Fedex External Environment

FedEx External Environment Audit 1. How is the industry structured? The industry is defined by NAICS as the logistics, transportation, and related business services. This is a very broad definition because it doesn’t define the main function of the business, which is express delivery and shipping that includes a wide range of services for both businesses and consumers. FedEx offers express delivery, ground, and freight shipping, in domestic and international markets. The most important dominant economic traits of the express delivery and shipping industry are: Market Size and Growth * The express delivery and shipping industry is $189B with a growth rate of 0. 1% globally. Although there has been a -2% decline in the industry in the U. S. , there is a tremendous amount of potential growth in the developing and international markets. The shipping services industry could be classified as being in the mature stage of the industry life cycle since the main focus is increasing market share and increasing cash flow. Future growth is dependent on the penetration and development of new markets. -Degree of Product Differentiation Companies within the industry are differentiated by price, the markets they serve, reliability, and speed. Smaller firms who serve local segments are differentiated by the custom and personalized level of service. Larger firms who serve the global segment are differentiated by price, guaranteed delivery, and service. Price is a major factor for e-commerce businesses relying on the price of shipping and delivery times. Prices for shipping smaller individual packages are similar, but companies who ship in high volume get a break. Although there is some loyalty, price is a determining factor for businesses. Scope of competitive rivalry/number of rivals * A few major players in the shipping industry dominate the world market. FedEx, UPS, DHL, and USPS hold 67% of the market share who ship worldwide and within the U. S. Larger firms have an advantage based on brand recognition and the wide range of services they offer. Penetrating into international markets with growing economies will create an opportunity for larger firms to grow. -Number of buyers * Demand for express deliveries is dependent upon the health of the global economy and the growth of e-commerce.

As the economy grows, so does the demand for shipment of products to consumers and other businesses. As the economy slows down, so do the number of businesses using shipping and freight services to deliver products. During a recession, businesses shut down, and consumers stop spending buying products online, which directly effects the number of items being shipped. -Economies of scale * Larger firms tend to have more “hubs,” which are local sorting facilities for packages before reaching their final destinations, which creates efficiency in the delivery process, as well as reaching more locations that smaller companies cannot.

Economies of scale also helps with various costs, such as fuel, which is a major cost in the shipping and freight industries. 2. What is competition like? What forces are at work? According to Porter’s 5-forces model, express delivery and shipping industry is very competitive. The five forces are listed in order from strongest to weakest. -Intensity of rivalry => Very Strong Intensity of rivalry among current competitors is extremely high to increase market share. The large firms, such as FedEx and UPS, must consistently compete in price, service, reliability, and implement new technologies to improve the efficiency of shipment.

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Cost of fuel has risen 6. 8% from 2011 which is the main operating expense in the industry and is difficult for firms to pass on the cost to the customers due to low switching costs. Margins remain low making it very competitive to maintain the volume of shipment and avoiding price wars. -Bargaining Power of Suppliers => Strong The main suppliers would be the oil companies who supply fuel and the suppliers of human resources, which are the employees. Although these are not direct suppliers in the conventional sense, they do have a significant impact on the day-to-day functions.

Global supplies and demands of fuel directly impact its cost, which is the main variable effecting margin of the industry. The human capital of its workforce directly affects the efficiency of its daily functions and the reliability that consumers depend on. Employees have power bargaining power by possibly going on strike which could bring deliveries to a halt. In that sense it, employees have a strong bargaining power and could demand higher pay, increase in benefits, and better working conditions. -Bargaining Power of Buyers => Strong

Large shipping companies depend more on businesses that use who ship products in high volume. The switching costs can be very little to practically nothing, causing the industry to lack brand loyalty. Customers can easily switch over to a competitor who offers service that’s slightly cheaper or at a faster speed. Firms rely on businesses and e-commerce for their own industry to be profitable. -Threat of New Entrants => Weak Threat of new entrants is low. The cost of fixed assets to be competing in the industry is extremely high. It would cost billions of dollars to obtain the proper number of airplanes, trucks, and software.

This would also require billions of dollars in fuel cost, maintenance, and human capital to operate properly. It would also be difficult for a new entrant to gain market share due to the high brand recognition of the industry leaders making it difficult to differentiate them in a substantial way. Even with economies of scale, profit margins are very narrow making it difficult to gain a profit. Distribution and number of “hubs” would be difficult to match. -Threat of Substitutes => Weak There isn’t really a substitute that can take the place of physically moving products from one place to another.

In the past, the internet has replaced mail and delivery for the transfer of documents and funds. Value- net analysis reveals various complements could help differentiate firms from one another. Additional services for businesses with marketing materials and packaging would help firms to increase business for their customers. In conclusion, this is an extremely competitive industry. Although there is no threat of substitutes for this type of service, it is a very difficult industry to profit and compete in. 3. What trends are driving changes in the industry? Trends that are causing changes in the industry are: Increased globalization of the industry (+) * Businesses are becoming more globalized and penetrating into international markets will be key to the growth of the industry. There is an increase of businesses in developing countries and there is an increase in e-commerce. -Increasing fuel cost (-) * Fuel is the biggest cost in the express delivery industry and many recent global supply problems have increased the costs. Political uprisings in the Middle East, and threats of war across the region affect supply. Major price fluctuations cut into profits. -Going green (+) Many countries and industries have been pushing the green efforts. Car and truck companies have been producing electric and hybrid vehicles that can significantly reduce the cost of fuel. The long-term savings will outweigh the short-term cost of replacing and updating vehicles to hybrids. -Increased competition and regulation in new markets (-) * Government owned express delivery service providers usually monopolize the industry in the country and can impose regulations to prevent private and foreign companies to do business, or even impose strict customs processes. -Businesses switching to online models (+) More businesses are switching to online models to reduce inventory and overhead costs. With the increase of the number of people with access to computers and the Internet, new markets are appearing with the ability to purchase online. Businesses have increased their online presence, and offer online purchasing and even mobile apps for convenience. This increases the number of shipments direct from warehouses to customers, and creates a dependence on shipping services. The trends are mostly positive suggesting that the future of the expressing shipping services industry is likely to increase, yet will be very competitive.

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