Airbone harvard case

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How and why has the express mail industry structure evolved in recent years? How have the change affected small competitors?

The domestic express mail market consisted of 3 major firms: Federal Express, United Parcel Service (UPS), and Airborne Express and six second-tier players: BAX Global, DHL Worldwide Express, Emery Worldwide, Roadway Package System (RPS), TNT Express Worldwide, and theU.S. Postal Service. The 3 majors firms took 85% of the market and the 6 second-tier players company shared 15%. The U.S. Postal Service served much of the rest of the market (7,5%). They are popular among residential customers.
There are competitors out of the industry with alternative products like electronic mail and the facsimile. The marginal cost of document delivery via electronic mail wasessentially 0 cents. Documents can be scanned into the computer and emailed directly to the receiver. It’s speedier than express mail.

Businesses and individual spent $16-17 billion on expedited shipments within the United States in 1996. In industries such as financial services and consulting, express mail had become the standard means of delivering docs. The shipping volumes rose only of15-20% per year from 1986 to 1996, but because of the price had fallen, total revenue of the industry had grown by only 10-15% each year. The flagship service of the industry promised overnight shipping with next-morning delivery.

For years, the industry had set fixed prices without taking the distance into account. It is UPS that switched in 1996 to distance based pricing. Prices were raised onlong distance shipments and lowered on short shipments. Federal Express followed this change and Airborne decided to stick with fixed prices. Airborne’s decision will be largely comment later on in this paper.

The portion of goods considered perishable or time-sensitive increased over time, so that companies wanted to drive inventories out of their logistic system and compete on the basis oftime-to-market. Furthermore, acceleration in the pace of business and shorter fashion cycles in some industries helped broading the customer base and increased express volume shipped by each customer.

The services provided evolved as well. Nowadays they include physical shipment of packages, shipment tracking, on-time service guarantees, customs clearance expedition, warehousing services, andlogistics consulting services.
Moreover, in order to support the physical distribution network of each company, an extensive infrastructure devoted to customer service and information management have been created. To help schedule a pickup, track packages, assisted in billing and permitted the tracing information.

Nowadays, to be more efficient, shipping companies own vans, drivers, andaircrafts, they have hub airports, they employ the advanced logistic technology. Hub facilities are massive. For instance, UPS acquired a Boeing 767 cargo plane for $90 million.

In this sector it is naive to expect a loyalty from the customers since the main factors when deciding whether to ship an item express mail are: urgency of shipment and prices. From that point of view the customer will alwaysswitch to the fastest or cheapest one regarding the factor he values the most without a huge consideration for the company. Even though the carrier can try to influence the customer’s choice selection by paying attention to: the price, carrier reliability (on time), brand name, tracking capabilities, customer service, drop-off convenience, and hopefully habit. To attract new customers and makethem stick with their carrier, several companies offer some discounts based on volume.

As the top three carriers (Federal Express, UPS, and Airborne Express), who serve slightly more than 85% of the domestic express mail market, deliver a high volume of packages they are able to spread fixed costs over more units.

To survive, small company must find their differentiation in the industry....
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