1. Describe the competition in the overnight package delivery industry, and the strategies by which those two firms are meeting the competition. What are the enabling and inhibiting factors facing the two firms as they pursue their goals?
According to Barclays, the overnight package delivery industry is estimated to be a market worth $90 billion USD. This large market is segmented by three different dimensions: weight, mode of transit, and timeline. The weight segment is broken down into three different categories that consist of letters (0-2.0 pounds), packages (2.0-150 pounds), and freight (over 151 pounds). The mode of transit was divided into two categories that are referred to as air/express and ground. Finally, the time categories are broken down by overnight, deferred deliver (second-day delivery), three-day delivery, and regular delivery (four or more days). These various segments have drastically changed with the rise of e-commerce. The shift from high density business-to-business delivery to low-density residential deliveries has caused the industry to make changes to their pricing formats and logistics. Although FedEx and UPS were the titans of their industry; they had to continue to make changes to their scope of business in order to keep up with new entrants. Large e-commerce companies like Amazon even began to create its own delivery network which allowed them to offer same day shipping and even Sunday deliveries. FedEx and UPS needed to make changes to their strategies in order to meet the competition.
In order to keep up with the pace and frequency of new delivery times offered, FedEx and UPS partnered with the United States Postal Service to handle the last-mile drop-offs. This allowed FedEx and UPS to offer lower shipping prices and alleviate the strain that was placed on them by the two-day shipping being offered by e-commerce giants. Both companies also changed the way they calculated the billing cost for customers by switching from pricing by a parcels weight, to dimensional weight (an estimated weight that is calculated from the length, width and height of a package).
These changes that have been made have also provided each company with enabling and inhibiting factors. The enabling and inhibiting factors facing the two firms plays a large part in the way they develop their business strategies. One very important enabling factor for both companies is their increased service expansion and services offered. FedEx left its European hub in 1992, which caused them to rely on local partners for that market. However, they quickly shifted their attention to Latin America and expanded their routes in the region and even included the Caribbean. They would later go on to introduce dedicated routes between Asia and the U.S. which provided next-business-day delivery. On the other hand, UPS entered the European market in 1998 through the acquisition of other European courier services. They also created a system that was able to automatically track and bill customers’ packages for customs duties and taxes. By 2014 both companies had software that allowed them to bill customers for customs duties and taxes which ensures both would play a large role in the explosion that took place in e-commerce as consumers purchases between countries continued to rise.
Additional enabling factors that benefited FedEx was they were the first company to purchase planes while their competitors were purchasing space on board commercial flights. They also utilized a hub-and-spoke design which permitted cheaper and faster service to more locations than competitors could offer. Lastly, an enabling factor for FedEx is that they are really keen on developing and utilizing the technological innovations. These innovations have allowed them to better link, track and follow every package they have which gives customers a sense of security.
Other enabling factors for UPS were that it was the larger of the two companies which allowed it to benefit from the economies of scale. They were able to experience cost advantages that may not have been offered to competitors. UPS also benefited from its leader in technology for logistics and route management. They began to invest in different areas of logistics like pharmaceuticals, by creating UPS pharmacists who were able to fulfill, pack, and ship customers’ orders from healthcare warehouses. Finally, another enabling factor for them was their cutting-edge route-optimization software that allowed for even more personalized services and more efficient deliveries.
There are also major inhibiting factors facing FedEx and UPS. The first inhibiting factor that FedEx faces is its exit from and failure to compete in Europe. This loss has forced FedEx to lose much of its initial investment and doesn’t allow them to be a large player in the growing international European market. Also, FedEx’s focus on Express Revenue has left it with a much smaller share of the total market revenue for ground shipment. On the other hand, UPS faces increased pressure on its international revenue. Its competitors have actively reach out to new markets which has allowed them to grow and post International Revenue that matches UPS.