Airborne Express

1) How and why has the structure of the express mail industry evolved in recent years? How have the changes affected the small competitors? How has the rivalry between FedEx and UPS impacted them and the rest of the industry?

– The face of shipment industry changed drastically with the proliferation of many services wherein companies offered next afternoon delivery, second day services, third day deliveries and pricing these options on the basis of delivery time.

– Shipping volumes had increased by 15-20% over a decade

– Companies tailored their activities for their business customers e.g. Airborne customizing those for Xerox

– High discounts from list prices of 50% were common. These discounts were based on volume, and encouraged customers to focus on one carrier. This ensured competition in the market, and better services for the customers.

– Companies maintained a fleet of vans and drivers, and invested in aircrafts. There was a central hub that was the key factor in overnight shipment deliveries.

All this started around 1973, Fedex commenced service in the express mail delivery services – Being the first of its kind. It shipped 186 packages to and from 25 cities. It revolutionized the express mail segment in the following ways

– A complex technological network to expedite mail deliveries

– Cutting edge offering to customers in terms of internet-online tracking

– Widely recognized for quality improvement efforts, satisfied customers, tracked performance of call centers, aggressive marketing, 1100 sales representatives to canvas business customers and a money back guarantee

– Good to work for… promoted people, no layoff policy, cross trained employees, extensive training programs, Employees with more decision powers – refund upto $2000 without management approval, expected employees to take risks and resolve problems on their own

FedEx and UPS have been the 2 big guerillas in the express mail delivery segment, vying for a share. While FedEx prided itself in being the pioneer of this segment, UPS in 1990 refocused itself around customer service and invested large amounts in sorting out infrastructure and building upon technology.

– UPS drivers picked up as many as three times more parcels per stop than FedEx drivers did, cutting down on the operating costs.

– It also bridged the technology gap and offered better services to customers in terms of package tracking, delivering proof of delivery electronically, and a money back guarantee of on-time delivery.

– Customers were able to track a package from the website, schedule a pickup, prepare shipping framework, check rates etc.

– FedEx and UPS tried to beat each other in pricing and better services to the customers.

There have been small companies such as

– BAX and Emery focused on heavy cargo shipments

– RPS focused on two day delivery via the road transport targeting price sensitive customers

These, as is clearly evident, focused on smaller segments, and had a different aim.. e.g. BAX and Emery did not focus on the express mail delivery, but on heavy cargo shipments

The smaller companies could not invest such huge amounts into technology, operations and infrastructure. Hence, they made liaisons (RPS with Airborne in the late nineties). One of the main sources of income for FedEx came from international deliveries, which other big competitors too begun to realize as a fair chunk of market. The small competitors were not able to compete in the international operations, and hence had to be satisfied with the domestic markets itself.