BACKGROUND INFORMATION
History:
FedEx is a logistics services company having its headquarters in Memphis, USA. The
name FedEx is the abbreviation of Federal Express which was the original name used from 1973
until 2000. In 1978, Federal Express was listed on NYSE as FDX. The success of Federal
Express can be recognized by this that this was the first company that had reached revenues of
$1 billion without having any kind of merger or acquisition though afterwards the company
acquired different companies like in 1998 Caliber System Inc was acquired, in 1999 Caribbean
Transportation Services was acquired and in 2004 Kinko's Inc and Parcel Direct were acquired
(Birla, 2005).
Industry Type:
FedEx is operating in the shipping services industry or more specifically in the express
delivery industry. The shipping services industry or express delivery industry have few
recognized and well known companies like FedEx, DHL, UPS, and TNT. These four main
companies have full control over the industry hence making the industry oligopolistic in nature.
The industry is at maturity stage in the industry life cycle, as almost all major companies in this
industry have their own loyal customers and are able to operate at low cost which in turn add
considerable barriers to entry.
Express delivery industry is growing at the fastest rate at the moment, with around 1.3
million people employed in the year 2008 and the overall revenues of US $175 billion. Also in
the year 2008, express delivery industry made US $80 billion contribution to the global GDP
(Global Express Association, 2010). At the same time it is being forecasted that the industry will
continue showing the growing trend because of the growing demand of mode of transport which
is efficient and consume less time. Around 8 percent growth is being forecasted in the industry
and it is being estimated that express delivery industry will be a source of around 4.5 billion
direct employment all over the world by the year 2013 (Oxford Economic Forecast, 2005). The
main driving factor behind the growth of the shipping services industry is the on time and
efficient delivery of items.
The overall shipping service industry is dynamic in nature because of different variety of
needs of customers. People belonging to different sectors of life require service of shipping
packages or important documents to different locations, but the nature of service required by
different individuals will vary. Apart from individual consumers the various companies
belonging to different segments and high tech industry like electronics, information technology,
financial service, pharmaceuticals, automotives, textiles etc are also valuable customers of the
companies operating in the shipping service industry or express delivery industry (Oxford
Economic Forecast, 2005).
The major technological advancement which has changed the overall shipping service
industry is the internet and information technology. On one hand internet and information
technology has posed serious threats to the industry by the introduction of electronic document
delivery specifically e-mail. On the other hand it had allowed the companies to provide
customers with additional benefits and convenience with the help of internet and information
technology. With the implementation of different technologies now customers are not required to
go to the nearest franchise or delivery center for dropping the packages, they can order the pick
up through internet or making a call. At the same time the customers can track the location of
their package with the help of shipment status.
Porter’s Five Forces Analysis:
Risk of new entry by competitors:
There are high barriers to entry because of the high fixed cost required to establish a
transportation network on international level. Apart from this the companies which are already
operating in the industry have the advantage of low operating cost because of the economies of
scale.
Extent of rivalry between existing companies:
The shipping service industry is highly competitive in nature and there is an ongoing
battle among the companies for market share like FedEx and UPS. The switching cost in the
industry is considerably low for the customers which in turn also contribute in increasing the
level of competition. Apart from this the high exit barriers because of the cost of the
transportation infrastructure also results in increasing the rivalry among the companies operating
in the industry.
Bargaining power of buyers:
The bargaining power of buyers or customers is high in the shipping service industry
because of the low cost of shifting from one company to another. The customers can shift to the
company which will provide on time delivery at low cost. Apart from this the big companies and
corporations have high bargaining power for quantity discounts as they ship large volumes.
Bargaining power of suppliers:
The bargaining power of suppliers is considerable low and the shipping companies have
influence on the suppliers prices. The shipping service providers buy in large volumes and have
direct impact on the prices quoted by the suppliers.
Threat of substitute products:
There are very less substitute products to the shipping services. The growing international
businesses require services to ship their products and documents from one place to another and
there are no other fast and reliable mode of shipping the goods.
Risk of New Entry
Low to Moderate
Supplier Power
Existing Competition
Buyers’ Power
Low
High
High
Substitute Products
Low
Position With-in Industry:
FedEx is operating in highly competitive and saturated industry. The company has the
advantage of being the leader in bringing in different concepts and technologies to the shipping
service industry (Song, 2003). FedEx introduced the concept of overnight shipping and
ultimately the whole shipping industry had to change in order to fulfill the expectations created
by FedEx. Similarly, in 1994, FedEx introduced the concept of online tracking with the launch of
tracking application website and provided each individual customer with unique bar code (Birla,
2005).
FedEx Express is the largest express transportation company in the world, whereas
FedEx Ground is the second largest ground delivery service provider within the North America.
The leader in the ground delivery sector is UPS. The market share of FedEx is 31 percent
whereas that of UPS is 25 percent. US Postal Service with 32 percent market share is striving
hard to maintain the largest share in the industry (Shult, 2008).
Evolution of Growth:
FedEx has been following the strategy of constant evolution and continuous improvement
in order to gain considerable market share in the industry. The company has been the leader in
bringing in different new ideas in the shipping industry. Apart from the introduction of the
overnight shipping and online tracking there are several other important changes which have
been initiated by FedEx. Since its inception in the year 1973, the company has continuously
evolved and changed (Lester, 2008).
Issues with Case:
The major issue highlighted in the case which is being faced not only by FedEx but also
by all other companies in the industry is the rapid technological advancements. The ongoing
changes in the technological environment are posing serious threat to the operations of the
shipping service providers. The mature market of overnight delivery along with tremendous
technological changes resulted in creating serious challenges for FedEx. In order to cope up with
these challenges FedEx followed the strategy of continuous innovation and growth. FedEx came
up with different new services and benefits for the customers and created a competitive
advantage of other competitors.
MANAGEMENT:
Organizational Structure:
Diane Miller Stokely
FedEx Customer
Information Services Inc.
COO
David Bronczek
President and CEO, FedEx
Express
T. Michael Glenn
VP Operations, President/
CEO FedEx Service
Douglas Duncan
President and CEO, FedEx
Frieght
Frederick Smith
David F. Rebholz
Chairman, President, and
CEO
President and CEO, FedEx
Ground
G. Elmond Clark
President and CEO, FedEx
Trade networks
Christine Richards
EVP, General Consumer,
Secretary
Robert Carter
EVP and CIO
Alan Graf
EVP and CFO
Management Style:
With different services and business units FedEx has implemented the multidivisional
organizational structure. Corporate top management is responsible for the providence of the
strategic direction and overall financial reporting. Each individual division or business unit has
been provided with authority to manage its operations and services. FedEx follow the
participative management style in order to manage its integrated portfolio (Lester, 2008).
Mission:
The mission statement of FedEx as mentioned on the corporate website is (FedEx):
“FedEx Corporation will produce superior financial returns for its shareowners by
providing high value-added logistics, transportation and related business services through
focused operating companies. Customer requirements will be met in the highest quality manner
appropriate to each market segment served. FedEx will strive to develop mutually rewarding
relationships with its employees, partners and suppliers. Safety will be the first consideration in
all operations. Corporate activities will be conducted to the highest ethical and professional
standards.”
Vision:
The vision of FedEx is to become leader in the international shipping industry. All
operations and competencies of the company are directed towards the attainment of this
corporate vision.
Culture:
FedEx focus on maintaining an organizational culture which focus on innovation through
employee participation and empowerment. The company give high value to the people or
employees of the company and at the same time ensure integrity in all business processes and
operations. The main focus of any strategy of the company is the end level customers and their
satisfaction (FedEx).
Core Competency:
The core competencies of FedEx includes high brand equity, strong and established
infrastructure, and the commitment and dedication of the company towards innovation and
technological advancements (FedEx).
FINANCIAL:
Revenue Growth:
(FedEx, 2010)
In past, the company was enjoying growth and improving its revenues but since 2008,
revenue of the company has been declining. Revenue recorded in 2008 was $38 billion and since
then it has decreased to $34.7 in 2010 showing a decline of 8.68% in two years whereas in
comparison to this, the company had increased its revenue by 17.65% in two years from 2006 to
2008 (FedEx, 2010).
Operational Expense:
(FedEx, 2010)
(FedEx, 2010)
(FedEx, 2010)
Operating profit margin of the company has also declined in last five years. Profit
margins recorded in 2006 and 2007 were 9.3% and since then it has declined to 2.1% and 5.8%
in 2009 and 2010 respectively (FedEx, 2010).
Profit Margin:
Years
2010
2009
2008
2007
2006
Net Profits
In Millions
1184
98
1125
2016
1806
Revenues
In Billions
34.7
35.5
38
35.2
32.3
Profit Margin
Percentage
3.41%
0.28%
2.96%
5.73%
5.59%
Net profit of the company has been fluctuating since 2006 from where it was $1,806 and
increased to $2,016 in 2007 and then after more fluctuations eventually in 2010 net profit of the
company was recorded to be $1,184. Similarly, profit margin of the company has been
fluctuating, from 5.59% in 2006 it increased slightly to 5.73% and then it declined to 2.96% in
2008, 0.28% in 2009 from where it increased to 3.41% in 2010 (FedEx, 2010).
Capitalization:
(FedEx, 2010)
Capitalization ratio was around 17.5% in 2006 and 2007 but then capital structure of
FedEx changed and debt ratio was 12.1% and then it increased to 15.9% in 2009. Now, FedEx
has further reduced the debt to capitalization ratio and in 2010 it is 12.3% (FedEx, 2010).
Stock Performance:
(FedEx, 2010)
(FedEx, 2010)
Stock of FedEx has been one of the most demanded during 2005 to 2007 as after this
time the stock price of the company started falling. Stock performance is directly related to the
performance of FedEx and as the profitability of the company declines, stock price reflects this
scenario (FedEx, 2010).
When comparing the stock performance of FedEx with other players in the industry then
FedEx has not been able to outclass its competitors however, the stock performance of
transportation industry is showing a similar trend as it also increased initially and then declined.
Short and Long Term Debt:
(FedEx, 2010)
Current liabilities of the company decreased by 13.58% whereas long term liabilities
increased from 2009 to 2010 by 14.75%
Cash Position:
Cash in hand of the company declined in 2010 to $2 billion from $2.3 billion in 2009
showing a 15% decline (FedEx, 2010).
MARKETING:
Product Lines:
FedEx has divided itself into seven different divisions or business units namely (Lester,
2008):
1. FedEx Express
2. FedEx Ground
3. FedEx Office
4. FedEx Freight
5. FedEx Custom Critical
6. FedEx Trade Networks
7. FedEx Supply Chain
Core Product:
The core product of FedEx is the overnight delivery service provided to different
customers (Lester, 2008).
Distribution Model:
FedEx initiated the new approach in distribution, which is Hub and Spoke model, in order
to support the integrated express delivery system and the global coverage of the company. The
Hub and Spoke model allowed the company to form a large Hub in a certain region which was
responsible for delivery and pick up to and from the centers in the cities and locations near to
that hub (Lester, 2008).
Pickup 2
Delivery 1
City
City
HUB
Pickup 3
City
City
1
Pickup 1
Delivery 2
Delivery 3
1
Competitors:
FedEx has been facing intense competition from the UPS, U.S. Postal Service, DHL,
TNT, Emery, RPS, and electronic document delivery (Lester, 2008).
Geographic Representation:
FedEx is operating in several international countries. The company has established
regional hubs and centers in different countries of South and North America, Europe, and Asia
(Lester, 2008).
Promotional Medium and Method:
FedEx has been able to achieve success and growth because of the effective marketing
strategy. The company knows the art of identifying and fulfilling the untapped needs of the
customers. Apart from this FedEx develop different marketing strategies for different regions.
The marketing channel and communication medium is also selected according to the preferences
of the local market (Lester, 2008).
Positioning Strategy:
FedEx has positioned itself as the leader in the industry of shipping services not only in
term of providing quick and efficient services but also providing new technology solutions to the
customers (Lester, 2008).
SWOT ANALYSIS:
Areas of Strength:

One of the main strengths of FedEx is that they always have been coming up with
different innovative and original ways to satisfy customers.

FedEx has always been willing to take on new technological advancements to improve
their quality of services like they employed wireless technology to improve tracking of
packages in addition to adding an option on their website from where customers can
directly track the progress of their delivery.

FedEx always considers the needs of customers.

They are able to deliver to more than two hundred countries because of their own large
fleet of aircrafts (Marshburn, 2007).

Brand image of FedEx is one of its strengths.
Areas of Weaknesses:

FedEx has not been successfully able to differentiate itself from its competitor
particularly UPS because of which they are not able to gain competitive advantage,
despite of them an important member in the industry (Marshburn, 2007).

Because FedEx has always been spending to improve their infrastructure this is increased
the overall cost of FedEx and because of this reason they are able to offer low prices to
their customers. Thus, UPS has competitive edge over FedEx when it comes to pricing
(Marshburn, 2007).
Areas of Opportunities:

Globalization has offered several opportunities for express delivery companies to expand
and improve their profitability.

With advancement of technology and particularly ecommerce, an increasing need for
express delivery has been created (Marshburn, 2007).

Because starting a business in this industry is very costly, there will be hardly new
entrants in the industry coming up (Marshburn, 2007).
Areas of Threats:

Because such businesses have high fixed cost, therefore when the sales are low
profitability of the company can be decreased drastically.

It is very difficult for any company to become the market leader because of the nature of
the industry (Marshburn, 2007).

Emails have become a major threat for such companies.

Competitors like DHL and UPS are always a threat for FedEx (Marshburn, 2007).
MAJOR CHALLENGES FACE BY ORGANIZATION:
FedEx is facing immense challenges in view of the saturated and highly competitive
industry. The company is facing the issue of high fuel cost and thus it is becoming difficult to
maintain low operational cost. This in turn puts high competitive pressure on the company as low
operational cost is the major source of competitive advantage in the industry. Apart from this the
company is also facing challenging because of ongoing technological changes and
advancements.
RECOMMENDATION:
In the Area of Management:
FedEx needs to adopt a culture that encourages innovation, creativity and originality in
order to come up with services that are different from other competing firms which will be
helpful in gaining competitive advantage.
In the Area of Financial:
FedEx needs to come up with different innovative ideas and solutions to cater the needs
of the customers in order to improve their profitability. Companies in express delivery industry
need to reduce their operational costs, and if FedEx is able to reduce its operational cost then it
could offer delivery at lower prices thus gaining competitive advantage over its competitors.
Currently, salaries and benefits to employees contribute more than 40% of total sales, and
this is one area where FedEx can save costs though it needs to ensure that the motivation level of
employees does not decrease.
In the Area of Marketing:
FedEx needs to find different niche that have been either neglected or not been identified
by the competitors. This will allow FedEx to not only maintain its current position in the industry
but improve its market share as well.
Challenges:
FedEx has to continue with the policy of innovation and have to come up with new
technological services for the customers in order to overcome the challenges and attain the
position of market leader.
REFERENCES
Birla, M. (2005). FedEx Delivers: How the World’s Leading Shipping Company keeps
Innovating. NJ: John Wiley & Sons Inc.
FedEx. (2010). Annual Report 2010. Retrieved August 7, 2011, from
<http://files.shareholder.com/downloads/FDX/1349824504x0x395636/5b8f7453-b9604f0f-92cd-ec27cab06760/FedEx_2010_AR.pdf>
FedEx. Mission, Strategies, Values. Retrieved August 7, 2011, from
<http://about.fedex.designcdt.com/our_company/company_information/mission_stateme
nt>
Global Express Association. (2010). Discussion Paper of Express Delivery Services. UK:
Global Express Association. Retrieved August 7, 2011, from <http://www.globalexpress.org/assets/files/GEA%20discussion%20paper%20on%20Express%20Delivery%
20Services,%20Feb.%202010.pdf>
Lester, D. (2008). Making the Case for Sustainable Strategic Management: an assessment of
FedEx. International Journal of Sustainable Strategic Management, 1(1), 82-97.
Marshburn, K. (2007). Strategic Analysis of the FedEx Corporation. USA: Washington College.
Oxford Economic Forecast. (2005). The Impact of the Express Delivery Sector on the Global
Economy. UK: Oxford Economic Forecasting.
Shult, K. (2008). Battle of Brands: UPS vs. FedEx. Retrieved August 7, 2011, from
<http://www.bloggingstocks.com/2008/05/05/battle-of-the-brands-ups-vs-fedex/>
Song, H. (2003). E-Service at FedEx. Communications of the ACM, 46(6).