Transcript
Express Mail Delivery
1.How and why has the express mail industry structure evolved in recent
years?
Customers
- Business and individuals became accustomed to express delivery services to ship their
mosturgent documents, parcels and perishable goods. From a customer point of view, the
urgency of shipment and competitive prices were the major drivers in using express mail
instead of normal delivery.As the concept of inventory control became critical for businesses,
they used express delivery to shiptheir time-sensitive products, thereby reducing their on hand
inventory. The reliability of express mailcarriers, access to tracking information and the
convenience of drop-off, also affected how industryevolved. Although not effective, volume
discounts were offered to large customers to improve customer loyalty.
Operations
- Quality control became paramount to express mail industry, as the three largest
carriers,delivered more than five million packages each day, with an over 98% on-time
arrival. Although eachcarrier had different operational structure, their basic infrastructures
were the same. They all utilizedlarge fleet of vehicles and drivers to collect packages from
customers, and then transported by cargo planes to hub airports, where the package were
trucked to hangers to be sorted according to their finaldestination and scheduled time of
delivery. Even though carriers used different degree of automatedsorting processes, they all
employed a vast number of employees to direct this process. Because of thenature of hubs’
operations, it required large capital expenditures. A significant portion of carriers’resources
were also allocated to customer service and information management. In order to
helpcustomers schedule pickups, track packages and provide rate information, complex
information systemswere used to support the carriers’ distribution network.
Competition
- 85% of the domestic market was captured by the three major firms, FedEx, UPS
andAirborne Express, with 1996 revenues of $10,274M, $22,368M, and $2,484M,
respectively. The market position of second-tier players, which included U.S. Postal Service,
was minute compared to FedEx andUPS combined. The Postal Services had remained popular
among residential consumers, and had a legalmonopoly for mailing first-class letters; however
it was prohibited by law to provide volume discountsto business customers. In addition, it
lacked efficient tracking capabilities and had poor on-time deliveryrecord. Other second-tier
players were DHL and TNT, BAX Global, Emery and RPS. DHL and TNT both targeted the
international market. DHL’s purpose to operate domestically was merely to lower itscosts and
increase reliability of its international shipments. And TNT was specifically targeting the
European market. BAX Global and Emery were not competitive in overnight express mail
and only focused on shipping heavy cargos. RPS was more focused in targeting price
sensitive business customers who were interested ground two-day shipping.2.
How have the changes affected small competitors?
Smaller competitors were forced to intensify their product differentiation and become more
appealing to niche markets within the express mail industry. They also utilized technology
based customer service information systems to improve their customer service.
2.)
Porter’s Five Forces
Rating
Threat of New Entrants
Low
Threat of Buyer Power
High
Threat of Substitute
Products/Services
High
Intensity of Rivalry
Moderate
Threat of Supplier Power
Moderate
Description
Due to the current oligopoly of 86% shared by FedEx, UPS, and
Airborne, as well as the large capital investment required of new
entrants; threat of new entrants is not an impending concern of the
top tier organizations. Moreover, the domestic express mail market
is very saturated, and there are not many ways in which to
differentiate your product from the existing postal service
“gorillas”.
Buyer power is high due to the low experienced switching costs
and product differentiation, as well as the several suppliers a
consumer has to choose from. Further, post-UPS’s strike Roadway
Package System’s president Ivan Hofmann noted: “Single-sourcing
as a buzzword lost its buzz” (14), reiterating the fact that the
customer has the power.
Express mail providers offer a convenient service; nonetheless
convenience is not a necessity. Threat of substitute products/
services is high due to the availability of several alternatives (e.g.
Telephone, Bus Transport, email, Facsimile, Skype, etc.)
Intensity of rivalry is moderate; this is due to the evident oligopoly
between FedEx, UPS, and Airborne. This “parcel war” has few
major competitors, and buyers have low switching costs. Moreover,
UPS operates in each market segment; therefore there is no way to
differentiate your product from that of this preexisting premier
company.
The power of the supplier is neither high nor low, seeing as the top
three domestic express mail providers have little dependence on
their suppliers with some bargaining power. A few of these head
organizations own their own planes as well as a portion of their
delivery vehicles, while Airborne Express owns their own airport
thus, decreasing the suppliers power.