 1996 to 1999 while their net income has doubled in the same period. FedEx¡¦s acquisition of RPS will challenge UPS for the ground delivery business and affect the sustainability of UPS¡¦s advantage in the ground deliver business. FedEx has been competing well in the higher-end, high-service segment of the package delivery market. Although, digitations of documents and emergence of electronic signatures is threatening the express business which FedEx has the advantage over UPS.

Competitive rivalry exists between companies with the same or similar products/services and similar markets. Factors to be considered include:

If suppliers are limited, they have a greater opportunity to charge higher prices for raw materials, and they may also pose a threat of forward integration to the industry.  Similarly, if an industry has few buyers, or buyers can cheaply and easily change suppliers, they can make demands for less expensive higher quality products, causing impact to profit (Porter, 2008, p. 83).

FedEx is an American global courier delivery services company. The company has expanded from its original focus on ground and air-based services to include home delivery options and a retail division. They have 5 choices when shipping around the world. In case of above 68kg packages, customers can choose 2 choices,

Porter's First force is the threat of Potential Entrants. Statistics have shown the industry to be slowing down, therefore making competition high and the threat of new entrants low. Broadway Cafe has a small market presence, but the presence of its competitors like Starbucks