During the 1980s, the air express industry benefited largely from the 1977 deregulation of U.S. air cargo industry and experienced rapid growth of 31% annually. In order for express mail companies to stay in the competition, they started to proliferate new services such as next-afternoon delivery, second-day, and same-day and so on. They also invest heavily on capital-intensive facilities, and improve customer service. Applying Porter’s five forces model to the industry will allow us to further understand the dynamic development and potential for profitability in the industry.
Threat of Entry
The barriers to entry are high. One of the reasons that there is a high entry barrier is the high fixed cost associated with establishing the international transportation network. This includes hubs, ground transportation vehicles, air fleet, etc. Additionally, existing companies can take advantage of the absolute cost advantage achieved by large volume of shipments and economies of scale. In addition, companies such as Federal Express and UPS already established their well-known reputation on delivery service.
Intensity of rivalry among Existing Competitors
The intensity is very high, especially during this period where rapid growth of demand for information distribution is wanted. Established players in shipping service industry complete rigorously for a market share, as demonstrated by the constant battle between FedEx and UPS, the company who responses first to the constantly changing environment wins. Established companies have to strive for continuous improvement in quality, lowering price, and innovation. There is very low switching cost for consumers in this industry making rivalry even more intense. In addition, intense rivalry is also due to the fact that maintaining the infrastructure of an express delivery company presents an exit barrier due to high fixed costs.
Bargaining power of buyers
The bargaining power of large buyers in shipping service industry... [continues]
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