Question

Evaluate the competitive nature within the air delivery and freight services industry (think UPS and FedEx) using Porter’s Five Forces.

Answer 1

Porter’s 5 Forces analysis of the air delivery and freight services industry:

• Threat of New Entrants: Low
  • Cost of acquiring equipment is quite high
  • Developing delivery networks, both national and international is tedious and costly
  • Very high entry barriers
  • Both demand and supply economies of scale are huge, so it’s a mature industry
    • Threat of new entrants in mature industry is meager
  • Stiff competition from existing competitors who have a dedicated customer base
• Threat of substitutes: Depends on the nature of the commodity involved
  • Letter parcels, hard copy of agreements, notices and bills can be digitally transmitted through social media and expense required in doing so is very less.
    • So, threat of substitutes is quite high
  • Transportation of big commodities like parcels, clothes, etc. cant be digitally transmitted and best available option for quick delivery is air delivery
    • Hence, threat of substitutes is quite low in this case
  • Rivalry from existing firms: High
    • The industry is dominated by the Big 3 players: UPS, FedEx and DHL
    • All the above mentioned companies have dedicated customer base who will opt for the same companies for their service
    • Sending a package through air is commonly referred to as FedEx the package. FedEx has become synonym to air delivery service. So, the competition from FedEx is extremely high in this sector
  • Bargaining Power of Suppliers: High
    • All the existing firms offer competitive prices and similar delivery pattern. Hence the customer gets to choose the service that he wants to avail
    • Corporate customers are offered discounted deals for service partnership as well as bulk orders. Companies will opt for the best bid offered to them.
  • Bargaining power of Suppliers: Low
    • Suppliers come into play in this industry to provide labor services and equipments
    • Skill set required for labor service is quite low, so competition is huge.