Book: Strategic Management from Charles W.L Hill Analyzing a Case Study: Case St

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Book: Strategic Management from Charles W.L Hill Analyzing a Case Study: Case Study 6 - The air Express Industry: 40 years of Expansion.

Question 3: The nature of the external environment surrounding the company. (Need at least 1 page long)

Airborne's delivery network in a quest vying she. Despite heavy investments, DHL. failed and retailed this space in for tin traction and after S years of losses, in 2009 it marily with small customers, providing pickup and the airlines. They purchased car0 n They dealt pri- States market. With the exit of DHL e market looks increasingly like a duo through contract agents. The U.S. Postal Service used af market, UPS accounted for 42% and cry services in most cities, either in their own tracks or service for transporta on of long-distance leter air parcel pot to 2012. FedEx held onto 53% of the $15 billion The Air Express Industry: 40 Years of Expansion US. Postal Service (USPS) held 5% (although the the The FedEx). UFSkagein tedthewith billon ground market THE FEDERAL EXPRESS CONCEPT Founded by Fred Smith, Jr, Federal Express was incor with 24% and the USPS with 16%, via air. During the first half of the 1990s, the small pack age express industry continued to grow at a THE INDUSTRY BEFOREa i i INTRODUCTION The small package express delivery industry is that seg rate, with shipments expanding by ment of the broader postal and cargo industries that spe- lew the i that there were major differences between packages and passengers, and he was convinced that the two had to was hit by repeated rounds of price cutting as the three private firms battled to capture major accounts In In 1973, roughly 1.5 billion tons of in the United States. Most of this freight was carried by be treated d surface transport, with air freight accounting for less major cities and wanted the coevenience of daytime than296 of the total." While shipment by air freight was flights. Cargo shippers preferred nighttime service to often quicker than shipment by surface freight, the high coincidewithlate-afternoompickupsandnext-daydelivery cost of air freight had kept down demand. The typical Because small-package air freight was subservient to users of air freight at this time were suppliers of time the requirements of passengers' light schedules, it was sensitive, high-priced goods, such as computer parts and oftem difficult for the major airlines to achieve next-day medical instruments, which were needed at dispersed lo- delivery of air freight cations but which were too expensive for their customers freight were shipped in rapid (normally 1-3 days) delivery of small (small packages are defined as those weighing tion to price cutting, the big three also lbs or having less than 165 inches in com bined length and girth). The moderm express delivery the global reach of their operations. By the late I United States began with Fred Smith's existing air cargo industry and paved discipline being maintained, despite the fact that the was the 1977 deregulation of the U.S. tevolume of express parcels shipped by air fell by and early 2000s the intensity of price competition in vision for Federal Express Company, which started operations in 1973. Federal Express transformed the the way for rapid growth in the overnight package seg- the industry had moderated, with a of growth rate for the industry slowed down. Between 1995 and 2000, the industry grew at 98% per year. In 2001 Smith's aim was to build a system that could achieve ment of that industry. A further impetus to the indus- The main cargo carriers in 1973 were major than 70 pounds). He set up Federal Express with his passenger airlines, which operated several all-cargo $8 million family inheritance and $90 million in venture planes and carried additional cargo in the holds of capital (the company's name was changed to FedEx in their passenger planes, along with a handful of all 1998) Federal Express established a hub-and-spoke route cargo airlines such as Flying Tiger. From 1973 onward, system, the first airline to do so. The hub of the system was the passenger airlines moved steadily away from all. Memphis, chosen for its good weather conditions, central 59%, partly due to an economic go industry. This deregulation allowed Federal its emerging competitors) to buy large jets partly due to the aftereffects of the September I during the terrorist attack on the United States. 'Growth picked for the first time. The story of the industry the 1980s was one of rapid growth and new entry. again 982 and 1989, small package express cargo shipments byr air in the United States grew at an annual average rate of grow by a little over 6% per annum between 31%. In contrast, shipments and air mail Between again in 2002. Estimates suggest that the global markct 2005 and s of air freight and air mail 2025. Most of that growth, however, is forecasted to take mall package express delivery Smith's hometown. The and began to concentrate cargo freight inlocation, and the fact that it was place outside of the now mature North American mr increases in fuel costs, which made the operation of many older cargo jets uneconomical. attracted new entrants such as United Parcel Service ket. Within the United States, the annual growth rate is (UPS) and Airborne Freight (which operated under the predicted to match the growth in United States GDP name Airborne Express).The entry of UPS triggered se In North America, the biggest change to take pl vere price cutting, which ultimately drove some of the in the 2000s was the 2003 entry of DHL with the weaker competitors out of the market and touched off a quisition of Airborne Express for S1 billion. DHL. is it- Federal Express. Every weeknight, aircraft would leave With regard to distribution of cargo to and from their home cities with a load of packages and fly down the spokes to Menghis (often with one or two by destination, and reloaded. The aircraft then returned airports, in 1973 about 20% ofall air freight was delivered to airports by the shipper andor picked up by the con- the way). At Memphis,all packages were unloaded, sorted self owned by Deutsche Post World Net, formally the German post office, which since privatization has gree. The bulk of the remaining 80% was accounted for By the mid 1990s, the industry structure had stabi- or intermediaries:(1) Air Cargo Incorporated, back to their home cities in the early h ing. Packages were ferred to and from airports by Federal (2) freight forwarders, and (3)the US Postal Service Air lized with four organizations-Federal Express, UPS, rapidly transforming itself into a global express mai Airborne Express, and the United States Postal Serviceand logistics operation. Prior to 2003, DHL lackeda accounting for the vast majority U.S. express shipments strong presence in the all-important United States ma 26 airlines, which performed pickup and delivery ser to a tight schedule. Thus, from door to door, the package for the airlines direct customers. Freight forwarders was in Federal Express's hands. This system Incorporated was a trucking service, wholly owned Express couriers driving the company's vans and U.S.express shipments strong presence in the all-important United States ket. The acquisition of Airborne gave DHL a foothold im the United States.DHL Capynght © Charles WL Hill All rights reserved. were trucking carriers who consolidated cargo going to that a package picked up from a customer in New subsequently spent $1.5 billion

Explanation / Answer

Porter’s 5 Forces analysis of the air delivery and freight services industry to have an understanding of the external environment and its impact on the business:

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