Fedex Case Analysis

FedEx Case Analysis

Management 490

2/22/2008

Justin Howell

Table of Contents

Title Page 1

Table of Contents 2

Synopsis 3

Update Information 4-6

Case Challenges 7-8

Works Cited 9

Synopsis

Federal Express is a company based around overnight and second night delivery of packages. The founder, Fredrick Smith, started delivering packages in 1973. Federal Express was the first major air transport firm to implement a "hub and spoke system". This terminology is used to describe the logistics of how packages are flown to a central location (Memphis) each night and redistributed by air pre dawn.

The success of the company and the increase in market share can be directly linked to a strike of a well known competitor. In 1974, UPS employees went on strike, resulting in hundreds of thousands of packages to be forced to use FedEx for delivery.

During the 1980's, FedEx made the decision to progress internationally. This strategic decision led to the buying out of Tiger International. The results of that decision led to the doubling of FedEx's international volume in 1989. Another benefit to the company was that they were the first to offer internet based shipping in 1996. The 1997 UPS strike only added extended market share to the already emerging firm. The official name was decided in 2000, when board members chose FedEx.

FedEx is the world's leading express delivery company with over 56,000 drop off locations. They have over 640 aircrafts, 54,000 vehicles, and deliver over 3 million packages a day to over 200 countries. FedEx partners with the United States Postal Service in order to utilize post offices for critical package drop off locations. In turn, they have to provide air transportation for postal express shipments.

Update Information

The chairman, President, and CEO of FedEx is Fredrick W. Smith. He incorporated the company in June 1971 and officially began operations on April 17, 1973. The company started with 14 small aircraft flying out of Memphis International Airport. On the first night, Federal Express delivered 186 packages to 25 United States cities. Mr. Smith first obtained the idea for such a system while a university undergraduate at the University of Yale in 1965. As of today, FedEx is a publicly traded company on the New York Stock Exchange (FedEx). Their main headquarters is located in Memphis, TN and their major competitors include the United Parcel Service (UPS), Airborne Express, DHL Worldwide, and the U.S Postal Service.

Today's FedEx is led by FedEx Corporation, which provides strategic direction and consolidated financial reporting for the operating companies that compete collectively under the FedEx name worldwide. The companies that make up the corporation include: "FedEx Express, FedEx Ground, FedEx Freight, FedEx Kinko's Office and Print Services, FedEx Custom Critical, FedEx Trade Networks and FedEx Services". Today, the FedEx Corporation is the leading provider of shipping and information services worldwide and its companies function under the motto of "operate independently, compete collectively and manage collaboratively." By operating independently, it allows each company to be able to focus solely on delivering the best service for its explicit market. A competitive advantage FedEx has over other companies is they compete collectively under the trusted FedEx brand, ensuring that all companies benefit from one of the world's most renowned brands. They serve many different accounts; business to business, business to individual and individual to individual (FedEx Historical Overview). The FedEx market ranges throughout over 200 countries.

FedEx's annual revenues are around $36 billion. Their 2007 staff included 143,000 employees in which they inspired them to remain "absolutely, positively" focused on safety, the highest ethical and professional standards, and the needs of their customers and communities (FedEx Enables Shipping Inside Microsoft Office Outlook, 2008). The stock price for FedEx is currently at $89.25, with a 52 week range of $80.00-$121.42. For the third quarter in 2007, the corporation's revenues increased 8% to $9.2 billion. Net income increased 4% to $494 million, while the earnings per share increased only 3% to $1.58. Their earnings per share were below the companies' goal of 10-15 percent mainly because of the sluggish U.S. economy and high gas prices (FedEx Investor Relations).

The rivalry among competing sellers plays a big role in this industry. Competitors can lower prices and the ease of swapping brands makes this industry very competitive. The risk of new entries doesn't serve as big of a problem in this industry because the companies are already established and have good brand awareness. The amount of overhead to start up a new business keeps this problem under control. Since most of the competition in this industry operates globally, the risk of a new entrant is highly unlikely, simply for the reason that they would have to establish a global brand to be competitive in the beginning. The threat of substitutes is not that high either. Customers want to ship mail and packages knowing that they will get to its destination on time and in good shape. The only successful method for doing this is by air or shipping trucks. The power of suppliers plays a big role in this industry. There are numerous suppliers in this industry. FedEx has to deal with the airplane manufactures, vehicle manufactures, fuel suppliers, labor, airports, and shipping materials manufacturers. All these play a key role in the price of the service offered by FedEx as well as other competitors in the industry. The power of buyers is important because the customers keep the prices competitive between companies. For a company to be successful, they must add value to their products and services much like FedEx does with their firm.

FedEx's has an advantage in this industry because they were the first global express transportation company. They are the industry leader and have been continually searching for better technology to increase customer satisfaction. Gas prices and increasing labor costs are some weaknesses the company faces on a routine basis. There are opportunities for