Evolution of the Company FedEx - Essay Example

FedEx I. Evolution of the industry  Fedex’s industry, the package and parcel industry has evolved dramatically from its beginnings of delivering mere letters and small packages. The change was not only in the nature of the goods transported but included the range of services that package industry now offers to its customers. The scale of the market also enabled the industry to operate on a global scale coupled with a technology that was not integrated before. There were key milestones that brought the dramatic evolution of the parcel and package industry. First is the establishment of the road infrastructure of highways with the building of the Interstate Highway System in 1956. The interstate and intrastate deregulation of the trucking industry in 1980 and 1994 that helped expand the industry from mere trucking of goods to lifting them by air that paved the way of the modernization of the package and parcel industry. UPS (United Postal Service) One of the companies that were established early was UPS (United Postal Service) which was known as UPS Air Operations back 1929. It closed shop during the recession and resumed operations in 1953 albeit its air operations were only limited to East and West coasts. By 1978, it was already operational in every state and was granted an authorization by the FAA (Federal Aviation Administration to have its own aircraft. Fedex The second player to follow UPS in the package and parcel industry is Fedex which was incorporated in 1971 but only became operational on April 17, 1973. The name Fedex was derived from Fedreal Express at a time when its founder Fred Smith was in the process of securing a contract with Federal Reserve Bank. Fedex begun international operations by 1975 and grew rapidly when it acquired Tiger International Inc. in 1989 and Caiiber System in 1998 which is now known as Fedex Ground. It also went early in the Chinese market when it acquired Evergreen Internation Airline’s cargo authority to deliver in China. Perhaps the multitude of services that delivery and package industry now offers to its customer can be attributed to Fedex because it first introduced services that we are now familiar today such as same day and next delivery, delivery guarantee, etch. DHL and TNT The other two competitors in package and parcel industry are DHL and TNT. DHL however differentiates itself from Fedex because it is more focused on the international market unlike UPS which caters to both. Its customer bases are located in Europe, Latin America, Middle East, Australia and Africa. Due to its focus on the international market, DHL was also the first company to provide China an express transportation service. TNT is also player in the package and parcel industry that like DHL is more focus on its international market. II. Evolution of the company's competitive position  Although Fedex’s entered in the industry later than UPS, it was however the pioneer of the many innovative services that are now practiced in the industry. It also started in the US domestic market but has geographically expanded its operation in a short period of time. It only started operations in 1973 but already had an international presence 16 years later (1989) with the acquisition of Tiger International Inc and Evergreen International Airlines. But perhaps it is Fedex’s innovativeness that revolutionized its competitive position. Many of the idea and the many options that customers enjoy now about parcel and package delivery were Fedex’s ideas. Fedex introduced the same day, next day delivery, deferred time specific delivery options, delivery guarantees and even the idea of tracking numbers on monitoring the movements of packages and parcels. In addition to the traditional parcels and packages, Fedex also transcended its services to logistics and financial services. Having said this, it would be safe to conclude that the Fedex’s competitive position is brought and hedged on its innovativeness. III. Competitive position of the main competitor's  Fedex’s main competitior is UPS. To illustrate the competition, UPS shall be taken as their representative. UPS, just like Fedex, UPS has also domestic and international operation. It also has Fedex’s wide range of service such as same day delivery, next day delivery, deferred specific time delivery etch. But highlight competition in the industry, we will pick the two most important component in the industry which is price and customer service. In terms of price, Fedex is cheaper than UPS. In a survey conducted by Roggio (2011), Fedex was the least expensive option of the six out of the eighth cases. This includes overnight services. In customer service however, Fedex seemed to have lost its edge over UPS. UPS has already outscored Fedex on a customer service survey conducted by the American Customer Satisfaction Index released that reported a net gain of 4% gain to UPS to net 85% and a drop of 3% for Fedex to net at 83%. Another survey also confirmed the trend of Fedex being surpassed by UPS with consumer survey score of 88% and 91% in favor of UPS (Roggio, 2011). IV. Analysis of the financial health  The waning of Fedex’ competitive edge can be best gleaned in its financial statements. Again, to highlight its position, it shall be compared to its closest competitor UPS. Analysis of key financial indicators shows that competition is has already overtaken Fedex. The first component is the Earnings before interest, taxes, depreciation and amortization which is how much a company is making before taxes are deducted. In this aspect, UPS margin is almost twice as Fedex with 11.3% compared to Fedex’s mere 6.1%. Fedex is not also as efficient in using its resources with a mere 5% ROA (Return on Assets) and this translate to the enormous disparity of how much these companies give return to their investors. UPS has a return rate of 43.3% which is very encouraging while Fedex has a dismal 9.5% return. Financial Year 2011 EBITDA Margin ROA ROE FedEx 6.1% 5% 9.5% UPS 11.3% 10% 43.3% In sum, Fedex is losing its competitive edge over its closest competitor, UPS which shows in its financial performance. Reference: Roggio, Armando (2011). Comparing UPS, FedEx, and USPS: Which is Best Now? . Retrieved at [http://www.practicalecommerce.com/articles/3156-Comparing-UPS-FedEx-and-USPS-Which-is-Best-Now-] Read More