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Global Transportation and the Logistics Industry

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Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

Published: Mon, 19 Feb 2018

The Transportation & Logistics sector spans a wide range of service offerings such as by air, road, rail, sea – as well as related services such as warehousing, handling, and stevedoring. The extent of coverage includes value added services such as packaging, assembling, labelling etc. In addition to these, Transport & Logistic providers undertake the management role of planning, administering and coordinating.

Over the years, the sector has reshaped in manner where most players have a tendency to consolidate; resulting in larger, integrated groups operating in more than one of the Transport & Logistics sub-services/sectors. As a result, the limits between the sub-services/sectors become more and more indistinct.

The benefits of globalisation and business process outsourcing of logistics services generated double digit revenue growth in the industry in the early part of the 21st century. However the co-existence of other pressures, threats and limitations such as the economic downturn, and fuel price hike contribute to the dramatic changes faced by contenders in the sector.

With privatisation and liberalisation, more complexities were introduced to the sector. In addition, trade routes are changing and networks have become increasingly complex – as have the agreements between companies sharing resources.

There have been several regulatory requirements which have changed substantially in the recent years. Due to more IT enabled interconnectivity in companies, it operates across national. Hence, issues pertaining to customs, tax compliance, accounting and governance have increased. Companies looking to build a sustainable business need to continuously offer value additions to its stakeholders. Therefore with the changing business models in the industry, many companies are evolving from forwarding and warehouse managing businesses to highly industrialised, IT driven supply chain providers; adopting a holistic approach in their service.

Impact of the economic downturn

Over the past years, the Transport & Logistics industry has been profiting considerably from positive economic conditions and the demand for raw materials, capital and consumer products. Since 2008 though, the trade was suddenly faced with some of the most complex market conditions in history. A tightening global credit crisis and economic downturn that began in the U.S. quickly spread throughout the globe, impacting many organizations in nearly every aspect of the business. Changes in consumer buying patterns have led to less significant transport volumes, and shifts to less expensive delivery modes, with a sizeable impact on the express business. The volatile oil price coupled with a stronger focus on emission reduction has increased pressure on transportation companies, especially airlines, leading to a record in airline insolvencies. In addition, the economic recession places more fundamental challenges on the Transportation & Logistics industry: consumer patterns and a general curb of demand thereby causing a lower level of the flow of goods.

Opportunities in the emerging markets

For a country’s economy, in addition to the tourism sector, even the transportation sector is often viewed as an important indicator of growth. With the rise in commercial trade activities, the location of manufacturing facilities and distribution centres can have a major impact on the growth of a country’s transportation sector and transportation infrastructure. The relative location of these manufacturing facilities and distribution centres can dictate whether the country becomes a centre within a logistics network or a spoke in the wheel, serving in effect as a transit passage. Such matters are of particular importance to emerging economies where the transport and logistics infrastructure is making rapid development. Logistic providers are faced with clients who wish to source out of low-cost countries or access these new markets. They need to ensure that they can help their clients meet their objectives, understand the emerging markets environment, and expand their competencies and resources. These companies are at a crossroads in their development and have several strategic questions to consider. Should they expand or try new a niche? Should they move into an acquisition? Should they look at a stock-exchange float? Should they invest in IT/new technology? Should they look at optimising their cost base to counteract the trend towards smaller margins? How can they differentiate from competition by convincing customers that they add value to the business?

About FedEx Corporation

Introduction

http://www.csustan.edu/manage/harris/case4.html

Federal Express is an express transportation company, founded by Frederick W. Smith in 1973. During his college years, his intuition that the U.S. was becoming a service-oriented economy and needed a reliable, overnight delivery service company designed for dedicated transportation of packages and documents was the cornerstone of the company’s existence today. He started Federal Express with over $80 million, making it the largest company of its time ever funded by venture capital. He found investors willing to contribute $40 million, used $8 million in family money, and received the rest from bank financing.

Background

Federal Express became successful due to the fact that they pioneered in advanced IT interventions ahead of its competition. They built a super-hub in Memphis, Tennessee, where all packages from the United States would be loaded and shipped out each night.

Today, Federal Express has over 143,000 workers worldwide, and delivers more than 3 million express packages to 211 countries daily. One major change has affected Federal Express. In January of 1998, Federal Express the company re-launched as FDX Corporation.

FDX Corporation now includes Federal Express, Roadway Packaging System (RPS), Viking Freight, Roberts Express, and Caliber Logistics. Even though FDX owns all these companies, Federal Express still remains independent. Federal Express’ CEO is currently Theodore Weise.

FDX’s strategy is to corroborate on selling and synergies for all FDX companies, but run operations separately and keep each company’s strengths and markets separate. Therefore, some information will be about FDX, but most will be for Federal Express as its own company.

FDX Corporate Subsidiaries

All business units of FDX follow the corporate mission statement of the parent company. This synergy allows for growth. It also puts the entity in a position to acquire more companies whose operations are similar. Currently, these are the names and descriptions of the companies under FDX, other than Federal Express.

1. RPS: North America’s second-largest provider of ground small-package delivery. It also services 28 European countries and Puerto Rico.

2. Viking Freight: The premier brand name in less-than-truckload freight movements throughout the western United States.

3. Roberts Express: Engineer and execute time-specific, door-to-door surface and air-charter delivery solutions that solve special-handling challenges for FDX customers within North America and Europe.

4. Caliber Logistics: Develops and implements customized logistics solutions that help FDX customers manage costs, improve customer service and focus on their core business activities.

In the Sales Breakdown for these FDX companies, Federal Express still accounts for 83 percent of total revenues. The next largest is RPS, bringing in 11 percent of FDX’s total revenues.

Strategic vision

http://apps.shareholder.com/sec/viewerContent.aspx?companyid=FDX&docid=784953

FedEx Corporation’s vision is a world where goods and information move quickly and seamlessly. A world where businesses source raw materials and parts globally, then move high-value goods quickly between continents and across time zones. A world where global information and transportation networks can shrink time and distance, creating competitive advantages for customers.

FedEx has experienced consistent growth in terms of net income in just about every year of its operation, which has meant three decades of growth. One of the company’s greatest strengths is undoubtedly its business concept. No matter what the economy is doing, there will always be a need for package delivery of some sort by companies and individuals involved in nearly every industry. Even when times are tough and companies are seeking to save money, FedEx has less expensive delivery alternatives from which to choose.

Of course, being the originator of the express delivery concept is also a key strength. FedEx became a household name before any of its competitors ever arrived on the scene, and thus has become synonymous with the idea of express package delivery in the minds of many, if not most, consumers.

Visionary leadership (introduction to founder CEO)

Fred Smith recognized the need for a reliable, overnight delivery service. Smith presented the idea in a Yale term paper in the 1960s, and received a “C” grade for his efforts. Between 1969 and 1971 Smith, however, secured $90 million ($40 million from investors, $8 million from his family, and $42 million in bank financing) to launch Federal Express as the then largest startup funded by venture capital. Federal Express began offering overnight and second-day delivery to 22 American cities in 1973.

Today, The FedEx Express unit is one of the five subsidiary organizations that comprise Federal Express. The FedEx Express unit is the primary focus of this study.

FedEx Express is the global market leader in express transportation. The firm moves an average of three million packages daily.

FedEx Ground is a subsidiary of FedEx Express. FedEx Ground provides ground delivery of packages in North America.

FedEx Freight is a less-than-truckload carrier. FedEx Freight operates throughout the United States. FedEx Freight has two operating subsidiaries ù FedEx Freight East and FedEx Freight West.

Access is what makes all forms of interaction and exchange possible between people, businesses and nations. Increases in Access boost opportunities and empower people with the ability and confidence to improve their current conditions and future prospects.

Mission Statement

The Mission Statement of FDX is “to produce superior financial returns for stockholders, by providing high value-added logistics, transportation and related information services through focused operating companies”. This mission statement shows that FDX has a clear focus.

(1) The main focus is to bring returns to stockholders.

(2) They will emphasize adding value above and beyond just their service of transporting an object from one place to another.

(3) Their focus of operations will be logistics, transportation, and related information. This mission statement is focused enough to keep FDX from diversifying into for example, food products; yet vague enough to allow growth in all of those areas.

Philosophy

FDX and Federal Express, in particular hold a People-Service-Profit philosophy. The ‘People’ goal is the continuous improvement of management’s leadership. The ‘Service’ standard is 100 percent customer satisfaction. The ‘Profit’ goal is much like any other company’s goal, and is essential to long-term viability. This philosophy governs how FDX runs its business, and defines strategies.

Customers Markets, Globalization and Services

The scope of the Federal Express operation covers business-to-business, business-to-individual and individual-to-individual accounts. Federal Express’ markets include more than 200 countries where 90 percent of all the world’s revenues originate. Federal Express provides both document and freight deliveries as well as supporting services. Stemming from the visionary leadership of the CEO, the company follows market reach & global footprint and a business strategy.

Competitors

Federal Express’ list of competitors include: United Parcel Service (UPS), Airborne Express, Emery Worldwide, BAX Global, DHL Worldwide, and United States Postal Service. Federal Express holds 46.5 percent, the largest portion, with UPS and Airborne Express as the largest competitors. As shown from the preceding information, Federal Express is clearly a large, strong, and growing express transportation company.

Environment screening & analysis

This section will show the services Federal Express provides; its strengths and weaknesses as an organization; the opportunities and threats, current problems and issues faced.

Services

Federal Express provides delivery on documents and packages both domestically and internationally. Further, the company also provides supporting services.

In the United States, Internationally Supporting Services

Priority Overnight

Priority

interNet Ship

Standard Overnight

Economy

Collect on Delivery

Same Day

Next Flight

Location Service

First Overnight

First

Dangerous Goods Service

Express Freight

Priority Freight

Worldwide Logistics

Weekend Shipping

Economy Freight

U.S. Government Shippers

Alaska and Hawaii

Airport to Airport

International Government Guide

S.W.O.T. Analysis

Company Strengths and Resource Capabilities:

Globalisation: Federal Express largely operates on a global scale. They operate in 211 countries. They provide services that appeal to most of the world. They have such a large market in which to operate which generates tremendous revenue for the business. Benefits of global economies of scale become available to players that operate in such a large playing field.

Innovation: Federal Express took the first-mover advantage by identifying airplanes and trucks as a source and resource to gain business advantage. This helped them to remain the industry leader since 1973.

Technology and Communication: Federal Express uses and continues to search for new technology. They allow spending of $1billion a year, 10% of total revenues on IT interventions such as integration. The company’s commitment to introducing new customer centric service models through IT keeps customers from switching to other providers. Federal Express also has excellent communication with their customers. They use tracking devices on all shipments and customers can trace their shipment through many different avenues including a user-friendly Web site. Federal Express customers can feel assured that FedEx will always be on top of technology.

Strategic Vision: Company CEO Frederick Smith built an industry leader, and sustained the title since 1973. The strategic vision of the company is cascaded through top managers who are in charge of the strategic direction of the business.

First-Mover Advantage: The company has had first-mover advantage in several areas:

(1) Being a global express transportation & logistics company

(2) Advanced IT interventions that attributed to the continued success of the company

(3) Incorporating smaller business units with similar operations under its belt to synergize and control more of the market. Consolidating its resource capabilities at an optimized level has attributed greatly to its success.

Strong Brand Image: In 1990, Federal Express became the first organization awarded the Malcolm Baldrige National Quality Award in the service category. Further, in 1994, the company was the first in global express transportation to obtain simultaneous system-wide ISO 9001 certification in international quality standards. Federal Express has also developed its own quality system that matches their customer’s standards.

Company Weaknesses and Resource Deficiencies:

Escalating prices: Federal Express’ prices are priced above its competitors. This can be a weakness if their customers do not perceive a difference between Federal Express and its competitors’ services.

Labour Disputes with Pilots: Federal Express pilots have formed the FedEx Pilots Association. This organization demanded changes in the pilots’ salaries, retirement benefits, and suggested outsourcing some foreign flights instead of giving their own pilots the job. The pilots have a Web site where news is posted and any grievances are communicated. During the busy Christmas season in 1998, the pilots threatened to strike. Federal Express and the FedEx Pilots Association have developed a tentative agreement, which is published on the pilots’ Web site. However, the pilots do not believe this agreement fully meets their expectations. The pilot dispute is definitely an internal weakness for Federal Express, considering they have 3,500 pilots employed with them. The business operations would suffer if there were strikes. When UPS employees went on strike in 1997, Federal Express took the extra 800,000 shipments a day. If Federal Express employees went on strike, their competitors could gain an immediate advantage.

The reason for running subsidiaries separately: FDX has deliberately chosen to keep its subsidiaries separate. According to FDX’s 1998 Annual Report, CEO Frederick Smith states, “Simply layering the unique resource and operating requirements of a time-definite, global, express-delivery network onto a day-definite, ground small-package network would surely result in diminished service quality and increased costs. Under the FDX umbrella, we will leverage our shared strengths while operating each delivery network independently, with each focused on its respective markets.” Frederick Smith is confident this will be a strength, instead of a weakness.

Company Opportunities:

Expansion Globally: Federal Express can continue to expand its global footprint.

Expansion Internally: Federal Express can continue to acquire more similar smaller business which could offer Federal Express leverage to expand into new technologies or areas in their industry.

Run Subsidiaries Together: If FDX doesn’t profit from running the subsidiaries separately, they can change to integrating their operations to achieve better synergies and economies of scale.

Contracts with Large Corporations: To stay the industry leader, Federal Express should form contracts with companies who will add cost-saving or value-adding benefits to their services.

Joint-Ventures: Federal Express can form joint ventures, such as already with Netscape and American Express, to enjoy the growth of integrating their customer bases.

Expansion of e-commerce: Federal Express already has a major presence of shipping online. They should keep finding Internet companies to contract delivery of their products. Since the growth of e-commerce is rapid now, Federal Express could enjoy both profits and brand name recognition from this kind of expansion.

Company Threats:

Y2K Problem: If Federal Express’ communication and tracking systems aren’t actually Year 2000 ready, they will experience lost shipments, lost customers, and lost profits. This is a threat for every business, but a global company will be affected on a larger scale.

Community Responsibility in the U.S.: Federal Express might be subject to community disapproval in expansion within the United States. Right now, Federal Express has plans to build a second super-hub in Greensboro, NC. The airport is supportive, but the citizens of the community are not. Federal Express has to decide whether the community support or building the centre is more important.

Relations with Foreign Countries: Through Federal Express’ expansions globally, they are subject to laws and regulations of all foreign countries. There could be major problems in this area, stunting growth and raising costs. Already, Great Britain will not let Federal Express fly their own planes for shipments. Federal Express must either load their cargo on to British planes, or use ground transportation. This is very inefficient for Federal Express; however, it keeps competition out for British Air Transportation companies. Everywhere Federal Express goes, they are at risk for regulations that hinder their operations or efficiency.

Economic and Political Conditions: Federal Express is subject to the entire world’s economic and political condition in the areas of fuel prices and supply, customer purchase of their services, and relations with foreign countries. As a global company, they are subject to much more risk than domestic companies.

Current Problems and Issues

Federal Express has several current issues and problems. Decisions about these issues will affect Federal Express’ profits and brand name in the future.

Federal Express Pilots’ disputes with the company over their salary and compensation, retirement benefits, and Federal Express’ outsourcing some foreign flights. Federal Express spends only 13.17 percent of total operating expenses on their labor expense. The industry average is 14.81 percent. However, Federal Express’ main competitors spend 20 and 24 percent of total operating expenses on labor. This is why the pilots are voicing their disagreements, and demanding change.

Fuel Price Fluctuation: Federal Express raised their prices and developed contracts with oil suppliers to cover fluctuating fuel costs and volatility of supply.

Creation of super-hub in North Carolina: Federal Express does not have the community’s support.

Alliance with Netscape: FDX created an alliance with Netscape in order to simplify the world of electronic commerce. FDX will offer delivery services on Netscape’s Internet portal site. This will allow both companies to achieve mutual business targets that could not be achieved otherwise.

Alliance with American Express: Federal Express offers a 10 to 20 percent discount on many delivery services to customers using an American Express Small Business Corporate Card.

Federal Express offers many different services spanning the globe; this is why Federal Express has many strengths, and opportunities. However, Federal Express must also be concerned with their weaknesses and current problems.

Industry Analysis

Dominant Economic Characteristics

Federal Express is in the Air Freight or Air Cargo Transportation Industry. This industry had sales of $34.2 billion in 1998. This industry is in the early maturity life cycle because entry is difficult, yet current competitors are still growing. Companies can realize economies of scale in this industry in marketing and purchasing. Services in this industry are essentially identical, with the exception being the value-added services.

General Economic Conditions

The current global economic crisis can affect this industry by stunting foreign expansion and reduced utilization of express shipping services. The current crisis in Kosovo may affect business for these companies if any countries they do business in feel the United States is wrong and want to boycott American-originating products and services.

Porter’s 5-Forces Model

Rivalry Among Competing Sellers:

This is a strong force in this industry because the competitors use price cuts to compete, there is a low cost and ease to switching brands, and the companies in this industry diversify and acquire other companies for strategic growth and synergy.

Competitive Force of Potential Entry:

This is a weak force in this industry. Each company currently in the industry has strong brand images, leaving a harder job for new companies. The capital expenditures to start an express transportation company are large, and the companies currently are achieving economies of scale by going global. Any smaller company will not be able to achieve these right away, not allowing them to compete on prices. Another factor threatening potential entrants is trade tariffs and international regulations. Most companies currently in the industry have already established relations with foreign countries. New companies will have to prove themselves to foreign companies, suppliers, and customers.

Competitive Pressures of Substitute Products:

This is a weak to moderate force in this industry. Businesses and individuals that wish to ship cargo and packages can do it with other modes of transportation such as trucks, trains and boats. However, the customers that use air freight transportation usually desire convenience, speed, and low cost. Traditional transportation modes do not offer all three of these. Businesses and Individuals who want to ship documents can use e-mail, the Internet, and Facsimiles. However, these can take some time to scan and load, and then it is uncertain that your document will get to its destination.

Power of Suppliers

This is a strong force if the suppliers serve industries other than Air Freight. If a supplier only has accounts, or the majority of their accounts with these companies, they will not be able to control prices and supplies. Suppliers that are involved in this industry are: vehicle manufacturers, airplane manufacturers, fuel suppliers, labor, airports, and shipping materials manufacturers.

Power of Buyers

This is a moderate force in this industry because competition keeps prices similar among the companies. The only difference is companies, such as Federal Express who have value-added services that allow a higher price. Also, the buyers of the services in this industry are reactionary. They do not know the technology before it happens. They become dependent on the technology, service and speed offered by the companies in this industry and will pay for it.

Industry Prospects and Overall Attractiveness

A trend among Air Freight shippers is to use the Internet for communication with customers and even obtaining shipping contracts with companies selling on the Internet. This alliance with the fastest-growing industry will bring exponential growth to the Air Freight industry, above and beyond what they would normally have realized without this. This industry should remain attractive, with concentration on competition for market share, service differentiation, and brand image. Current Advertising has been aimed at being better than the competitor for different reasons.

Performance Analysis

FDX has an impressive performance record for example in 1998 they had revenues of $15.9 billion. We can also look at their Net Income for 1998, as well as for the last five years. This information is shown in 4 on Page 3 of the Appendix. As you can see, sales have been growing steadily for the past five years. Looking at the net income, though, it isn’t that impressive. It even declined in 1997, from the rising fuel costs during that year. However, in 1998 it grew from $200,000 to $500,000. That could be from reduction in operating costs, or from the acquisition of the subsidiaries which had lower operating costs compared to Federal Express.

The financial ratios for FDX compared to Airborne Express (ABF) are in Table 2 on Page 3 of the Appendix. Most of the ratios show Airborne Express in better financial condition than FDX. However, this can be explained through FDX’s size as compared to Airborne Express. Airborne Express does not offer as many services or types of shipments as FDX, and it only has half the market share as FDX. Since UPS does not have air shipments, we could not benchmark FDX to them. Clearly though, FDX and Federal Express is the market leader in this industry, have outstanding sales, a healthy profit, and a safe amount of debt.

A 5-Year analysis of Federal Express’ profitability and activity ratios is in s 5 and 6 on page 4 of the Appendix. These ratios over time show a steady increase, except for year 1997, where fuel costs hurt Federal Express deeply.TNT N.V. is an international express and mail delivery services company with headquarters in Hoofddorp, the Netherlands. In the Netherlands, TNT operates the national postal service under the name TNT Post. The group also offers postal services in eight other European countries, including the UK,…

Federal Express Five-Point Strategy

Federal Express has five strategies that govern business tactics. These are to improve service levels, lower unit costs, establish international leadership and sustain profitability, get closer to the customer, and maintain the People-Service-Profit Philosophy.

Major Strategic Issues

FDX is focused on three primary growth strategies. A collaborative sales process that leverages their shared customer relationships, aggressive global marketing of the broad FDX portfolio to targeted prospective customers, and a strategic application of information systems to reduce costs and improve customer access and connectivity.

Introduction to the business strategy

Expanding Access Through Our Networks
While the benefits and mechanisms of Access are too vast and complex to attribute to any one creator, FedEx is proud to have been the driving force behind many milestones and advances, beginning with overnight express delivery in 1973 from our hub in Memphis. At first connecting 25 U.S. cities — and today, 220 countries — express delivery was a historic breakthrough in Access, collapsing the time and distance between places and connecting people everywhere. Through our expanding networks, anyone shipping a package can now tap into unprecedented speed and worldwide reach.

Shaping the Way the World Connects

FedEx delivers systems and solutions, not just packages. In recent years, we’ve increased Access by moving information in the form of bits as close to its destination as possible before converting it into atoms. For example, when one customer planned to host a leadership seminar in New Delhi, FedEx Kinko’s transferred tons of materials digitally to China, printed them in one day, and shipped them to India the next. With FedEx Office Print Online capability, any individual can do the same — printing documents remotely and having them delivered locally. It’s one major new way FedEx is contributing to greater Access.

Today, thanks in part to the Access provided by the internet and FedEx, it’s possible for a leading electronics company to synchronize its microchip factories in China to the pulse of global demand, flying the finished chips as needed to manufacturing lines in Shanghai, Seoul or Singapore. The chips are bound for laptops and phones that create personal connections in their own right, while the corresponding transformation of China into the world’s factory is expected to lift half a billion people out of poverty by 2020. New FedEx hubs in Guangzhou and Hangzhou will increase the global Access of homegrown Chinese companies and contribute to greater quality of life, while helping companies outside this market to navigate and grow their business here.

Changing What’s Possible

For 35 years, FedEx has been dedicated to changing what’s possible and improving life for people everywhere by promoting greater Access. Every day around the world, we see first-hand how Access empowers people to improve their lives, their businesses and their communities. Because we see this power, we have a unique perspective on Access.

Infrastructure/supply chain & value chain

FedEx has done several things with its value chain to develop new business. First they have always recognized the need to have technology and IT work to communicate the logistics that they run. They have developed internet technologies that work simply and efficiently to enable customers and sellers to use FedEx as a go between. This has enabled many companies to integrate FedEx technology into their own web sites for customers to use. However, up until January 19, 2000 the organization of Fe


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