Porters 5 Forces: Threat of New Entrants: The threat of new entrants is low because it is very costly to get involved

in a business like this. There are many expenses that companies in this industry have. For instance, planes and vehicles are needed, the products are very expensive to buy and to be competitive in this industry, you have to offer cheap prices and be efficient. So, therefore, new entrants are low due to the fact that barriers to enter are high. Power of Suppliers: This is high due to the fact that businesses in this industry have the final say in the cost of the products delivery. As mentioned before, planes and other vehicles are an expense that businesses in this industry have, and DHL has to maintain a good relationship with their suppliers in order to be efficient and keep their customers happy. Power of Buyers: The power of buyers is extremely high, because people can be easily swayed to use your competitors. Maintaining a good relationship with your buyers is very important because there is no extra cost to the buyer if they want to use another company. If buyers are not spending money and do not need products to be shipped, there is no need for companies like DHL. Product Substitutes: Since there are other companies out there like DHL, it is very easy for customers to substitute you and use another delivery service. Maintaining good customers relationship is the key to this industry because it is a very competitive industry that relies heavily on its customers to be successful.

Intensity of Rivalry: Due to the fact that there are only four main companies in this industry, it makes this industry very intense. All of the competitors are trying to outdo each other in order to gain more of the market share. To do this they have to be fast and efficient and keep their prices low.

Five Forces Model: Threat of New Entrants: The threat of new entrants is low in the parcel industry. It is low because it is very expensive to get involved in the industry. Starts up costs are high. It is expensive to have the services that are equal to that of FedEx and the other competitors. Bargaining Power of Suppliers: The bargaining power of suppliers is high. It is high because when looking at the items that the parcel industry use such as, planes, computers, and vehicles. If FedEx is not on good relations with these people, the costs can increase drastically.

Bargaining Power of Buyers: The buyers have a very strong bargaining power. They have the ability to switch their user to one of the other members of the industry at any time. It is the job of FedEx to make sure that the customer is always happy. It comes as no extra cost to the buyer to switch their parcel delivery company. The only lose that is really suffered comes at the expense of the company for losing a client. Product Substitutes:

It is very easy to substitute a delivery service. There are not many out there but the ones that are well established in the eyes of the customer and the industry. It would not be a complex task to switch one company for another. Since this is the case, FedEx has to maintain good customer relations with their clients. Intensity of Rivalry: The parcel industry is an intense industry. There are five main players in the industry competing for market share. The features that they are competing on are the speed of delivery, the efficiency of the delivery, and prices. If you can create a successful mix of the three of those factors, you will hold the greatest market share.

///// Porters Five Forces Classification

1.
Buyer Power

This is a moderate force in the freight transportation industry because competition keeps prices similar among the companies. The only difference is companies, such as FedEx who have value-added services that allow a higher price. Also, the buyers of the services in this industry are reactionary. They do not know the technology before it happens and they become dependent on technology, service and speed offered by the companies in this industry and will pay for it. One of the FedExs greatest strengths is undoubtedly its business concept. No matter what the economy is doing, there will always be a need for package delivery of some sort by companies and individuals involved in nearly every industry. FedEx has been the industry leader since 1973 and has very strong brand image. On the other side, FedEx prices are above their competitors. This can be a weakness if their customers do not perceive a difference between FedEx and its competitors services.

2.

Supplier Power

This is a strong force if the suppliers serve industries other than Air Freight. If a supplier only has accounts, or the majority of their accounts with these companies, they will not be able to control prices and supplies. Suppliers that are involved in this industry are: vehicle manufacturers, airplane manufacturers, fuel suppliers, labor, airports, and shipping materials manufacturers. FedEx prices depend on the contracts with oil suppliers that company develop in order to cover fluctuating fuel costs and volatility of supply. FedEx pilots have formed the FedEx Pilots Association that demanded changes in the pilots benefits, and the fact that FedEx outsources some foreign flights instead of giving their own pilots the job. It is very unlikely that FedEx operation would not suffer if there were strikes or dispute with outsourcing companies. But if FedEx employees went on strike, their competitors could gain an advantage.
Through FedExs expansions globally, they are subject to laws and regulations of all foreign countries. There are subject to the entire worlds economic and political condition in the areas of fuel prices and supply, customer purchase of their services, and relations with foreign countries.

3.

Rivalry Among Existing Firms

This is a strong force in this industry because the competitors use price cuts to compete, there is a low cost and ease to switching brands, and the companies in this industry diversify and acquire other companies for strategic growth and synergy. FedEx competitors include United Parcel Service, Airborne Express, Emery Worldwide, DHL Worldwide, BAX Global, and United States Postal Service. FedEx holds 46.5 percent, the

largest portion, with UPS and Airborne Express as the largest competitors. FedEx is clearly a large, strong, and growing express transportation company.

4.

Threat of New Entrants

Entry barriers in the express delivery and freight transportation industry are high. Brand recognition serves as one entry barrier. Each company currently in the industry has strong brand images, leaving a harder job for new companies. Of course, being the originator of the express delivery concept is also a key strength. FedEx became a household name before any of its competitors ever arrived on the scene, and thus has become synonymous with the idea of express package delivery in the minds of consumers. Domination of the distribution channels will be also significant barrier to entry. In case of FedEx, they are already having large amount of preferable distribution channels and also convenient office locations.

Other barrier is the capital expenditures to start an express transportation company are large, and the companies currently are achieving economies of scale by going global. Any smaller company will not be able to achieve these right away, not allowing them to compete on prices.

Another factor threatening potential entrants is trade s and international regulations. Most companies currently in the industry have already established relations with foreign countries. New companies will have to prove themselves to foreign companies, suppliers, and customers.

5.

Threat of Substitutes

This is a weak to moderate force in the industry. Businesses and individuals that wish to ship cargo and packages can substitute it by other modes of transportation such as trucks, trains and boats. However, the customers that use air freight transportation usually desire convenience, speed, and low cost. Traditional transportation modes do not offer all three of these. Businesses and individuals who want to ship documents can use e-mail, the Internet, and Facsimiles. However, these can take some time to scan and load, and then it is uncertain that your document will get to its destination.

/////Competitive rivalry Since multi-market competition exists, rivalry between competitors in the industry is extremely intense. Companies in the industry have started new businesses to increase the level of competition with one another (ex. FedEx Ground, UPS Overnight) and compete heavily for geographic markets. There is no clear dominant market share player in the industry; although FedEx leads with 35%, UPS holds 30%, TNT has 9%, and Airborne has 3%. Data could not be found for DHL and is not included in the market share percentages above, but they hold very strong positions in Europe and Asia. Though the industry currently has relatively high growth, much of the business is cyclical, which leads to intensified competition in economic downturns. High fixed costs also contribute to intense competition. Threat of entry The threat of new entrants into this industry is relatively low because of the scale required to make companies in the industry competitive. Capital demands to fund all of the assets required in the industry (air and ground fleets, warehouses, distribution centres, large labour force,

etc.) are extraordinarily large, making competition from entrepreneurs or small companies very difficult at this level of market competitiveness. Economies of scale are necessary for the business to be profitable and because of the intensity of rivalry, customers would are difficult to attract. While the basic service of shipping goods would be relatively easy for new entrants to imitate, the competitors in the industry have created value and high switching costs for their customers through proprietary technologies such as online package tracking and integrated sales and shipping systems. Supplier power Suppliers' power is fairly low for the industry, but differs between competitors. For delivery vehicles such as planes and trucks, suppliers have low bargaining power because of the intensity of rivalry in their respective industries. Competitors are also on the same footing with suppliers of fuel, as they are all subject to the same prices, although they may have hedged differently. Labour is a major factor of production in the industry and differences between companies regarding labour contracts subjects them to varying degrees of supplier power. UPS especially is impacted by labour issues as their high level of unionized workforce has halted operations in the past. Buyer power Customers in the industry initially have power, but once they commit to a carrier, their bargaining power decreases significantly. New customers can easily shop around for price or level of service in the beginning, but once they have chosen a carrier and use their valuecreating services, they have very high switching costs. In addition, customers are likely to become loyal to a certain provider because of long-standing relationships or personal interaction with the company.

Threat of substitutes The threat of substitutes is currently low for the industry, but major technological or security break-through could change that. Increased use of email probably decreased industry volume slightly over the past few years, but security issues with this form of communication will probably limit the transmission of sensitive information by email. Regular mail is the largest threat to the industry, as these providers likely have lower prices than the rest of the industry, but lack the level of service. Around the world, national postal systems have issues with speed, security, and reliability that reduce the threat that they pose to the industry. For Downes (1997), three new forces are overwhelming these 'traditional' five. They are the forces of digitalisation, globalisation and deregulation. One of the main drivers of globalisation is the proliferation of networking technology, itself driven by the convergence of telecommunications and computing. For FedEx, as of January 2000, it served 210 countries (making up more than 90 per cent of the world's GDP), operated 34,000 drop off locations and managed 10 million square feet of warehouse space worldwide.
////Bargaining power of suppliers - High Suppliers are able to influence pricing of products as they serve industries other than the air freight industry, giving them control over their prices. Bargaining power of buyers - Moderate Competition in this industry maintains the price at its true market value. As this industry is seen as a market driving industry, many are not aware of the possibilities that technology can offer. Therefore, it is easy to influence buyers, making them dependent on the technology, speed and service offered by the company. Threat of new entrants - low Companies need large amounts of capital to start-up, and a strong, trusted brand. Trade tariffs and international regulations are seen as a potential threat as they are directly able to influence the economy, hence affecting the Company's sales and services. Threat of substitutes - moderate

Substitutes for the Company are ships, trucks, and trains. Customers who use the Company's services desire fast, low cost and convenient delivery, which cannot be offered by other modes of transportation. However, the advent of Internet has decreased the need for shipment of documents as people are now able to use the e-mail, video conferencing and also the Facsimile. Degree of Rivalry - High Competitors compete using price cuts. It is also relatively easy for customers to switch brands for basic transportation needs at a cheaper price. On the other hand, as companies demand for greater integration of FedEx's systems into their business, customer loyalty increases and switching costs would be high, discouraging customers to switch.

//////Since multi-market competition exists, rivalry between competitors in the

industry is extremely intense. Companies in the industry have started new businesses to increase the level of competition with one another (ex. FedEx Ground, UPS Overnight) and compete heavily for geographic markets. There is no clear dominant market share player in the industry; although FedEx leads with 35%, UPS holds 30%, TNT has 9%, and Airborne has 3%. Data could not be found for DHL and is not included in the market share percentages above, but they hold very strong positions in Europe and Asia. Though the industry currently has relatively high growth, much of the business is cyclical, which leads to intensified competition in economic downturns. High fixed costs also contribute to intense competition. The threat of new entrants into this industry is relatively low because of the scale required to make companies in the industry competitive. Capital demands to fund all of the assets required in the industry (air and ground fleets, warehouses, distribution centers, large labour force, etc.) are extraordinarily large, making competition from entrepreneurs or small companies very difficult at this level of market competitiveness. Economies of scale are necessary for the business to be profitable and because of the intensity of rivalry, customers would are difficult to attract. While the basic service of shipping goods would be relatively easy for new entrants to imitate, the competitors in the industry have created value and high switching costs for their customers through proprietary technologies such as online package tracking and integrated sales and shipping systems. Suppliers' power is fairly low for the industry, but differs between competitors. For delivery vehicles such as planes and trucks, suppliers have low bargaining power because of the intensity of rivalry in their respective industries. Competitors are also on the same footing with suppliers of fuel, as they are all subject to the same prices, although they may have hedged differently. Labour is a major factor of production in the industry and differences between companies regarding labour contracts subjects them to varying degrees of supplier power. UPS especially is impacted by labour issues as their high level of unionized workforce has halted operations in the past.

Customers in the industry initially have power, but once they commit to a carrier, their bargaining power decreases significantly. New customers can easily shop around for price or level of service in the beginning, but once they have chosen a carrier and use their value-creating services, they have very high switching costs. In addition, customers are likely to become loyal to a certain provider because of longstanding relationships or personal interaction with the company. The threat of substitutes is currently low for the industry, but major technological or security break-throughs could change that. Increased use of email probably decreased industry volume slightly over the past few years, but security issues with this form of communication will probably limit the transmission of sensitive information by email. Regular mail is the largest threat to the industry, as these providers likely have lower prices than the rest of the industry, but lack the level of service. Around the world, national postal systems have issues with speed, security, and reliability that reduce the threat that they pose to the industry ///// C. Porters Five Forces

Applying Porters five forces model to the industry is not an easy task provided that FedEx Corporation provides various shipping services. For simplicity, we examined and applied the Porters five forces model to the ground and air-shipping sector. In FedEx, these two sectors are represented by FedEx Express and FedEx Ground. FedEx Express is the world's largest express transportation company. FedEx Ground, on the other hand, is North America's second largest provider of smallpackage ground delivery service, following the lead of UPS. Other segments of shipping service industry are for example e-commerce and supply chain management services, which are not included in the Porters five forces analysis.

1. Risk of new entry by potential competitors The barriers to entry are very high. One of the reasons that there is a high entry barrier is the high fixed cost associated with establishing the international transportation network. This includes hubs, ground transportation vehicles, air fleet, etc. Additionally, existing companies can take advantage of the absolute cost advantage achieved by large volume of shipments and economies of scale.

2. Extent of rivalry between established firms

Established players in shipping service industry complete rigorously for a market share, as demonstrated by the constant battle between FedEx and UPS, the company who responses first to the constantly changing environment wins. Established companies have to strive for continuous improvement in quality, lowering price, and innovation. There is very low switching cost for consumers in this industry making rivalry even more intense. In addition, intense rivalry is also due to the fact that maintaining the infrastructure of an express delivery company presents an exit barrier due to high fixed costs. 3. Bargaining power of buyers The bargaining power of large buyers in shipping service industry is high. Cost associated with switching from one shipping service to another is very low. Therefore, buyers can turn to a shipping provider that offer faster service, lower price, or service innovation with ease. This is especially true for large corporations, like IBM, which ships in large volumes and can bargain quantity discounts.

4. Bargaining power of suppliers The supplier power within this industry is fairly low. Large shipping service provider can affect prices of supplies, like packaging materials. This is because they buy in large quantities and can turn to different suppliers easily.

5. Threat of substitute products There are not many substitutes to shipping. In this day and age where many businesses have strong online presence and a small physical presence, it would be difficult to find a substitute in delivering their product. Shipping services are very much similar to a commodity, in that it is not easily replaced with another service or even a similar service.

Graph 1: Porters five forces model FedEx Corporation

Potential Competitors

LOW to MODERATE Suppliers Power Existing Rivals Buyers Power HIGH LOW HIGH - FedEx, UPS, DHL - large buyers - low switching cost