1.0 Overview of Air Cargo Industry
The logistics and air freight industry or the air courier industry includes the organizations that deliver packages, mail and messages to businesses and individuals across the globe (Birla, 2012). This report analyzes the external environment of the Air Cargo Industry.
2.0 Major trends, threats and opportunities in the Cargo Industry
The increasing demand of the courier services has provided FedEx air cargo industry with different opportunities, however, the there exists few threats as well. The potential opportunities that the external environment provides to air cargo industry in the next 3-5 years are as follow (Gendron, 2012):
- New business and personal needs in the emerging ecomony of Asia and particularly China
- Increased globalization of the marketplace will bring more contracts with higher volume.
- Expansion of the retailing sector through online services has also increased the demand for timely and quick shipping.
Besides above provided opportunities, the company might face the following threats in the next 3-5 years for which the air cargo industry need to derive new strategy to counter the threats (Gendron, 2012).
- Increased fixed cost
- Many businesses and consumers are moving to option of slower delivery to save costs.
- Increased competition in local and international to take away market share by UPS and DHL.
3.0 Porter’s five forces Model
The following is the analysis of Porter’s five forces Model for air cargo industry:
3.1 Risk of new entry by potential competitors
There is a high barrier to entry in the air cargo industry as there is a high fixed cost to establish network with international transportation network (Kurtz and Boone, 2008). These fixed costs include ground transportation, hubs, air fleet, etc. However, the existing organizations in the industry can take advantage of the cost benefit through shipment of large volumes and achieving economies of scale.
3.2 Bargaining power of buyers
There is a high bargaining power of buyers in air cargo industry. This is because the cost incurred on switching from one buyer of the shipping service to any another buyer is low (Kurtz and Boone, 2008). As a result, the buyers can easily switch to those shipping provider who offer quick services at low price.
3.3 Threat of substitute products
There is a low threat of substitutes in the industry as the courier and cargo services cannot be substituted easily (Kurtz and Boone, 2008).
3.4 Extent of rivalry between established firms
There is a high extent of rivalry between the established players of the air cargo industry where each of the players complete rigorously to increase their market share (Kurtz and Boone, 2008). The main competition exists between UPS and FedEx.
3.5 Bargaining power of suppliers
The bargaining power of the supplier is fairly low as the provider of the air cargo industry can largely affect prices of different supplies, such as packaging materials (Kurtz and Boone, 2008).
4.0 General Environment or PEST Analysis
The analysis of the general environment in context to air cargo industry is as follows:
4.1 Political and Legal Factors
These factors include those factors that affect an organization such as governmental regulations and rules, legal policies etc. The deregulation in 1977 of the airline industry has given industry to struggle till now (Hill and Jones, 2012). The FedEx can fly anywhere in the US and can use large aircrafts. However, the firms of the air cargo industry are bounded to operate within the legislations of the environmental and safety regulations.
4.2 Economic Factors
As most of the air cargo industry operates internationally; therefore, the change in exchange rates, Inflation and interest rates also have large impact on the companies (Hill and Jones, 2012). Although, the US market is still struggling with the impact of the recession, but other important factors like consumer index etc has led company to grow nationally and internationally. However, there is an increasing demand for air cargo industry organizations to adopt flexible rates on the basis of economic status.
4.3 Technological Factors
As organizations in air cargo industry operates as a national and global courier services, therefore it is necessary for the organizations to adapt to the technological advancement to improve its services (Hill and Jones, 2012). The increased use of internet and web services has provided courier services organizations to take advantage through providing its customers with the electronic services. The consumers can check their transaction status easily; Moreover, the organizations of the air cargo industry can operate globally through business-to-business transactions or the e-commerce.
4.4 Social and cultural Factors
These factors include the educational perspectives, consumer behavior and demographic factors of the macro-economical and international society (Hill and Jones, 2012). The globalization of the businesses has increased local demand of the consumers to use air cargo services. However, the air cargo services are now increasingly used by consumers as well. In addition, high literacy rates in the US and other developed countries have become a success driver for the air cargo industry.
5.0 Task environment of their competitors
The industry operates at large revenue which is mainly contributed by UPS and FedEx (figure a). Therefore the highest in the air cargo industry are FedEx and UPS.
Figure a Revenue share (Harris, 2011)
There are not too many regulators in the industry; however, the air cargo companies have to operate within the rules and regulations of the government (Plunkett, 2009). The FedEx neither UPS have any strategic alliance; however increasing demand of globalization has increased demand of the strategic alliance. The supply services in the air cargo industry are provided by sorters, mechanics, derivers and pilots that have increased supplier power as similar services are used by all air cargo industry organizations including FedEx and UPS. However, at FedEx the pilots are unionized, while at UPS, the unions are used to present employees. All the air cargo industry organizations serve business and individual customers through different means. This has increased the power of the buyer.
6.0 Time Frame
In order to take advantage of the different opportunities that the external environment provides to the air cargo industry, the organizations operating within the industry must implement different strategies. It is expected that in the year one (beginning from today), there will be an increased demand for the cargo services in the emerging economies, particularly China and India for which the organizations must adapt strategies to expand in these markets. However after two year, the expansion in these two markets will increase volume of shipment and transactions that will increase the profits of the overall industry.
7.0 Time Target Life Cycle
It is expected that in the year one the companies will take help of the research and development department to conduct more analysis of the recommended two emerging economies, i.e., China and India. However, after analysis of the two economies, the plan will be implemented in the second year where the companies will serve 5 more regions of two economies.
8.0 Conclusions
In a nutshell, air cargo industry can take advantage of the emerging trend, customer demands and increased globalization that will contribute to the increase in market share and profits of the industry.
9.0 Recommendations
It is recommended that air cargo industry must implement the two year plan proposed which will benefit the industry in the long run. However, the plan could be further expanded with the successful outcome from these two markets.
References
Birla, M. (2012). FedEx Delivers: How the World's Leading Shipping Company Keeps Innovating and Outperforming the Competition. John Wiley & Sons
Gendron, M. S. (2012). Business Intelligence Applied: Implementing an Effective Information and Communications Technology Infrastructure. John Wiley & Sons
Harris, D. (2011). Detailed analysis of the US domestic air cargo market. Retrieved from http://cargofacts.com/detailed-analysis-of-the-us-domestic-air-cargo-market/
Hill, C., and Jones, G. (2012). Strategic Management: An Integrated Approach. Cengage Learning
Kurtz, D. L., and Boone, L. E. (2008). Contemporary Business. Cengage Learning
Plunkett, J. W. (2009). Plunkett's Transportation, Supply Chain & Logistics Industry Almanac 2009. Plunkett Research, Ltd.
