FedEx Porter Five Forces Analysis
Five Forces analysis of FedEx covering threat of new entrants & substitutes, bargaining power of buyers & suppliers and competitive rivalry.
Threat of New Entrants:
FedEx is one of the largest transport and service-based industry globally, which originated in the USA. The company has strong brand equity, which is famous worldwide. The threat of new entrants in this industry is relatively low. The transport industry requires a vast distribution channel, and building such a major network is a humongous task. A new entrant requires a huge capital investment as the cost of vehicles is high. FedEx asks its drivers to buy their transport but with the specifications mentioned by the company. But many of the other vehicles like aircraft, truck containers, electric vehicles are all owned by the company. Therefore, capital expenditure is high. Another issue that a new entrant might face could be the policies and regulations of various countries it is situated in. FedEx and all the companies in the same industry have to invest in projects which support both the land and air infrastructure and are in compliance with all the mandatory rules and regulations
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This concludes the threat of new entrants in the FedEx Porter Five Forces Analysis.
Threat of Substitutes:
Below are the threats of substitute products of Porter’s Five Forces analysis of FedEx:
One of the substitutes of FedEx is the E-Commerce companies like Amazon, Flipkart, etc. Amazon has become one of their competitors.
Being an E-Commerce business, Amazon transports goods to people depending on the purchases made on their website. In a way, people who used to buy gifts through brick-and-mortar shops used to send the gifts to their distant relatives via FedEx. But at present, with the advent of technology and everything going digital, people have started using E-Commerce platforms to deliver their parcels directly. Another issue is that most of the physical documents have been converted to electronic records. Previously, important documents which required signatures had to be sent over via services like FedEx, but currently, with the introduction of E-signatures, people have started saving on the courier service, thereby making it convenient for people but reducing FedEx’s business. These two substitutes are posing a threat to FedEx.
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Bargaining Power of Customers:
In the FedEx Porter Five Forces Analysis the bargaining power of the customers can be explained as:
FedEx office is located in more than 2000 regions with over 600,000 employees. They have more than 200,000 motorized vehicles and around 600 aircrafts. They have a huge customer base worldwide, with the US postal service being the largest customer. The brand also caters to the corporate sector. Many companies have tie-ups with FedEx and use their services to transport important documents or parcels within the company or to its clients. Corporate clients have more bargaining power than non-corporate customers as they can use a bulk discount for their regular uses. Depending on the load to be transferred, the prices could be negotiated and fixed.
The company has many competitors, which makes the cost of switching very low.
Bargaining Power of Suppliers:
Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of FedEx:
FedEx serves various industries like retail, technology and electronics, healthcare, consumer goods, and various industries. So every industry has its challenges and needs. For example, the health care industry would need their packages to be delivered with utmost safety and precaution, which the other sectors might not need much. The vehicles used should be aware of the industry they're working for. The suppliers also include packaging material, paper, and printer suppliers. Some of the suppliers of FedEx are Honda Motor Co Ltd, Ford Motor Co, Cnh Industrial N v, Boeing Co, Caterpillar Inc, Honeywell International Inc, etc. There is a chance that the vehicle suppliers could backward integrate the entire supply chain system and get into the transport and logistic industry. Since they already have the vehicles needed for transportation, their capital expenditure would be drastically low. Similarly, airline companies and owners of aircraft could use their aircraft to transport goods to longer distances, thereby entering into a new industry.
Competitive Rivalry:
The impact of key competitors in the FedEx Porter Five Forces Analysis is as follows:
FedEx is listed at the New York Stock Exchange and has a market cap of more than $60 Billion. It offers various services like FedEx Express, Ground, Freight, Logistics, Office and Services. The main competitors of FedEx are UPS, DHL, USPS, SNCF and Blue Dart. Both FedEx and UPS operate in more than 200 countries. This industry is highly competitive; therefore, maintaining the prices is essential. This is done to prevent the customers from shifting from FedEx to other customers, as the cost of switching is very low.
Government agency like USPS, though a direct competitor, also has a partnership agreement with FedEx where they provide hybrid shipping services like FedEx SmartPost and USPS Global Express Guaranteed (GXG).
To conclude, the above FedEx Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.
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