FedEx – Current Market Trends and Conditions
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The purpose of this paper is review the current market trends and conditions for FedEx. There are numerous ways that a company can become a success or become a failure. The market trends and conditions are just of those reasons. Team A has analyzed the market trends and conditions by reviewing FedEx’s operating structure, competitors, the impact of government regulations, price elasticity of demand, along with a supply and demand analysis.
HISTORY OF FEDEX
FedEx Corporation is responsible for the direction of FedEx which is comprised of FedEx Express, FedEx Ground, FedEx Freight, FedEx Office, FedEx Custom Critical, FedEx Trade Networks, and FedEx Services. FedEx started in 1998 and wanted to expand their express delivery service so that they could diversify their portfolio ultimately to compete in the market on a global scale. In 2000, FedEx acquired a new subsidiary called Tower Group International who is a leader in the business of international logistics and trade information technology. Through this acquisition, FedEx has become the largest-volume customs entry filer in North America and a leader in global ocean and air cargo distribution and trade facilitation.
In January 2001, FedEx Global Logistics realigned to streamline the organization to further improve their customer service across the board. They bought out American Freightways and Viking Freight changing them to FedEx Freight encompassing the Eastern two thirds of the United States. In 2004 FedEx acquired Parcel Direct who is a leading parcel consolidator, which became SmartPost. This helped FedEx in its alliance with the U.S Postal Service and provided customers with proven cost effective solutions for low weight and time sensitive shipments within the United States.
FEDEX OPERATING MARKET
FedEx created a new market less than 40 years ago by providing customers with the next day just-in-time delivery services. FedEx currently operates in more than 200 countries making it a global market. FedEx is one of the most reliable shipping companies that has the capability to ship any package of any size locally or internationally. In 2009 FedEx expanded their global capabilities by intensifying their freight forwarding presence in multiple countries. According to Wikinvest, the new expansion should benefit FedEx’s customers by:
Enhanced global freight forwarding services and end-to-end multimodal solutions; Direct access to local personnel with industry experience and local expertise to meet customer needs; Expanded regional access to services, including international direct distribution, and supply chain visibility, online FedEx trade tools such as WorldTariff®, and trade and customs advisory services; and Increased access to the FedEx global network and seamless support across other FedEx operating companies in markets (Wikinvest, 2009).
FedEx is moving rapidly into freight transportation which is less expensive than the usual ground services. FedEx is expanding into other foreign markets at a rapid pace offering printing, photocopying, Internet access, and other business- center services. FedEx is currently the leader in express shipping owning 49% of the market share by volume in the U.S. FedEx is currently entering the in ground shipping field in which UPS dominates currently.
FedEx’s success to date can be attributed to smart acquisitions and simple strategic visions that have made them a world leader in the industry. They continue to expand their FedEx Freight, and are now focusing on their regional freight acquisition which is suspected to increase revenue over the long-haul. Once customers realize that they can use FedEx for their regional needs FedEx hopes to increase their revenue not only nationally but regionally as well.
Limits to a company can put even more restrictions on a consumer. FedEx has restrictions on shipping out product to help protect the company from receiving penalties that could cost the company thousands of dollars. FedEx (2010) regulations state, “NOTE: We are required by law to report improperly declared or undeclared shipments of dangerous goods to the U.S. Department of Transportation. Penalties for such shipments may include fines up to $500,000 and five years in jail. The DOT/FAA requires every shipper to have job-specific dangerous goods training prior to offering a dangerous goods shipment to FedEx or another air carrier” (para 12).
Air traffic control needs specific documentation to allow a FedEx consumer to ship parcels anywhere in the authorized countries. The government regulations will stipulate that many of the consumers that use FedEx must fill out the appropriate documents and make sure that the consumers assume all liability for the package. With the Dangerous Goods regulations in place, the proper documentation has to be in place to make sure FedEx shipments are in the correct packaging. FedEx (2010) stated in its policy that “Shippers of dangerous goods, whether prepared under IATA/ICAO or 49CFR, must comply with all FedEx Express (FX) variations listed in the current edition of the International Air Transport Association tariff.
All packages containing dangerous goods must comply with the International Air Transport Association (IATA) dangerous goods regulations. The only exception is for a U.S. territory or commonwealth such as Puerto Rico. Shippers may use 49CFR when prepared by Air as limited by the commodities FedEx Express accepts prepared under these regulations. The shipper is responsible for complying with all packing requirements and appropriate marking and labeling of the package, documentation, compliance with all applicable federal, state and local laws, regulations, ordinances and rules. The policies and procedures in place for shipping out dangerous products help to protect the FedEx Company from any infractions that may be imposed by the government.
IMPACT OF GOVERNMENT REGULATIONS
There are government regulations that affect all kinds of organizations. For FedEx, it seems that the most government regulations they have to abide by are for export shipments out of the United States. Exports from the United States are controlled by Export Administration Regulations (EAR), International Trafficking in Arms Regulations (ITAR) and regulations from other government agencies (OGA), such as the Drug Enforcement Administration and the Department of Commerce. Additionally, every other country has its own set of rules and regulations for importing that must be considered (FedEx, 2010).
Government regulations are always changing in the shipping business; each country including the USA has their own set rules. The impact of these rules can put great strain on the FedEx Corporation by not allowing certain items to be shipped within a certain country. For each country there is one common trend and that is to keep their own people safe, as well as take away money from local businesses. In the shipping industry it is changing all of the time, mostly because the world has changed in the way we all do business with one another. The world has become more of a global business, rather than a domestic business. More and more companies have built stronger relationships with people outside of their own government. With this fast changing trend, local governments need to make the change themselves to secure a stronger future.
IMPACT OF NEW COMPANIES
FedEx plans to expand their international network and is banking highly on this international shipping network. This will cost the company a great deal at first and their success will depend on how quickly they can attract customers to this expanded network. The costs are associated with the economy and fuel prices have cut into their profits as well as salaries for their employees. The operating income of the organization has continued to fall because of the current state of the economy.
The profits of FedEx come in cycles and depend largely on the strength of the U.S. and world economies. The better the economy the better profit they will make through high package volumes. A lot of businesses use FedEx as an indicator of rather or not the economy is rebounding or if it is slowing. This is largely in part because of the logistical advantage that FedEx has throughout the world.
Delivery of products all over the world can create fierce competition among freight carriers. FedEx’s competitors are United Parcel Service, DHL, and the United States Postal Service. FedEx is constantly in competition with the three companies to have express delivery service, air cargo service, and freight forwarding services for all consumers. UPS and FedEx are main competitors with each other for services from manufactures to consumers.
UPS offer shipping services close to FedEx by offering shipments from country to country with global tracking. Global tracking will be beneficial to people looking to ship packages from Missouri to London England. Tracking the products from the point of drop off to arrival help keep companies in business by offering timely delivery. FedEx offers discounts that cannot be matched by the competitors but the competitors will look to make a different offer that FedEx might not offer. FedEx must look at the competitors pricing to make sure the price can be matched or better to keep consumers coming to FedEx.
In today’s market having the best possible customer service is what will continue to grow the future of the FedEx organization. FedEx needs to stay consistent in the way business is handled on a daily basis. FedEx is a global leader in package delivery, and as I said the current market is changing. Customers want to ship and receive their personal packages at a faster, cheaper rate. Delivery of products all over the world can create fierce competition among freight carriers. FedEx is constantly in competition with the three companies to have express delivery service, air cargo service, and freight forwarding services for all consumers. UPS and FedEx are main competitors with each other for services from manufacturers to consumers. FedEx offers discounts that cannot be matched by the competitors, however the competitors listed above are becoming more strategic to capitalize on market share that FedEx was is unable to take advantage of.
The sales have declined for FedEx and reduced revenue by 6.5% from $37.953 billion to $35.497 billion. The only segment that made money was its ground segment and their operating income and net income fell from $747 million to $98 million that represented 64% and 91% in declines for FedEx. The economy has continued to have a negative effect on FedEx and its ground segment has continued to keep them afloat with increases in operating income from $196 million to $209 million.
FedEx has become the world’s largest transportation company in the United States as well as over 220 countries around the world. They have international trade lines or express parcel services throughout the world and have grown by more than 14% over the past eight years. This growth accounts for 63% of the company’s revenue which is an increase of 23% from eight years ago. FedEx continues to acquire smaller carriers and negotiates contract with others so that they can cover a large network of emerging markets. In 2009 FedEx earned $1.977 billion in revenue and owns and operates more than 1,700 storefront business centers around the world.
Since the current state of the economy FedEx’s book value will fall by $2.22 a share. For now they have stopped expanding and went from adding 300 hundred stores in 2008 to adding only 70 stores in 2009. The future remains unpredictable and will be challenging for the organization to remain profitable but FedEx is optimistic because of FedEx’s vast portfolio in different segments that will carry them through the current declining market.
The U.S economy continues to evolve and FedEx continues to represent the introduction of new forces that will affect their competitive advantage and sources of supply and demand through their logistical system. These forces will affect all industry standards from traditional sectors like agriculture, to manufacturing, to information sectors. FedEx logistics and supply chain management tools allow businesses and customers to focus on their core competencies. This results in FedEx being more involved in small business acquisitions and spurring on more competition with other businesses while using FedEx as their resource. This will also help keep the prices of goods down because of this competition.
The cost structure of FedEx can be defined by how many packages are sold at a given time. FedEx employees are dependent on location of job with in the country and within the FedEx establishment. FedEx handlers start out at income from about $10,000 to $25,000. FedEx’s ramp agents and truck driver’s salary average anywhere from $30,000 to $40,000 a year. Ramp agents are employees who work in an airport and help load and unload planes. The location of jobs can also create a lower pay rate or a higher pay rate. FedEx cost structure keeps changing with the change of the current economy wages may increase of decrease with the demand of shipments going in and out of the FedEx facilities. Employees who work for FedEx receive benefits for employment with a full time status. About.com (2010) states, “FedEx company benefits include health and life insurance, disability insurance, 401(k), stock purchase plan, educational assistance, and a large variety of additional employment benefits” (para 4).
WAGE AND BENEFITS
In late 2009, FedEx instituted a hiring freeze to eliminate a lot of the compensation benefits to its employees. The part-time employees were no longer allowed to work over 30 hours a week and the full-time employees were only allowed to work overtime once a month at the maximum. FedEx Freight reduced their salaries down 7.5 to 10%. And because FedEx believes so much in their employees and knows they are nothing without them, even the executives took a pay cut. CEO Frederick W. Smith took a 20% base salary cut in 2009 showing that he believes the cut backs are only temporary. But because of these cut backs FedEx has been able to continue growing in new areas and stay the successful parcel shipping company that we have today.
FIXED AND VARIABLE COSTS
Besides the hiring freeze, pension plan freeze, and pay cuts, FedEx has also put a freeze on the purchase of new vehicles and airplanes, as well as the opening of the new FedEx Office locations. There are certain variable costs that FedEx cannot really control, like the cost of fuel. By making other cost cutting, FedEx is somewhat sustaining control on the effects that the economy has had on the industry. FedEx expects these cuts to save the company $200 million through 2009 and $600 million by 2010 (“FedEx cuts cost despite growth in earnings,” 2009).
PRICE ELASTICITY OF DEMAND
FedEx’s demand of service is based on the demand of consumers for the delivery of the products all over the world. QuickMBA.com (2010) is defined as, “The price elasticity of demand measures the responsiveness of quantity demand to a change in price, with all other factors held constant,” (para 1). The more that consumers demand the service of FedEx the more competitive the pricing will become with the competitors of FedEx. When the demand of FedEx decreases the price of the services offered by FedEx will increase the prices to cover the fixed cost of the company. The price of FedEx services are affected by the demand of the services of FedEx consumers. In 2008 FedEx’s profits fell two quarters in a row because of the soaring fuel costs and the economy going into recession reduced the demand for U.S. package shipping. With lower demand for express package shipping the earnings will result in a limited growth if any.
Technology is the future that all business is leaning more and more on the importance of technology. FedEx is committed to be the first on the market with new technology which will help streamline the overall daily process. FedEx developed a technology center to devote time and research for increased technology needs. These are a few example of what the FedEx culture has come up with. (Retrieved 3-1-10)
Installing computers in delivery vehicles, providing sophisticated automation for corporate mailing services and developing tracking capabilities and software.
In 1994, we were the first to offer package-status tracking for improved customer service via fedex.com.
Offering shipping for improved customer service and convenience via fedex.com
Pioneering the use of wireless technology for shipping over 25 years ago with the introduction of the Digital Assisted Dispatch System (DADS).
FedEx is currently lowering its inventories and costs because of the recent decline in the U.S. economy where inventory to sales have declined by almost 20% in the past 18 years. FedEx hopes that their recent technological innovations will help them remain profitable through the current economic conditions. They have served as a continuous test bed of innovations and have adapted and demonstrated the usefulness of their technology. FedEx has pioneered technological innovations and applications like the “hub -and- spoke” logistical system pioneered by Fred Smith. There are many other technologies that have helped them become a world leader like COSMOS, DADS, and Super Tracker which have helped them consistently employ new technologies both internally and among its customers.
It is clear that FedEx wants to stay ahead of competitors such as UPS, USPS, and DHL. In today’s market it is about having the best people, the best technology, and having the strongest customer service attitude. With these three key elements FedEx will continue to grow the business in the now, but more importantly is strengthen the future business. FedEx has identified the importance of employee relationship, which in the short and long run improves overall customer service. If the employees are happy with FedEx than overall productivity will increase. “The Employee Loyalty Index (ELI) at FedEx Express complements i4cp’s core focus of leveraging human capital as a driver for increased market performance. The ELI is a tool that gauges multiple indicators of employee loyalty – and other critical factors that drive this commitment- on an ongoing basis. The information is then used to develop proactive processes and forward-thinking initiatives. The index is not designed to simply measure loyalty for loyalties sake, but to act on the premise that loyal employees help to build customer loyalty, and, in turn, greater profits.” (Retrieved 3-1-2010)
Because of the decline in shipping trends in late 2008 and 2009, FedEx had to make cuts within the company during the fiscal 2010 year which ended May 31, 2009. The company chose to freeze the pension plans for their employees for a one year period and reduced the company match benefits as well. The corporate revenues declined 6% to $35.5 billion in the 2010 fiscal end period. However, the revenue decline was somewhat offset by the cost control efforts and share gains in the parcel market (FedEx, 2010). Even with the economy hurting the shipping business, FedEx was able to avoid major layoffs with other cost control efforts. The operating results were drastically affected by the global recession and the destruction of goodwill related to acquisitions of Kinko’s, Inc. and Watkins Motor Lines (FedEx, 2010).
SUPPLY AND DEMAND ANALYSIS
Because of the constant increase in globalization with companies, there is a global trend where businesses across national boundaries to capture new markets and outsource of production. Because of these increases in global companies, there is a demand for global transportation, which FedEx supplies. With increasing inflation and competition, businesses need to reduce operating costs internally and externally. One of the major areas of reduction is the logistics of the goods, hence the demand for a more efficient logistics company that provides the just-in-time delivery, FedEx. The well-known FedEx Corporation has a financial portfolio of over $1.9 billion in 2009 with over 2.4 million shipments in over 230 countries. The demand for excellent customer service with a decent price point for shipping just-in-time to customers is something that FedEx can successfully supply.
The demand for excellent customer service with a decent price point for shipping just-in-time to customers is something that FedEx can successfully supply. For the demand of excellent customer service is exactly why this trend will continue to change at a high rate. To maintain a strong growing company, a company needs core customers, and strong business relationships. For FedEx to achieve this demand with their customer’s, the overall service will always be improving.
With FedEx being the top tier of the logistics industry maintaining an up to date technological IT department will save the company money with tracking package and claim processes. The company that stays ahead of the competition by tracking how well the company is doing in the industry will stay ahead of the competitors. In today’s market having the best possible customer service is what will continue to grow the future of the FedEx organization. FedEx needs to stay consistent in the way business is handled on a daily basis. FedEx is a global leader in package delivery, and as I said the current market is changing. Customers want to ship and receive their personal packages at a faster rate, and with a cheaper rate. Delivery of products all over the world can create fierce competition among freight carriers. FedEx’s competitors are UPS, DHL, and the USPS. FedEx is constantly in competition with the three companies to have express delivery service, air cargo service, and freight forwarding services for all consumers. UPS and FedEx are main competitors with each other for services from manufacturers to consumers.
FedEx provides many benefits to its customers. The shipping industry, however, is one of extreme competition. Not only are customers confronted with the choice of carrier, they are also confronted with a choice of means of shipment. It is further complex, as the pricing strategy of the sector has companies, for instance, who lead cost in one form of shipment such as ground and follow in another form of shipment such as international delivery.
FedEx foresaw the importance of differentiation early on; as did most of the sector players and FedEx realized that it was in the information business. Customers are not only concerned with the product getting from point A to B, but are also interested in the knowledge of where the cargo originated from, its present whereabouts, destination, estimated time of arrival, price and cost of shipment. All these elements are just as important to some businesses and consumers as receiving a safe delivery. To support this need, and differentiate itself from competitors, FedEx created state-of-the-art technology for customers to track and validate shipments. Shipments are virtually traceable from their origin to their destination all with the convenience of the personal computer. Additionally, FedEx has forecasted the important strategic trend of a continuously global shipping market. The differentiation of products is a continuous process in this competitive industry as innovations are often quickly imitated. FedEx strives to develop innovations and listens to customer’s wants and needs.
The company has invested extensively in global infrastructure. FedEx connects some of the most important areas of the world that make up 90% of the world’s gross domestic product, some of the new hubs were built in the Philippines at Subic bay and in Europe at Charles de Gaulle, in Paris. A particular emphasis has been placed on gaining a strong presence in the Asian market. Countries such as China, which had been predominantly exporting countries, are now large importers of goods from all parts of the World. Since 1984 they have expanded service to over 300 cities within China.
As FedEx continues to improve their infrastructure, they offer greater and greater opportunities for companies to reduce their environmental footprint. In addition, they provide leadership with hybrid electric vehicles to be developed for industry usage, and have almost two hundred hybrid vehicles in their fleet; they are the largest commercial hybrid fleet in North America. They know that economic growth, if poorly managed, can damage the social fabric of a community. Because of this, they directly invest in many of the communities that are part of our international network, as well as acquiring acquisitions with other businesses. FedEx has $38 billion in annual revenues and over 290,000 employees and contractors worldwide.
Through rigorous research and assessments FedEx goes above and beyond the normal transport industry and found that they could create a positive and profound difference by providing access to communities around the world, connecting markets and ideas with people and that this, in turn, improved their quality of life. A strong correlation exists between access, economic growth, and standards of living. FedEx provides and will continue to provide the efficiency necessary to connect those who are demanding products with the sourcing and manufacturing entities. FedEx services enable countries to expand their economies, offers opportunities for their entrepreneurs to affect the world, and it’s a catalyst for positive things.
As the reach of FedEx business continues to transcend borders, they know it’s important to understand the social and political realities of each country, and the only way to do this legitimately is by bringing people from those countries as your ambassadors to have a dialogue with policy makers. FedEx prides itself in having local people lead our operations around the world. They find that this allows for a stronger connection and commitment; FedEx wants to be a part of the social fabric and therefore hire people who understand their cultures and want to do the right thing.
This approach contributes to their reputation. By investing in technology in these countries and training our people there to become high tech, it gives FedEx greater security and more overall efficiency in the movement of goods and services. There are direct benefits here with customs and policy makers giving the company a license to operate in a given community, but it also allows FedEx to deliver on promises and develop trust in that region over time.
A merger at this time would not be out of the equation, especially if it would give FedEx an advantage in the market. They continue to hold 90% of the market and will not need to make a large merger with another company but will continue to make acquisitions with smaller businesses. The effects of the business operations in relation to issues must be examined from a manager’s perspective in order to ensure proper implementation. However along with the ability to examine these issues must come the responsibility to deal with them effectively. Social and environmental issues must also be scrutinized in every level of the organization, which would imply that the responsibility of the effects of business activities could be included in the normal decision making procedures of the company’s managers. When properly executed and inspected, these factors make up a large portion of the criterion that determines the reputability of a corporation, its managers and its employees.
In accordance with ethical standards, every manager in a corporation is responsible to those whom his or her actions affect. Consequently, since managers’ decisions can influence so many diverse aspects of not only the business itself, but of society as a whole, it is critical that management’s current level of accountability and responsibility be thoroughly examined. Fed Ex continues to evolve in their diversity and continues to improve their ethical standards so that they can remain a world leader.
ISSUES AND OPPORTUNITIES
As with any major organization or company you will always be opportunities and or distraction that will take place and FedEx is no different. Some of the issues FedEx faces is shipping global, and ensuring the packages are delivered to the proper location. Global sourcing is very complex and FedEx needs to apply all ethical behavior in which this large company does business between different countries. In the shipping business locally or globally FedEx needs to ensure its vendors, shipping customers and receiving customers the best possible service.
The biggest opportunity for FedEx is the customer loyalty; the customer has so many different options to turn to for their shipping needs. It is not only about the customers FedEx has now, but building a stronger new customer relationship The opportunity can turn into a positive customer transaction by deliver not only the packages, but also as great service. “The prerequisite for growth is new customers, and new customers need some reassurance to help shorten their leap of faith. At the same time, customers aren’t as loyal as they used to be, because they have so many options” (Retrieved 02-21-2010).
FedEx has expanded their portfolio through their smart business acquisitions of companies that would have a positive contact on the company. They have achieved their goal of becoming a global company and today is the premier provider of shipping and information services worldwide. FedEx has a slogan of “operate independently, compete collectively, and manage collaboratively.” This slogan is derived from the way they operate by operating independently so each company can focus exclusively on delivering the best service for its specific market. FedEx competes under its trusted FedEx banner that ensures that all the companies benefit from one of the world’s most recognized brands, FedEx.
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