FedEx Company: Five Forces Analysis the Company

FedEx Company: Five Forces Analysis

The company examined is FedEx and the relevant industry is the overnight and express ground delivery business. There are a few different types of market participants. The first of these are the overnight and ground providers, FedEx and UPS. These are the market leaders and offer the most comprehensive route networks and packages of services. TNT and DHL offer some competition but have a much more limited market presence. There are other firms in the business as well. USPS does not have an overnight business, but handles express ground deliveries. There are also many local courier companies, handling a range of deliveries including same day service. Many of these offer rapid service, but within a single geographic area.

The bargaining power of buyers is moderate in this industry. Most customers have regular or semi-regular business -- these are the revenue drivers. The switching costs are modest, but with few options the threat of switching is not a major lever more than once. Large customers typically command discounts. Price sensitivity is relatively low, however, because these customers rely on the service as part of their business, but the costs usually are not a significant part of total operating costs.

The bargaining power of suppliers is moderate. Major inputs include labor, fuel and vehicles. The major companies are huge buyers of aircraft and trucks, to the point where they have bargaining power over suppliers. The need for quality labor and the lack of labor specialization moderates their bargaining power over labor. They have low bargaining power over the price of fuel, which is set in the global commodities markets. Sometimes they utilize a fuel surcharge to help mitigate the volatility of fuel prices, leveraging their bargaining power over buyers.

There is a low threat of substitution. Where substitutes are reasonable -- such as sending pdfs over email -- they are typically utilized. The existing demand tends to be non-substitutable. This is good for the industry. The threat of new entrants at the high end of the business is low due to massive startup costs and fixed investment. The barriers at the lower end are much lower. The rivalry in the industry is generally high. The largest segment of the industry is under oligopoly conditions, and major customers can play the big companies off of each other to get better deals.

These forces have not changed much. While email and the Internet have increased the number of goods that have been substituted, they have also created new revenue stream -- one of UPS' biggest customers is Amazon.com, and FedEx has made a lot of money through its partnership with Apple, where revenue has been driven by the emergence of mobile. However, the industry remains in oligopoly condition, and the barriers to entry for the largest segment of the business have not changed. If anything, the reduction of DHL's presence and the financial mess at USPS only strengthens the big two. Overall, the industry is attractive for those firms already in it, but unattractive for those firms not because of the high startup costs associated with fixed assets, labor, and acquiring customers.