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- 1. Courier Industry inthe Age of Technological Revolution
- 2. Agenda Genesis: Where it All Began CurrentState of the Industry Industry AttractivenessFedEx’s Position Finish
- 3. 1. Genesis: Whereit All Began
- 4. 1775 – Benjamin Franklin,first Postmaster General under Continental Congres 1973 – Fedex began operations 1956 – M. McLean Containerized Cargo Shipping 1911- First Experimental Flight 1920 – First transcontinental airmail 1969 – DHL invented the international air express industry 1984 – Fedex going global 1907-1913 Messenger Service 1980 – UPS expand air shipment 1999-2000 Global Evolution 1929- UPS open United Air Express Sources: History of UPS, Time Line Fedex, DHL,USPS Where is the industry going...
- 5. Delivery Location 130 Private carrier Common carrier Fullfillment center Expedited service path Hub120c Hub 120a Hub 120b Designed to cut delivery times Predict what buyers are going to buy before they buy Ship products in their general directions Patent 8,615,473 B2 December 24, 2013 New Way of Thinking New vision of doing business Source: The Washington Post
- 6. Global Geographical Segment UPS 30% DHL 16% FedEx 50% Americas UPS 23% DHL 41% FedEx 10% TNT 14% Others 12% Europe UPS 10% DHL 40% FedEx 21% TNT 6% Others 23% AsiaPacific UPS 3% DHL 49% FedEx 9% TNT 10% Others 29% MEA Sources: Financial ST: FedEx, UPS, DHL TNT
- 7. Products & ServicesSegmentation 4.90% 12.40% 12.50% 70.20% Product & Service segmentation Messengers and local deliveries Domestic air transit deliveries International air transit deliveries Ground deliveries Source: ibisworld The segment of ground deliveries have not fluctuated in the past five years. Industry operators include bus lines, messenger services, car services, food product delivery, bicycle courier companies, specialized bank documents. Consumers move from express services to more affordable ground services. 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% UPS DHL FedEx United States Revenue International
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- 9. Customer Service Options Source:10TopTenReviews
- 10. 2. The CurrentState of the Industry Genesis: Where it All Began Current State of the Industry
- 11. Growing Industry Revenue 38.2Billion Operational results 4,371 Number of employees 398,300 Number of vehicles 94,946 Number of aircraft 523 Number of company representatives 220
- 12. Tight Competition inCEP 2 $0 $10 $20 $30 $40 $50 $60 2011 2012 2013 2014 2015 2016 MILLION REVENUE UPS REVENUE FEDEX REVENUE DEUTSCHE POST AG UPS FDX Operating Margin 11.97 8.86 Net Margin 7.34 5.36 EBITDA Margin 15.59 14.42 ROIC 20% 13% ROE 78% 17% Debt/EBITDA 1.57 0.79 Debt (adj. for op. 1.86 2.96 Leases)/EBITDA 1.96% 6.01% 3.76% 4.55% 8.50% HUB GROUP UPS FEDEX Industry S&P 500 Net Margin 5 Yr. Avg. Sources: CSIMarket, STATISTA
- 13. Global vs. U.S. GDPgrowth in 2016 - expected to expand 2.5% in the U.S. and 3.4% globally E-commerce growth & Technology Deployments Profits CEP $- $50 $100 $150 $200 $250 $300 2011 2012 2013 2014 2015 BILLIONS MARKET SIZE GLOBAL US 0 50 100 150 200 250 300 1 2 3 4 5 THOUSAND TOTAL EMPLOYEES GLOBAL US
- 14. Positive Indicators Revenue growth3.2X UPS 4.1X FEDEX 0.1X DHL decline Operating Profit Growth UPS & FEDEX decline, DHL increase 2011-2016 Compound Growth: 2.38% Forecasted 2016-2021 Compound Growth: 2.83% $0 $10 $20 $30 $40 $50 $60 2011 2012 2013 2014 2015 2016 MILLION PROFIT MARGIN UPS REVENUE UPS PROFIT FEDEX REVENUE FEDEX PROFIT DEUTSCHE POST AG REVENUE DEUTSCHE POST AG PROFIT 4 Sources: Financials UPS, Fedex, TNT, DHL, Yamato
- 15. The BI declined5.5%, still outperformed the S&P 500 2016 GDP forecast to 1.7% from 1.8% Deutsche Post down 22.3% FedEx also down 12.5% Decline in Express Stocks Milder than Broader Market Weakness Source: Bloomberg Report
- 16. Express Carriers' P/EDrop Mirrors Decline in Broader Market 13% median EPS gain on 4% higher revenue in 2016 UPS trades P/E ratio of 18.5x 6% premium to the S&P 500 FedEx trades at 11.4% discount Deutsche Post trades at a 10% premium to Germany's DAX Index 6 Source: Bloomberg Report
- 17. Stock Performance inthe CEP Industry Worst performing Stocks Yamato Holdings Co -6.09% Deutsche Post Ag -5.91% Expeditors International of Washington Inc. -2.93% Royal Mail PLC -0.99% Atlas Air Worldwide -0.84% Best performing stocks ATSG 54.56% TNT Express 15.56% FedEx Corp. 9.07% Forward Air Corp 6.51% UPS 1.68% 7 Source: Bloomberg Report
- 18. Profitability Decline ROA decreased2.83 %, due to deterioration of net income -49.93% ROE decreased compare to previous year to 7 % Sources: Fedex; Yahoo Finance
- 19. Global Consumer SpendingGrowth: a Potential Opportunity for the Industry Data Source: Euromonitor International Industry revenue is expected to grow due to increasing demand from consumers. As spending increases, more items will need to be delivered using courier services. - A good portion of consumer spending goes to online shopping. - Businesses that offer services to consumers also need more goods to be shipped Manufacturing goods, supplies, materials, etc. $200 $210 $220 $230 $240 $250 $260 $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50 2010 2011 2012 2013 2014 2015 2016 2017 2018 Billiom Trillion Industry Revenue - World World Consumer Expenditure - World
- 20. Changes in WorldTrade Volume to Impact Revenue Growth Data Source: IBIS World The global economic slowdown caused the total world trade to decline in 2009, as the largest economies in the world went into recession. Consequently, demand for the transportation of packages and parcels diminished, causing industry revenue to plummet in 2009. As the economy recovered, world trade bounced back to positive numbers and has been growing steadily but at a low rate 0 5.4 3.7 -12.8 7.1 6.5 -0.3 0.8 1.1 0.7 0.7 15.72 17.42 14 -19.3 19 18.87 1.57 3.24 1.75 2.8 2.89 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 % Revenue Growth % Change in world trade volume
- 21. Global E-Commerce MarketGrowth Boosts Package Volume Source: Bloomberg Growth in e-commerce in various other economies such as Europe, India, and China opens up new opportunities for international players such as FedEx and UPS. Retailers everywhere want to expand their operations to include online shopping - This will result in higher demand for package delivery
- 22. Tech Innovation GoesGoth Ways Challenges Opportunities No oil needed! Digital Documents Image Sources: Google Images Fastest route Pocket PC, e-sign
- 23. Growing Consumer Expenditure • Increases demand Growing Trade Volumes •Increases demand • Enhances supply-chain Increase of Internet Usage • Drives e-commerce growth • Decreases need for couriered documents • Improves customer relationship • Lowers costs External Trends Matter in Terms of Revenue Growth Data Source: IBIS World
- 24. Reaching a Plateau Source:IBIS World - Mail revenue 2012-2014 Bubble size indicates 2014 revenues in US$ Mail Volume 2012-2014 Revenue by type of services: 2007 to 2014 Ø From 2013 to 2014 mail volumes declined by a mere 1.6% Ø Global compound annual growth rate since 2010 is 2.6% Ø All countries are experiencing a decline in transaction mail; however, there are some regional differences. Ø In 2007 mail comprised 55% of total revenue while in 2014 it went down to 44% Sources: Accenture, News Reports, Financial Times Mail Parcels Logistics Financial Services Retail Others
- 25. Recalibrating Source: IBIS World - Parcelrevenue 2012-2014 Bubble size indicates 2014 revenues in US$ Parcel Volume 2012-2014 Global parcel market volume (millions) and growth rate 2009-2014 Ø From 2013 to 2014: healthy parcel volume growth of 5% Ø Global compound annual growth rate since 2009 is 6% Ø Overall, revenue and volume growth is relatively balanced across companies Ø The growth in parcels delivery is driven by eCommerce Sources: Accenture, News Reports, Financial Times
- 26. Invest in ParcelsOpportunity Source: IBIS World Parcel volume growth, revenue growth and yield by performer group: 2012 to 2014 Ø The top 10 performers in the industry have achieved significantly better volume and revenue growth Ø Clear correlation emerges between volume, revenue growth and high performance Sources: Accenture, News Reports, Financial Times
- 27. B2C Implications Source: IBISWorld UK Cyber Monday – 2014 China Singles Day – 2013 39% 86% 166 million 10x More parcels than previous Monday More cross-border shipments than previous year Shipments across China Greater than average daily shipping volume Sources: Financial Reports, Metapack, Accenture, News Reports Ø Although B2C is driving growth; it is also exposing delivery companies to more volatility in demand Dec 2013: “UPS admits it was unprepared for the late surge in online holiday shopping.”
- 28. Competition Basis Sources: IBISWorld, Morgan Stanley, FedEx Annual Report, UPS Annual Report, AllBusiness, PAConsulting Ø Competition level of CEP industry is HIGH Ø Prompt delivery is crucial Ø Bigger fleet and brand recognition will help gain market share Ø Long-term contracts ensure constant stream of revenue
- 29. Price vs. Reliability Sources:Prestashop, USPS UPS, FedEx Ø USPS focuses on being the low-cost provider; however, the reliability is it’s Achilles Heel Ø UPS can be slightly more expensive than FedEx Ø Both UPS and FedEx take delivery time very seriously
- 30. Head-to-Head Competition Source: Stamps.com Packages shipped from threecities to all shipping zones Total number of scans per package Average total days to delivery Average cost to ship a 2 lb. package Ø 144 packages shipped using the USPS, FedEx and UPS Ø From: Chicago, Los Angeles and Virginia Ø To: all 8 shipping zones Ø Earned discounts and fuel surcharge were added for FedEx and UPS Source: Stamps
- 31. 3. FedEx’s Position Genesis: Whereit All Began Current State of the Industry FedEx’s Position
- 32. Superior financial returns Meeting customer requirements Rewarding relationship with employees, partners and suppliers Safetyfirst Ethical and professional standards ’s Road to Success Source: Investor Relations. FedEx.
- 33. PSP (People –Service - Profit) policy A belief that motivated people provide necessary professional service to ensure profits and continued growth A belief that value could be added to firm’s operations if they were to deliver on an overnight basis A belief to present an IT as a strategic and sustainable competitive advantage rather than order taking function or a cost element Ranked #8 on the World’s Most Admired Companies Source: Human Resource Management: Best Practices at FedEx Corpoation. FedEx. People First Leadership Speed and Reliability Information Technology
- 34. $39,304.00 $42,680.00 $44,287.00 $45,567.00 $47,453.00 20112012 2013 2014 2015 Total Revenues 2011 2012 2013 2014 2015 $2,378.00 $3,186.00 $4,434.00 $3,815.00 $1,867.00 Operating Income ü Increase in revenues by 4% from 2014 and 7% from 2013 ü Revenues well over industry average of $32,400 ü Increase in operating expenses: volume-related growth in employees salaries, benefit plans and transportation expenses ü Capital expenditures: investing in long term assets and acquisition of TNT and GENCO logistic companies ’s Income Statement Source: FedEx Annual Report 2015. FedEx.
- 35. $0.11 $0.08 $0.16 $0.31 $0.48 2011 2012 20132014 2015 Debt / Equity ratio 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 FedEx UPS 0.48 4.54 Debt / Equity ratio ’s Balance Sheet ü Even though D/E ratio is growing, FedEx operates with less risk for future earnings ü High D/E ratio indicates that the firm has been borrowing aggressively to finance its growth and as a result may experience a burden of additional interest expense Source: Long Term Debt. CSIMarket.
- 36. $90.96 $87.13 $94.75 $142.51 $172.09 2011 2012 20132014 2015 Stock performance 0 10 20 30 40 50 60 UPS FedEx 19.71 56.21 P / E Ratio and its Market Source: FedEx Competitors. Yahoo Finance. ü Investors believe in FedEx positive future performance ü Investors willing to pay more for the company’s shares
- 37. Continually seeking newways to market to its core audience of business executives who tend to be huge sports fans ’s Strategic Partnerships Source: For Building Ties to a Sport a Platform Worth Every Penny. The New York Times. ü Golfers from around the world ü FedEx field – expensive marketing initiative that was paid off in the eyes of marketing executives ü Events that broadcast worldwide
- 38. Alternative Methods of Delivery Retailgiant removed the middle firm in the supply chain and started offering their own same day delivery Offers same day delivery services by contracting personal drivers, bikers and even taxi Traditional firms will have to develop strategies to compete against companies that deliver quickly and after business hours Source: Walmart Tests same day delivery. USA Today.
- 39. ü Anticipation ofroller coaster in transportation costs ü Uncertainty of oil prices and its influence on transportation costs in the next ten years ü Contracted couriers add flexibility to customers ü Contracted couriers save on overhead of keeping drivers and delivery professionals on staff Operating and Labor Costs Source: This Time, Cheaper Oil Does Little for the US Economy. The New York Times.
- 40. 4. Further Adaptationof Technology Genesis: Where it All Began Current State of the Industry Industry Attractiveness FedEx’s Position
- 41. Digital & Electronic Documents Few Choices todeliver non- document Parcels Threat of New Entrants Well-known Reputation Loyal Customers Differentiation High Initial Investment Regulations Industry Rivalry Pricing Innovation Supplier Power Oil Prices Labor Cost Buyer Power Price Sensitivity Knowledgeable Power Selective Market Lower Switching Cost Substitute Competition Mature Industry Requires Differentiation Sources: IBIS, CSIMarket, MarketResearch Low threat of New Entrants and Substitutes makes Industry “Relatively Attractive”
- 42. Change in theSociety Source: IBIS World other B2B vs. B2C vs. revenue breakdown Ø Realignment of volume mix from B2B to B2C by year 2020 Ø B2C contribute significantly less to the bottom line Ø The majority of revenue is generated by B2B parcels Ø High performers deliver better B2C profits and stimulate B2B growth Source: Accenture Analysis other B2B vs. B2C vs. volume breakdown 2013 2020 2013 2020 2013 2020 2013 2020 2013 2020 North America Western Europe Asia Pacific 2013 2020
- 43. Rise of theDigital Consumer Source: Accenture Analysis
- 44. As More Shoppingis Done Online, Faster Delivery is Required Combined “buy online” paths amount to 60% of chosen paths to shop 5% 7% 9% 11% 13% 15% 40% Buy online, pick up in store Search online and in store, buy in store Search online and in store, buy online Search in store, buy online Search online, buy in store Search in store, buy in store Search online, buy online Share of respondents Most Used paths to shop Shoppers in the US are sensitive to the time it takes for the item to be delivered • Same day delivery and one/two day delivery are the preferred delivery options users are willing to pay 61% 58% 43% 38% 37% 15% 7% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% Same day delivery One/two delivery Specific time frame for delivery pick up from a convenient location 90-minute delivery for store-based purchase Locker/box collection Other Shareofrespondents Preferred methods of delivery Sources: PWC, Statista
- 45. A Strategy Fitfor the Future Radical ideas rely on a combination of technology change and business model innovation Convergence represents an opportunity to define the direction of industry by harnessing the power of both technology change and business model innovation. Invest in R&D: • simplified orders • Perfect fit packaging with customized tracking chip that facilitates real time tracking Utilize Drone technology for faster, lower cost deliveries From customer oriented service to customized service Localized, urban delivery models NewClosetoexisting Technologychange Close to existing New Business model change Breakthrough ideas Game changers Radical ideas New businesses Incremental ideas Protect/improve existing Breakthrough ideas Game changers
- 46. The Drone DeliveryBusiness Model Product purchased: • Within 10-20 miles of a warehouse. Order goes to warehouse: • Packaged and place in a special box. Drone picks up the order: • Comes down a conveyor belt and is held on by clamps. Off it Goes: • Using GPS co- ordinates to locate customers, the drone drops off the box and returns to warehouse. Challenges: Requires a distribution center within 20 miles of the delivery location Requires a 20 x 20 feet landing area for safe landing Current FAA regulation limits drone flights within line of sight and under 400 feet above ground. Potential Success: Medical samples/supplies delivery 3D printing Industry
- 47. FedEx - Acquisitions 1984: Firstacquisition – Gelco Express Internatiional 2012 Opek Sp.z.o.o. and TATEX Rapidao Cometa 1973 Federal Express is formed 2011 AFL Pvt. Ltd MultiPack 2015 GENCO 2014 Bongo International Supaswift 2006 ANC Holdings Limited Watkins Motor Lines 1998 Caliber System Inc. 2004 Kinko’s Inc. Parcel Direct Source: FedEx investors 1989 Tiger International Inc. 2007 Flying Cargo Hungary DTW Group & PAFEX 2001 American Freightways Corp.
- 48. Decrease global communityinvestement by only $1 million Reinvest in 100 new hires Cost per one new hire = 60K (salary) +10K (onboarding) = 70K per year Total 700K for 100 new hires Current employees – 265,000 (FedEx), 435,000 (UPS), 497,745 (DHL) . $200 Million Change from Customer-Oriented Service to Customized Services Global Community Investment by 2020 Benefits - exclusive contracts – increase in revenue - inside knowledge about customer needs - improvement Source: FedeEx, SHRM
- 49. Security Chip Prevent lossesof packages Technology Innovation R & D Decrease Cost of Insurance Real Time Tracking System Live Chat Support Access 24/7 Reduce Volume of calls during the day
- 50. Visibility Creates Transparency TheBest Life-Tracking Apps of 2016 For healthy eating & weight loss For exercise and fitness For sleeping For mood improvement For time management For goal – setting For mindfulness For budgeting Life-tracking apps of the future Source: TechCrunch
- 51. Simplify the Process Returntax become one of the easiest process Source: Itunes, TurboTax
- 52. New Technology Source: Google,TrackRBravo Track R BravoGoogle smart contact lens
- 53. New Packaging Era Sources:FedEx, Amazon, Ebay, Nike Air, custom package Etsy
- 54. Current State ofIndustry Strong steady financial growth Favorably economic trends Highly competitive environment Future Perspective Focus on customized services Simplified user software Custom fit packaging What Have We Learned
- 55. Genesis: Where it All Began CurrentState of the Industry Industry Attractiveness FedEx’s Position Finish 5. Q&A