FedEx Was Founded by Fred Smith After Essay

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FedEx was founded by Fred Smith after his tour in Vietnam, and he continues to run the company today, as the only CEO that FedEx has ever known. The company began by offering overnight courier services, an industry that to that point had not existed. Today, that unit is known as FedEx Express and it is still the largest in the company. There are competitors, however, mostly notably UPS, DHL and TNT. In most Western markets, the industry is relatively concentrated, with these companies and a few local competitors (such as Purolator in Canada) dominating the business. In the developing world, there may be more competitors and the industry less concentrated. FedEx remains a strong competitor in the overnight delivery industry. Today, industry growth is concentrated on emerging markets. As such, most of the notable moves from FedEx Express have related to these markets. Recent moves in China for example have included opening a third station in Suzhou, a wealthy and historic city near Shanghai (Berman, 2011) and opening its largest operations station in the country last month in the Pudong area of Shanghai (Lopez, 2011).

FedEx is expanding in India, having made a major acquisition there this year of AFL and Unifreight India (FedEx, 2011). The company is also launching a new service in India to help it capture a larger share of that growing market (Ashby, 2011). The company is also expanding in Brazil and the Southern Cone region of South America including Argentina and Chile (FedEx, 2007). These expansions, as well as those in Europe, point to the company's commitment to not only take advantage of the opportunities presented by globalization, but to spur further globalization by providing better market access between expanding economies and mature ones.

FedEx Express Industry

The global courier market is expanding, in large part due to the long-run trend of globalization. Technology has aided in the boom, as FedEx has benefited from increased sending of documents and of items purchased on the Internet. Some of the company's major customers, from Apple Computer to semiconductor manufacturers in the Philippines, are information technology firms. FedEx has been gaining market share in the U.S. In recent years, in particular after DHL exited the market. The company gained market share in 2009, for example, despite a decline in revenue (Reuters, 2009). The company is currently adding aircraft capacity in the form of Boeing 777s in order to help it expand its international presence. Recent aircraft purchases have been earmarked for Shanghai, Hong Kong, Osaka, Shenzhen, London, Seoul, Dubai and Delhi (Jackman, 2011).

The industry is characterized by oligopoly conditions on the global level, with only four worldwide carriers. There are numerous minor and local carriers that also provide competition. Economies of both scale and scope are key drivers of business. Economies of scale allow the company to have a lower per unit (package or kilogram) cost. Economies of scope allow FedEx to deliver a higher level of service than its competitors. In particular, being able to operate stations in areas where competitors cannot do so profitably gives FedEx a significant competitive advantage. In addition, high volume levels allow FedEx to offer better service. A good example of this would be Shenzhen. Because FedEx is able to fly a 777 nonstop from Shenzhen to Memphis, it can leave two hours later than competitor planes -- competitors may have to run a shuttle plane to Hong Kong before beginning their trans-Pacific journey. As a result of this, manufacturers are able to get an additional two hours of work on a given work day (Jackman, 2011). This improves the bottom line of the FedEx customers, something that helps it to improve market share.

On the cost side, fuel costs are the single biggest cost component for FedEx, followed closely by labor. A third major cost is the cost associated with the fleet of aircraft. If these three costs can be managed effectively, FedEx can remain profitable. The company hedges its fuel costs and it maintains a degree of flexibility in its labor costs as well by starting many workers as casual. FedEx buys some aircraft and leases others, so that it has some flexibility with respect to aircraft capacity as well.

Major Competitors

The largest FedEx competitors are UPS, DHL and TNT. United Parcel Service is a U.S.-based company that competes with a number of FedEx businesses, including overnight. UPS is the other major player in the American market and has a large overseas network as well. It is publicly-traded. Because of its larger ground business, UPS has higher revenues ($49.5 billion vs. $39.3 billion) and net income ($3.4 billion versus $1.4 billion) than does FedEx (MSN Moneycentral, 2011). DHL is owned by Deutsche Post. This company left the U.S. market a few years ago, but retains a strong presence in both Europe and the developing world. TNT is the smallest of the four. This company recently split off its Express division into a separate company. TNT Express earned €7 in revenue last year and profit of €180 (TNT 2010 Annual Report).

Products and Services

FedEx Express is a part of FedEx Corporation and is the flagship brand of the company. FedEx is an integrated logistics company that operates several different subsidiaries. Internationally, FedEx typically only operates Express, except in Canada where they also have Ground and Office. In the United States, FedEx operates the following divisions: Express, Ground, Office, Freight, Custom Critical, Supply Chain, Trade Networks and Services (FedEx.com, 2011). The company offers a few different services, including the shipment of envelopes and packages, same-day service, health care solutions, packaging services and other services related to the overnight business. Most of these services and businesses are mirrored by UPS, but few of them are effectively mirrored by TNT or DHL.

Core Competencies and Competitive Advantages

FedEx competes as a differentiated provider. Its overnight shipping is a relatively expensive way to ship things, but the speed and service level are high enough to compensate for the price. FedEx does engage in some price competition with UPS and other competitors. The company has substantial economies of both scale and scope from which it derives competitive advantage. FedEx' network is vast and covers much of the globe. As such, FedEx is able to not only offer superior service to its competitors but is also able to keep its cost structure at least in line with competitors.

Cost control is a core competency at FedEx. The company uses casual labor, fuel price hedging, fuel surcharges and aircraft leases to build capacity flexibility and cost control into its structure. As a result, the company is better able to weather economic downturns. The overnight courier business is considered a bellwether because it tends to fluctuate in line with the business cycle.

The FedEx brand is another form of competitive advantage. FedEx is a highly respected name in business (FedEx, 2011). As most of FedEx's customers are businesses, this illustrates how strong the company's brand is. It is admired for its service levels and its internal operations. The FedEx brand is immediately recognizable and has value in most parts of the world. This is a critical form of competitive advantage because it makes it difficult for other firms to enter the industry. DHL could not match the brand recognition or reputation of FedEx (and UPS) in the American market and eventually left. TNT has much the same problem. This strength in the U.S. market is also a form of competitive advantage, as the U.S. is the world's largest economy and remains a leader in innovation and knowledge industries.

Challenges

FedEx' performance is strongly related to the global economic climate. The company has some capacity control, but has difficulty shifting workers from one area to another, so it does face challenges when the patterns of business change significantly in a short period of time. In the long run, fuel costs are a major challenge. With the price of jet fuel expected to continue to rise -- and be volatile in doing so -- FedEx may find that it is unable to price its services at a level sufficient enough to sustain businesses. Companies will find alternatives that may be cheaper than overnight courier services.

Outside of the macroenvironment, FedEx also faces internal challenges. One will be the retirement of Fred Smith. The company has never had another CEO and it remains to be seen whether or not it is prepared for the transition when he does decide to retire. Another challenge comes from the company's international expansion. This expansion is necessary to build out infrastructure, but it is a significant investment to make at a time when the global economy is generally struggling, and the U.S. market is especially weak. FedEx has a strong financial condition (MSN Moneycentral, 2011) but may be challenged to retain this as it is forced to spend in order to fend off competitive threats.

Works Cited:

Ashby, A. (2011). FedEx Express launches new delivery service in India. Memphis Business Journal. Retrieved…[continue]

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