Yellow Roadway Having Made Several Term Paper
- Length: 15 pages
- Subject: Business
- Type: Term Paper
- Paper: #24916038
Excerpt from Term Paper :
Another threat is that of strike. A previous strike debilitated the company, and those costs could appear again should the Teamsters desire to make more money for their constituents. No matter how well mitigated, there is the risk of a strike shutting down operations at YR for a significant length of time.
The final threat is that of legislation. Due to high accident rates, drivers are now subject to increased regulation, which adds to the cost of doing business. This has included special hazmat training and various registrations.
Competition is a threat. Although the industry is very fragmented (ATRI, 2004), there are still several strong competitors, both in terms of companies that offer a total shipping package the way YR does, and in terms of small operators who can specialize in a certain type of product or a certain geography. These may be able to undercut YR or offer better service.
There are, however, some opportunities. YR is the largest company in the LTL market, which gives their operation a certain size and scope that few trucking companies have. This has allowed them to ponder the opportunity to expand into the overnight and next day markets. The companies in those markets use a similar hub-and-spoke system, albeit based around a combination of air and lorry transport. YR does not have the airline capacity as yet, but they have the ground network and can begin to challenge in this segment. One of the biggest appeals to this option is that this market is growing, whereas the LTL market so crucial to YR has flatlined.
Another key opportunity is to continue to expand in China. They have a partnership with one of that country's largest conglomerates. With the booming economy in China, there is significant room for growth. This is in contrast to the U.S. market, where many of YR's core markets have stagnated. With their foot in the door and a local partner to smooth out the logistical and political details, YR has the ability to place increased emphasis on this market, potentially achieving dominant status.
The third major opportunity for YR right now is to put increased focus on improvements in its operations. Though often not viewed as an opportunity, there are sometimes tremendous cost savings that can result from a stronger focus on internal matters. In the case of YR, they have a strong opportunity to do this because they are still in the process of integrating their two most recent purchases into the company's operations. There is some overlap with one of those purchases, but even when there isn't customer overlap, there are opportunities for cost-saving through operations consolidation and the development of key synergies.
Porter's Five Forces
The five external forces that act upon a firm are: the power of buyers, the power of suppliers, the intensity of rivalry, the barriers to entry and the threat of substitution (Porter, 1979).
These five forces are analyzed in independence and help give a sense of a company's overall position in the marketplace.
Rivalry in an industry is important because firms consistently strive for a competitive advantage over their rivals. The intensity level of this rivalry often determines the margins that a company faces, as well as direct competitive pressure in the marketplace.
The intensity of competition in the trucking industry is very high (ATRI, 2004). There are over five hundred thousand trucking companies operating in the United States, for 900,000 customers. This forces the thousands of smaller firms to compete aggressively for business. That in turn drives prices down, to the detriment of the entire industry. It has also in past driven safety standards down, and that also was to the detriment of the industry as the government has instituted a multitude of standards to improve the industry's safety record, at significant cost to firms like YR.
As well, the industry is characterized by slow growth. The LTL segment, which is YR's core business at present, has seen negligible growth over the past fifteen years, which means that the pie isn't getting any bigger. Firms already hungry for business become more hungry when the entire market is zero-sum game.
Other conditions exist which render the rivalry highly intense. For example, the "product" is highly perishable. A lorry's capacity is just that - once it is gone unused it remain so forever. When unused capacity represents revenue lost forever, firms tend to fight very competitively to fill that capacity. Another aspect is the low switching costs, a reality because of the proliferation of competition and the tradition in the industry of paying per job, rather than tying a customer to a transport company.
Additionally, the stakes are high for most of the companies in question. Many lorry-drivers are independent contractors, for which trucking is their only job. Given that the product is immediately perishable, they will inevitably be highly competitive in their quest for business.
The threat of substitutes is moderate. At present, the road-based transportation industry benefits from subsidized roadways and petrol. This keeps the cost down, but there are substitutes. Air shipping and ocean shipping are other common options, though each of these represents only a fraction of the overall shipping market. Additionally, trains are an option for some companies.
Another form of substitute is just not shipping.
This is an acute issue for overnight couriers, who are losing business directly to email, but there is a risk that firms faced with escalating fuel prices will find other ways in which to conduct business. This could result in purchasing more locally to avoid pricey long-distance shipping; or even vertically integrating. The latter seems an especially potent option for large companies that ship huge amounts to their retail outlets, but still compete on the basis of price (such as Costco or Wal-Mart).
Buyer power is low. This is especially true for a large company like YR. There are some 900,000 customers at YR alone, so the customer base for the trucking industry is incredibly fragmented the buyers are often without the ability to vertically integrate (though a handful are).
However, no buyer in particular can expect to have any significant influence over price or terms of delivery. Trucking firms may choose to compete on the basis of price, but a firm like YR will only miss customers on aggregate.
Supplier power is high. For lorries and other key equipment, suppliers have little power since YR is so large. They command the attention of those suppliers. However, they are ultimately at the mercy of two other key suppliers. YR has no control over fuel prices. They do, of course, have control over which company from which they choose to buy their diesel. In that regard, the supplier power for fuel is low. However, because the fuel companies typically operate as an oligopoly, leaving fuel prices out of the hands of even the most powerful consumers, they can be considered to be a powerful supplier, if only in aggregate. If YR's operations were consolidated they could exercise some control by buying their own fuel, essentially operating their own petrol station. However, their operations are sufficiently scattered that they are unlikely to be able to exercise this to any significant degree.
They also are at the mercy of the Teamsters. Having become a unionized environment, YR has essentially relinquished control of its workforce to the union. The union is powerful enough to set wages standards and working conditions.
Moreover, there is a shortage of drivers in the industry at present, and this shortage is anticipated to reach crisis proportions in the coming decades as a result of a rapidly aging workforce. The combination of the two makes the power of YR's two most important inputs very high.
The barriers to entry are low. This is evidenced by the hundreds of thousands of competitors in the marketplace today. While it is true that there are some governmental barriers, these can be easily overcome. Likewise, to enter the business requires an expensive capital asset in the lorry, but they are easy to obtain and credit is generally cheap.
That said, there are significant barriers to being on the same competitive plane as Yellow. YR has built itself over the course of several years and achieved a scale that no other player in the LTL market has. It would be extremely difficult for another player to achieve more than fraction of YR's scale.
Value Chain Analysis
The value chain is a sequence of activities that are common to a wide range of firms. The basic principle of the value chain is to offer to the customer a level of value that exceeds the cost of the activities (Porter, 1985). The basic value chain consists of the following: Inbound logistics, operations; outbound logistics, marketing & sales, and service. Because Yellow Roadways is a logistics firm, some of those functions become blurred.…