LTL Industry: Five-Forces Analysis

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LTL Industry 5-Forces Analysis
Power of Suppliers – High
Suppliers in this industry: Labor, truck manufacturing, and fuel The power of the suppliers in this industry is relatively high because of the inability of the companies to control these suppliers. In the case of labor, the unions frequently battle the companies for higher wages and benefits. These unions also set up strikes which cripple companies who use union workers as their main labor force. These unions have high power since the companies are dependent on their workers. With truck manufacturing, the companies usually get little to no discounts on the trucks so their power is relatively low. Fuel, on the other hand, has a high impact on this industry. If the cost of fuel rises significantly, the profits of the LTL companies would shrivel up because of the necessity to pay for fuel at any cost.

Power of Buyers – High
The customers are highly price and service sensitive. They will seek other alternatives for their shipping needs when not given the right price and service. These customers have little to no loyalty for differing companies as long as one is cheaper and more efficient than the rest.

Substitutes – Medium
There are plenty of substitutes for the LTL industry. There is the TL industry as well as the premium carriers such as UPS and Federal Express. The premium carriers are largely used for smaller volume shipments while the TL companies transport the high volume shipments headed towards the same destination. There are other alternatives such as rail and air, but they generally end up being more expensive since they use trucks anyway.

Threat of Entry - Medium
In order to be a national LTL company, there are lots of capital intensive investments that a company has to make which makes entry very difficult. The company needs regional hubs and terminals in order to efficiently sort and ship out goods. However, to be a regional LTL carrier is relatively easy. They use non-union workers...
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