FedEx is one of the leading logistic companies globally. It enjoys this elite status alongside fellow giants like UPS, DHL, and Union Pacific. However, despite this superstar status, FedEx is not a perfect company and has its fair share of challenges.
This piece will break down the company’s Strengths, Weaknesses, Opportunities, and Threats to underline its actual position in the niche it operates in. Read on;
Overview of FedEx
This company was established by its current chief in 1971, Fred Smith. Today, it boasts the largest number of freight tons flown and is the fourth largest in terms of fleet size. It employs more than 300,000 people and records revenues of more than $40 billion annually.
Fred came up with the idea to form a delivery service when he was a student at Yale University. He submitted a paper suggesting a new concept where a logistics company would handle cargo from the pickup point until delivered to the receiver while having its airplanes, depots, delivery vans, and posting stations.
He established Federal Express in 1971 after graduating from Yale, with a $4 million inheritance from his father and $91 million raised through venture capital. He started operations at Memphis airport in April 1973 with a Falcon 20 jet aircraft that moved cargo across 25 cities. The first few years were tough as the company lost money despite raising a record amount of money in venture capital. It was only until 1976 that it recorded its first profit.
The air industry was deregulated in 1977, which allowed the company to make further inroads by buying more aircraft to increase the number of packages moved per day. It bought seven Boeing 727 aircraft, which increased profits significantly. The company went public in 1978, which raised capital for further expansion.
Today, FedEx has a fleet of more than 700 aircraft and continues to improve the individual collection of aircraft to hold more fuel-efficient models like the Boeing 757 planes.
FedEx Strengths
1. Brand Reputation
FedEx is one of the strongest logistics brands worldwide. Customers quickly recognize the company as a leader in the logistics niche, thanks to the time it has been operating and how long it has offered reliable services to customers over the years. Despite the entry of more players in this niche, FedEx remains top of mind for any customer looking for a solution to their logistics needs.
2. Global Reach
FedEx offers its services to customers across the globe, stretching to over 220 countries with more than 2,200 offices worldwide. In addition, it has 13 air express hubs, 1,950 operation express stations, and 39 ground hubs, among others. The main operation centers are in America, Europe, and Asia, while also having centers in the other continents. The extended reach gives the company an edge over the competitors who may not have the same reach. A lot of credit for this can go to the company’s extensive air and ground network, which help deliver to the customer regardless of the part of the globe they are in.
3. Excellent Marketing Strategies
FedEx’s reputation as being the standard for same-day delivery is not by accident. It has stamped its name on this through excellent marketing strategies, most notably by featuring in multiple feature-length films, such as the globally acclaimed movie “Cast Away” with Tom Hanks. This movie featured a FedEx employee who got lost on an island and survived for years, facing multiple challenges. In addition, FedEx has been very smart with its product placements over the years, which goes a long way to address customer pain points and trigger the right emotional cues. It also sponsors multiple sports teams and events while creating creative advertisements shared on Above and Below line mediums.
4. Smart Acquisitions and Partnerships
FedEx has a history of making some prudent acquisitions over the years to help improve its services or access to specific markets. The most recent one was the acquisition of ShopRunner Inc in 2020, an e-commerce platform that helps connect brands to online shoppers. It also acquired Flying Cargo Group in 2019 to help enhance its operations in Israel and nearby countries. Out of the lot, the headline acquisition was in 2016, when it acquired TNT Express, one of the largest delivery companies globally. The company delivers close to a million consignments through its network per day, raking in revenues of close to 6.9 billion Euros annually. This acquisition allowed FedEx to scale up operations by leveraging on the network established by this company.
5. Infrastructure Superiority
From the get-go, FedEx established itself as a company that offers deliveries through a network of planes, stations, and vehicles it owns. This gives it a substantial competitive advantage over companies that rely on others to provide such infrastructure. The capabilities facilitate it to deliver and pick up over 14 million shipments per day. It owns over 650 aircraft and more than 180,000 vehicles. Such huge fleets are challenging for any logistics company to match, and it continues to be a strength behind the company’s seamless operations.
6. Time-Critical Deliveries
FedEx is synonymous with time-critical deliveries and is regarded as one of the best in this aspect. This is partly due to how it controls its entire delivery chain, which allows it to offer time-critical promises to customers and deliver them. The aircraft fleet aids in this as it provides a direct and rapid mode of transportation for parcels that need the shortest delivery time. Many companies with dependencies along their delivery chain find it hard to replicate this kind of success on time-critical deliveries.
FedEx’s Weaknesses
1. High Operating Costs
One of the significant downsides of owning everything in your delivery chain is high operating costs. You need to factor in the cost of buying aircraft, maintaining them, and hiring the people required to handle them. All these can amount to huge expenses synonymous with FedEx and continue to bite into their annual revenues. For the financial year ending May 2021, their operating costs were $78.102 billion, a 16.92% increase over the previous year. This was a considerable increase, but nothing different, as this has been the trend from 2106. High operating costs affect a company’s ability to break even and eventually force them to increase their rates, which customers do not always receive well.
2. Dependence on the North American Market
While FedEx has a global reach, most of its revenue comes from the North American market. Over half of its revenue is generated from the North American market, which is a huge risk, considering how things globally can quickly change. The global economic, political, social, and environmental situation can never be predicted. FedEx should make more inroads into other markets to help diversify and cushion itself from risks associated with its dominant market.
3. Limited Diversity
FedEx started as a logistics and deliveries company but has done little over the years to diversify its product and service portfolio. This is a huge concern today when global giants are making investments in specific niches to help boost their revenues and increase customer loyalty by finding more ways to solve their problems. Competitors in the same market can quickly diversify in other related niches and give FedEx a run for their money by taking up a significant chunk of their customers.
4. Bad Driver Etiquette
FedEx has over 140,000 delivery vans, and all these have their drivers. With such a vast driver network, it is hard to control their behavior and conduct on the roads. FedEx’s business model involves most of its staff members, most notably drivers, coming into direct contact with customers. Several cases of driver misconduct and bad behavior have been reported in recent years, which does not do the brand any good. Some of these drivers are hired on a seasonal basis to supplement the permanent workforce, and they might not be motivated to act right when going about their duties. Such representatives of the company facing the customers can quickly tarnish the brand, and FedEx should solve this issue.
5. Demand Fluctuation
The online retail world is no stranger to considerable shifts in demand, which remains a thorn in FedEx’s operations. Increased demand in certain seasons like the Christmas period forces the company to adjust its capacity to meet the demand. On the flip side, a dip in demand leaves many resources unutilized, which is not good for revenues. As such, FedEx continues to face these blips and finds it hard to adjust its capacity, owing to how it owns most of the elements in its delivery chain.
FedEx’s Opportunities
1. Increase Operations in New Markets
FedEx can leverage its brand position to venture into new markets. Specific areas that it can benefit by increasing operations include Asia, Africa, and Latin America. These areas have taken up eCommerce in recent years, and FedEx can use its experience and resources to position itself as the go-to option for customers in these areas.
2. Integrate E-commerce
The e-commerce world is growing with each passing day, and FedEx can use this to strengthen its position as one of the leading delivery services globally. Experts project that the global e-commerce space will take up about 21.8% of the total retail sales in 2024. This has also been fueled by the COVID-19 pandemic that limited physical contact and forced many people to resort to e-commerce stores. FedEx can take this advantage to grow in the e-commerce space.
3. Diversification
FedEx has the resources needed to diversify into new strategic niches and increase its competitive advantages. Global giants in the technology space lead this way, and it is a proven strategy to accelerate growth and stamp leadership in any industry. The logistics space is full of giants and other small players that make the whole space saturated and hard for FedEx to achieve any meaningful growth. The company should strongly consider investing in different niches.
4. Digitizing Operations and Leveraging on Technology
While FedEx is a legacy logistics company, it cannot afford to stay this way in an age where companies are going digital. It has done well to improve operations by using technology, but there is room for improvement in this aspect. The company should go over and beyond to invest in digital solutions that will put it ahead of the competition and make it more efficient.
FedEx’s Threats
1. Increased Competition
FedEx is not the only company offering delivery services, as it faces competition, most notably from UPS. UPS often takes the top spot amongst delivery companies in this region, even though it runs on a different business model from that of FedEx. UPS has superiority over ground-based packages, whereas FedEx has the edge over air-lifted, time-sensitive packages. Other small entities are also taking up small chunks of the market, while major players that relied on FedEx for its services, like Amazon, set up their delivery networks.
2. Fuel Prices
Fuel prices are often volatile, a massive threat to FedEx that consumes a lot of fuel. The company already has high operating costs, and a slight rise in fuel costs can easily balloon these costs. Furthermore, it is hard for the company to develop an accurate pricing model required to break even if fuel, a significant part of it, keeps on fluctuating.
3. Seasonal Workforce
FedEx is forced to employ seasonal workers to meet demand during peak season. The customers do not understand the difference between permanent and seasonal workers as they all take them as representatives of FedEx. The continued problems that some of these temporary workers bring to the company can slowly affect the reputation and force some customers to look at the competition.
4. Anti-global Movement
Many countries have an anti-global movement that tries to promote local entities. This is a huge threat to FedEx, which offers its services across multiple countries. The movement can push customers from seeking FedEx’s services and encourage them to look for more localized companies.
Frequently Asked Questions
Question: What strategy does FedEx use?
Answer: The FedEx strategy is to operate collaboratively, compete collectively and innovate digitally to give the company an edge. This is backed by a broad portfolio of services designed to meet customer needs.
Question: Is UPS better than FedEx?
Answer: Both these companies operate on different business models, which make them good at different things. UPS specializes in on-ground delivery services and has a large fleet of vehicles. On the other hand. FedEx specializes in air express freight with twice the number of planes UPS has. This implies that FedEx offers cheaper rates on international shipping while UPS on domestic deliveries.
Question: What makes FedEx unique?
Answer: FedEx has a unique proposition and has established brand value over the years. Its customers recognize it as the go-to company for reliable and timely package delivery services. They have proved to be the industry leader in delivering time-sensitive packages over the years, which makes them different from the rest.
Bottomline
FedEx has its share of good and bad, despite having a solid position in the logistics niche in the United States of America. Its specialization in time-sensitive deliveries and limited dependencies give the company a lot of control, which is always good. However, it needs to diversify and look at other opportunities to help spearhead its growth, which has plateaued recently.
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