January 17, 2011

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 most urgent 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 ship their time-sensitive products, thereby reducing their on hand inventory. The reliability of express mail carriers, access to tracking information and the convenience of drop-off, also affected how industry evolved. 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 each carrier had different operational structure, their basic infrastructures were the same. They all utilized large 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 final destination and scheduled time of delivery. Even though carriers used different degree of automated sorting processes, they all employed a vast number of employees to direct this process. Because of the nature 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 help customers schedule pickups, track packages and provide rate information, complex information systems were used to support the carriers’ distribution network. Competition- 85% of the domestic market was captured by the three major firms, FedEx, UPS and Airborne 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 and UPS combined. The Postal Services had remained popular among residential consumers, and had a legal monopoly for mailing first-class letters; however it was prohibited by law to provide volume discounts to business customers. In addition, it lacked efficient tracking capabilities and had poor on-time delivery record. 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 its costs 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. 3. Analyze the industry environment using the Five Forces model. The risk of entry by potential competitors- Because of the large capital investment required for creating a distribution network and its supporting infrastructure, the risk of new entry in express mail industry is low. Major carriers have an advantage of economies of scale since they have already established their


Other carriers generally follow the prices and trends established by these two major players. Identify any macroeconomic or global trends/factors that might be affecting this industry significantly. except using an express mail delivery service.The industry is consolidated and very competitive particularly between the two major players. However.January 17. 2011 position in the market. There are legal and regulatory constraint that create an entry barrier into the industry. Unless the industry becomes regulated. there is will not be any political and legal trend impacting the industry. who would prefer same-day or next-day delivery service. The technological trends impacting this industry most likely would be creative type which would bring more value to the end user consumer. creating an oligopoly. The bargaining power of buyers. 4. and profitability is dependent of sales volume. Suppliers clearly could create a threat to the industry by providing poor service or raising the costs of their products. In addition there is no substitute for shipping urgent time-sensitive and perishable goods. and political and legal trends.Individual consumers generally have no power in this industry. Volatility in inflation and deflation could destabilize the economy and create an adverse business environment for express mail industry. it creates a more intense competition among carriers. Potential new entrants can apply the same business models. Global trends affecting the industry include: technological. and in general rising interest rates could cause a threat and falling rates creates opportunities. The four most important macroeconomic forces are growth rate of the economy. Cost of capital is dependent of interest rates. tend to have a degree of negotiation power on prices. The bargaining power of suppliers. The closeness of substitutes to an industry’s products. Economic growth would expand consumer expenditures resulting in a decline in competition among carriers. 2 . FedEx and UPS. Volatility in currency exchange rates could also impact competitiveness of those carriers involve in international shipping. commercial customers depending on their volume of business.Major suppliers in this industry include labor unions. there could be deliberate tendency to use secured encrypted emails to transmit documents instead of mailing them overnight. The intensity of rivalry among established companies within an industry. and vehicle and jet fuel producers. Because of the high initial capital investment needed to enter into the industry. there is always a need for sending original documents.Although customers can use facsimile and email to transmit documents. therefore eliminating absolute cost advantage of established carriers. Increase demand in express mail delivery has also influenced rivalry among carriers. There is a low switching cost since consumers can easily change carriers. where customer loyalty is minute and switching cost is low. demographic. exit barriers are high. As society’s social values lean towards a green environment. social. currency exchange rates and inflation (or deflation). Positive demographic trends could result because of the customer expectations of younger segment of population or generation Y. In addition because express mail industry generally has high fixed costs. making it more difficult for new entry. Brand loyalty generally is low in the industry. interest rate. leading to a more intense competition.

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