Product attributes

(i) Speed of Service (ii) Door-to-door Delivery (iii) Proof of Delivery (iv) Tracking Systems (v) Security and Reliability (vi) Global Network: The air express operators worked on a global network, even though their emphasis on domestic vs. international business varied.

UPS & FedEx things in common. anothers Both are fanatical about tracking one
movements in the market through Intense market research. Both are centralized organizations with effective annual business planning processes They firmly believe that customer satisfaction in the service industry, begins with employee satisfaction. Both invest heavily into its employees and also believe in promoting from within. Both companies have a strong strategic planning culture by making long term investments, and then waiting patiently for the results.

Head to head comparison

The Battle for Value, 2005: FedEx vs. UPS

Head-to-Head
FedEx 50,000 625 216,500 5.4 million $15.4 billion $22.5 billion $830 million

UPS 88,000 583 360,000 13 million $28.9 billion $33.4 billion $2.9 billion

Ground Vehicles Aircraft Employees Packages Shipped Daily Assets Revenues Net Income

Industry competition

LOW THREAT OF NEW ENTRANTS

Labor problems Capacity constraints Fuel costs

Strong brand images High capital expenditures Economies of scale Trade tariffs and international regulations

HIGH

Highly consolidated industry

HIGH POWER OF SUPPLIERS COMPETITIVE RIVALRY POWER OF BUYERS MODERATE

Low switching costs customers too small to have any individual advantage There are no real substitutes for air freight

THREAT OF SUBSTITUTES

LOW

Battle for Value, 2005: FedEx vs. UPS

The Competition Price competition (mature actions) Operational Reengineering Information Technology Service Expansion Logistic Services

Battle for Value, 2005: FedEx vs. UPS

The European Market
In 1992, FedEx sold operations to DHL after sustaining an estimated $1 Billion in losses since 1984. FedEx continues to deliver throughout Europe, however, leveraging local partners. UPS enters the European market place in 1988. Acquires 10 local providers. Announces $1 Billion of investments in that market Targets to grow European business to 1/3 of total operations.

Battle for Value, 2005: FedEx vs. UPS

The Breaking Into China
FedEx and UPS already serving China FedEx maintained a larger presence in China
Direct flights to Beijing, Shenzhen, and Shanghai 11 weekly flights, twice as many as UPS Served 220 Chinese cities. FedEx volumes grew by more that 50% between 2003 and 2004

UPS was active in China since 1988

Direct flights to Beijing and Shanghai 6 weekly 747 flights Served 200 Chinese cities UPS reported 60% growth in shipments since 2001.

Battle for Value, 2005: FedEx vs. UPS

Enabling Factors
FedEx Technology Innovations Customer ordering Package Tracking Process Monitoring UPS Leader in logistics & supply chain management & Customer logistical management

High quality service provider (Malcolm Balbridge National Quality Award )

Efficiency, Low-cost provider

Deregulation In airline industry In trucking industry Hub & spoke distribution pattern

Innovative, entrepreneurial, operational leader

No clear pattern established

Cost reduction through economies of scale, IT, Cost reduction through economies of scale, IT, Business Process Re-engineering Business Process Re-engineering

Battle for Value, 2005: FedEx vs. UPS

Inhibiting Factors
FedEx Contract workers. Governed by different regulations UPS Union Problems, large wage increases

Taking the battle to the others' turf.

Started to enter rivals core competent area. UPS entered air delivery system whereas FedEx started challenging UPS on road. WTC attacks tested FedEx. UPS invested on advancement of technology.

Taking the battle to the others' turf.

UPS Dominant in ground based parcel delivery service, such as department store parcels. FedEx grabbed market share of air-borne delivery, i.e., overnight service. UPS is launching an all-out attack to garner a bigger chunk of the lucrative overnight business, where FedEx is king (60%). Federal (Express) has introduced some timedeferred, ground-based capabilities

Taking the battle to the others' turf.

The fevered rush to capture business has also spread to the Internet. Both companies have web sites where consumers can order merchandise Both UPS and FedEx are investing billions of dollars to build distribution systems in Europe and Asia, betting on those largely untapped markets

1984 Acquires Gelco International , launches Asia -Pacific operations

Timeline of Competitive Developments

1987 Warehouse services to IBM 1994 Website for package tracking 1989 Acquires Tiger International 1990 Malcolm Balbridge Award 1992 2-day delivery 1986 handheld barcode scanner

2000 B2C home -delivery service 2001 Carries USPS packages , Acquires American Freightway Corp . 2002 Home delivery to cover 100 % of U .S. 2003 Acquires Kinko 's, establishes Chinese headquarters

1985 European hub in Brussels

1995 Acquires air -routes serving China , Establishes Latin America Div . 1999 Creates new hub at CDG Airport in Paris

1982 Offers 10 :30 AM delivery

Fedex Time line of action and reaction UPS 1982

1982 Establishes next -day air service 1988 UPS 's first air fleet 1991 Saturday delivery , Electronic sign . tracking 1994 Website for package tracking 1999 UPS IPO 2003 Contracts with Yangtze River Express , Reduces ground -delivery time 2003

1985 Intercontinental air service between US and Europe

2000 Acquires all -cargo air service in Latin America

1990 Offers 10:30 AM guarantee for next -day air

1995 Guaranteed 8 A.M. overnight delivery 1992 Expands delivery to 200 countries

2002 Guaranteed 2001 next -day delivery Acquires Mail Boxes Etc ., begins direct flights to China

The four strategic moves

Four areas of competition Cost & Quality Timing and know-how Strong holds Deep pockets

Competitive options scenario

Move to the next Arena

Attempt to redefine Quality The Cycle of Price-Quality Competitive options

Commodity like Market

Niching & Outflanking

Move to Ultimate Value

Price-Quality Maneuvers

Full line Producers

Price War

Last resort

Firm builds a Tech. Resource Base to create advantage Then moves into a new market first: Pioneer

Escalating costs & risks each cycle

ollowers imitate products & overcome switching costs and brand loyalties Pioneer throws up impediments to imitation Followers overcome impediments and replicate pioneers resource base First mover moves downstream into higher value added products

First mover uses a Transformation Strategy & abandons product design/ technology based approach Builds resources to match followers Competencies and skills Price War

First mover uses a Leapfrog Strategy to a new resource base

Scenario of cycle of Competition

Pricing - Generally followed the leader

Innovation leaders and fast followers

. AltaVista -> Google Napster -> iTunes VisiCalc -> Lotus 123 -> Excel Word Perfect -> Word Netscape -> Internet Explorer Apple Newton -> Palm Pilot -> Blackberry IBM PC -> Compaq -> Dell Double Click -> Google Ad Sense Ofoto -> Flickr Nintendo > Xbox Friendster > Facebook

How did the fast followers take over market share leadership?
The early innovators were eclipsed by fast followers with :
Better business model (Google, Ad Sense, Dell) Better market position (Word, Excel, Verizon) Better timing (iTunes, Flickr) Better platform choices (Blackberry, Word, Excel) Better management (all the fast followers)

U . D m s A C rg R v n eS a .S o e tic ir a o e e u h re ($ illio ,2 0 ) b n 08
All C rg Airline, a o Freig ht $0.8,3% Forw rder, $0.9, a 3% D L, H $2.4,7% FedE , $14.2, x 44% UPS $10.4, 33% , C bina om tion Airline, $1.6, 5%

US , $0.9, 3% PS B ,$0.7, 2% AX

FedEx and UPS together controlled 77% of the market in 2008. FedEx and UPS gained more market shares after DHL exit U.S. Domestic market in 2009. Source: Air Cargo Management Group, 2009

U.S D e ticE p s Ma e S a . om s x re s rk t h re A e g D ilyV m (0 0 Q4 8 v ra e a olu e 0 , 0 )

E xpressMail 185 3% Other 50 1% D HL 485 9% FedE x 2,529 45% UPS 2,401 42%

FedEx and UPS together controlled 87% of the U.S. Domestic Express market in 2008. FedEx and UPS gained more market shares after DHL exit U.S. Domestic market in 2009. Source: ACMG estimates, 2009

U.S. Domestic Express Shipment Growth

The 2008 shipment total is up only 19% from 1994. That increase reflects 6% growth per year between 1994-2002. The market size changed little from 2002 to 2007, before falling 14% in 2008.
Source: ACMG estimates, 2009

In 'l E p s M rk tS a t x re s a e h re A e a eD ilyV lu e(0 0 vrg a o m 0)

Other 140 Posta l 7% 154 8% TT N 269 13% DL H 457 23%

UPS 503 25%

FedE x 475 24%

FedEx, UPS, DHL and TNT are the four major service providers in the Intl Air Express market.
Source: ACMG estimates, 2009

International Air Express Shipment Growth

2,500,000 2,114,300 2,144,100 2,000,000 1,558,200 1,500,000 1,095,200 1,000,000 1,996,900

m u o V y l i D g a r e v A

500,000

498,600

0 1992 1997 2002 2007 2008 2009

The Intl Air Express volume growth was steady and substantial from 1992 through 2007 (10% CAGR), followed by a slowdown in 2008 and significant 7% decline in 2009.
Source: ACMG estimates, 2009

FedEX

UPS

Take aways
Never stop innovating Build a well rounded management team early Value sales and marketing talent as much as technical talent React quickly to disruptive technologies or business models Dont be too proud to imitate when it makes sense

Establish Competition Information System

Market leadership and customer focus

High Customers awareness of their needs

Under exploited areas Current markets

Areas of greatest opportunity

Under exploited Unexploited areas areas

Areas of greatest opportunity existing Companys customer groups Areas of highest risk / return Not yet served

Low

Some appropriate Marketing strategies

Expand the market

Leaders

Protect the current share Expand share

challengers

Discount or cut prices Cheap goods Innovate Promote heavily Proliferate the range Reduce costs
Segment carefully

Nichers
Create a fortress

followers

Use R&D Challenge commercial wisdoms

Dealing with Competition is

1. Action can be adaptive, reactive or status quo 2. Focus on consumers and competitors 3. Depends on Market Position- leader, challenger or follower 4. Involves everybody 5. Dynamic- never a dull moment 6. Information is the key 7. Resource building is critical

As of date overall Winner: FedEx!

UPS fired the first shot in this recent political spat, but it was FedEx that ultimately convinced Congress to drop legislative challenges to its current and preferred labor status.