The Evolution of Small Package Express Delivery Industry

Presented By :

Nusrat Jahan ChawdhuryRoll No: 161401

Md. Hasan ImamRoll No: 161408

Tahsin-ul-AbrarRoll No: 161409

Md. Samsu UddinRoll No.161426

Welcome To Our Presentation

What is Express Delivery?

Express delivery typically involves a time specific constraint, traditionally on a 24-hour, 48-hour or 72-hour basis or particular window of time that the customer chooses.

Fig: Key Stage of Typical Express Delivery

Express industry --At a Glance Four companies – DHL, FedEx, TNT and UPS, also referred to as ‘integrators’ – are the leaders of the global express industry

Small Package Industry Before FedExIn 1973, 1.5 ton of freight shipped in US by surface transport and 2% of total shipped by aircraft.

High cost of Airfreight down the clients demand.

Cargo freight carried by passenger planes which increased operational coast which is uneconomical.

Federal Express Founded in 1971 by Frederick W. Smith and started their operation in 1973.Smith Finds Major Difference Between Package and Passengers.Smith’s aim was to build a system that could achieve next-day delivery of small-package airfreight.Established a Hub and Spoke route System.After 1973 FedEx quickly build up volume.

By 1976 it had an average daily volume of 19,000 packages, a fleet of 32 aircraft, 500Delivery vans and 2,000 employees. It had initiated service in 75 cities.Profit $3.7 million on revenue of $75Million .

Fig: Hub And Spoke route System.

Industry Evaluation,1980-1986 New Products and Industry Growth.

Introduce Letter Service which Guaranteed overnight Delivery Service.Direct competition with USPS Priority mail. Within 3 month their growth is 17000 letters per day.1980s yearly growth is 30%.

Increasing Price Competition.Entry of UPS in 1982 in overnight delivery market.UPS purchase some freighters(Boeing 727-100s,DC-8) from flying tigers.Introduce Next day air service in September 1982.Cut the price at roughly half the price Federal Express was charging.Federal Express announce overnight delivery at 10.30am.In 1983 most of the major carriers include FedEx cut their price following UPS.Three new services introduced by Purolator, Emery, and Gelco also offer lower price.Between 1983 and 1984 Federal Express’s average revenue per package fall nearly

14% ,Emery 15%.

Industry Evaluation,1980-1986 (Cont..)

Increasing price Competition:

Customer Group together and negotiate for lower price.UPS was main beneficiary during the price war.

Company Share %

UPS 15% gained

Federal Express 37% from 45%

Emery 14%

Purolator 10%

Airborne Express 8%

U.S. Postal Service 8%

Industry Evaluation,1987-1996Industry ConsolidationIn 1987 and early 1988 further price cutting for Electronic transmission (FAX machine).Discounting problem created by weakest companies in the Industry.

Company Problem Acquired By/Declined.Purolator Fail computer system.

Unable to track shipments.Billed with late 120 days.

Emery.

Emery Unable to integration of Purolator and fall into large losses in 1988 and early 1989.

Freightways.

Freightways Acquired Emery for $478 million and found Emery’s billing and tracking problem and lost $100 million. Add surcharge 4-7% in early 1989.

Decline CF/Emery/Puralator combination.

Flying Tigers. In December 1988 by $880 million.

Federal Express

Industry Evaluation,1987-1996

In 1994 Market Share after Declined CF/Emery/Puralator Combination.

Company Name Share %

Federal Express 35%

UPS 26%

Airborne Express 9%

U.S. Postal Service 4%

Industry Evaluation,1987-1996

Pricing Trends:

Company Year Service Price IncreaseUPS January 1989 Next Day Service 5%

UPS February 1990 Next Day Service 5.9%

Federal Express , Airborne and Freightways

1990 Moderate Increase.

Industry Evaluation,1987-1996(Cont..)Product TrendsSecond Day Delivery:

Airborne Express started Second Day Delivery in 1991. Lower price than next day Delivery.Federal Express made an average of $9.23 on second day deliveries.Airborne Express accounted 42% of total volume in 1996 up from 37% in

1995.Premium Service:

In 1994, UPS introduce premium service which guaranteed delivery packages and letter by 8:30 a.m.

Premium Service Makes high profit margin.In 1994, UPS price was $10.75 for letter delivery at 10:30 amUPS price increase $10.75 to $ 40 for letter delivery by 8:30 am

Logistic Service:The procurement, maintenance, distribution, and replacement of personnel

and materiel.

Industry Evaluation,1987-1996(Cont..)Information Systems:

Ability to track a packageInvested in bar code TechnologyAllows customer to schedule pickups, print shipping label and track delivery

online.Globalization:

For the long-run future of the industry needs to increase Globalization.Global Manufacturers deliver just in time for keeping down costs and fine

tuning production.Company Market Share

DHL International 44%

Federal Express 21%

UPS 12%

TNT 12%

Others 11%

International Air Express Market Shares, 1995

Industry Evaluation,1997-2010(Cont..)Pricing Trends:

Unlike in recession in 1990-1991, there was no price war in 2001-2002.In early 2002 UPS increase 3.5% in prices.Others Company also increase the price following UPS.Global financial crisis of 2008-2009, average revenue per overnight package fell from

$18.42 in 2008 to $16.02 in 2010.Volume and pricing trends improve in 2011 am0ong with the economy and FedEx rose

to $18.08 by the fourth quarter of 2010.

Continue Growth of Logistic:Company Share

DHL 5.5 %

UPS 3%

TNT 2.2%

In 2006 TNT sold its logistic Business to Apollo Management L.P. for $1.88 billion.

Industry Evaluation,1997-2010(Cont..)Expanding Ground Network:

In the late 1990s and early 2000s all the main carriers supplementing their air network with extensive ground networks.

Ground shipment are cheaper than air shipment.

Company Investment

UPS $700 million

FedEx $500 million

Industry Evaluation,1997-2010(Cont..)

Bundling:Offering air delivery, ground package offering and logistic services to business

customer as a bundle.Bundle Price is less than separately purchased price.

Entry and Exit of DHL:DHL was acquired by Deutsche Post in late 1990s.Deutsche Post also acquire several companies in the logistics business.In 2003 DHL acquired Airborne Express(Truck Delivery) for $1.05 Billion.DHL invested $1.2 Billion to upgrade the capabilities of assets acquired from

Airborne.In 2006 DHL ran into integration problem.Poor customer Service.Missed delivery deadline.DHL lost $500 million in the U.S in 2006.In 2007 lost $1 Billion .In 2008 DHL Exit in the U.S. market.

Industry Evaluation,1997-2010(Cont..)

U.S. and Global Market in 2010:

Company Overnight Express Deferred Air Ground

FedEx 54% 48% 22%

UPS 41% 52% 61%

USPS 6% 0% 16%

Market Size $14 billion $6 billion $34 billion

Source:WJ Green et al, ”Airfreight and Surface Transport Parcel Industry Primer”,Morgan Stanley,May 25,2011

Industry Evaluation,1997-2010(Cont..)

Comparing FedEx and UPS in 2010 :

FedEx UPS

Revenue $34.7 billion $49.5 billion

Net Income $1.12 billion $3.49 billion

Cash Flow $3.14 billion $3.84 billion

Capital Expenditure $2.82 billion $1.39 billion

ROIC 7.41% 19.39%

Source : Company Report

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