The document summarizes the evolution of the small package express delivery industry from the 1970s to 2010. It describes how FedEx pioneered the industry through its hub and spoke system. UPS entered the market in 1982 and triggered a price war. Industry consolidation occurred in the 1980s as weaker companies were acquired. The 1990s saw growth of services like second day delivery and premium delivery. Globalization and information systems also expanded the industry internationally and increased tracking abilities. The ground networks grew in the 2000s though DHL exited the US market in 2008. FedEx and UPS remained the dominant players globally.

1. The Evolution of Small Package Express Delivery Industry
Presented By :
Nusrat Jahan Chawdhury
Roll No: 161401
Md. Hasan Imam
Roll No: 161408
Tahsin-ul-Abrar
Roll No: 161409
Md. Samsu Uddin
Roll No.161426

2. Welcome To Our Presentation

3. What is Express Delivery?
Express delivery typically involves a time specific constraint, traditionally on a 24-hour, 48-
hour or 72-hour basis or particular window of time that the customer chooses.
Fig: Key Stage of Typical Express Delivery

4. Express industry --At a Glance
Four companies – DHL, FedEx, TNT and UPS, also referred to as ‘integrators’ – are the
leaders of the global express industry

5. Small Package Industry Before FedEx
In 1973, 1.5 ton of freight shipped in US by surface transport and 2% of total shipped by
aircraft.
High cost of Airfreight down the clients demand.
 Cargo freight carried by passenger planes which increased operational coast which is
uneconomical.

6. Federal Express
 Founded in 1971 by Frederick W. Smith and started their operation in 1973.
Smith Finds Major Difference Between Package and Passengers.
Smith’s aim was to build a system that could achieve next-day delivery of small-
package airfreight.
Established a Hub and Spoke route System.
After 1973 FedEx quickly build up volume.
By 1976 it had an average daily volume of
19,000 packages, a fleet of 32 aircraft, 500
Delivery vans and 2,000 employees.
 It had initiated service in 75 cities.
Profit $3.7 million on revenue of $75
Million .
Fig: Hub And Spoke route System.

7. Industry Evaluation,1980-1986
 New Products and Industry Growth.
Introduce Letter Service which Guaranteed overnight Delivery Service.
Direct competition with USPS Priority mail.
Within 3 month their growth is 17000 letters per day.
1980s yearly growth is 30%.
Increasing Price Competition.
Entry of UPS in 1982 in overnight delivery market.
UPS purchase some freighters(Boeing 727-100s,DC-8) from flying tigers.
Introduce Next day air service in September 1982.
Cut the price at roughly half the price Federal Express was charging.
Federal Express announce overnight delivery at 10.30am.
In 1983 most of the major carriers include FedEx cut their price following UPS.
Three new services introduced by Purolator, Emery, and Gelco also offer lower price.
Between 1983 and 1984 Federal Express’s average revenue per package fall nearly
14% ,Emery 15%.

8. Industry Evaluation,1980-1986 (Cont..)
Increasing price Competition:
Customer Group together and negotiate for lower price.
UPS was main beneficiary during the price war.
Company Share %
UPS 15% gained
Federal Express 37% from 45%
Emery 14%
Purolator 10%
Airborne Express 8%
U.S. Postal Service 8%

9. Industry Evaluation,1987-1996
Industry Consolidation
In 1987 and early 1988 further price cutting for Electronic transmission (FAX machine).
Discounting problem created by weakest companies in the Industry.
Company Problem Acquired By/Declined.
Purolator Fail computer system.
Unable to track shipments.
Billed with late 120 days.
Emery.
Emery Unable to integration of
Purolator and fall into large
losses in 1988 and early 1989.
Freightways.
Freightways Acquired Emery for $478
million and found Emery’s
billing and tracking problem
and lost $100 million. Add
surcharge 4-7% in early 1989.
Decline CF/Emery/Puralator
combination.
Flying Tigers. In December 1988 by $880
million.
Federal Express

10. Industry Evaluation,1987-1996
In 1994 Market Share after Declined CF/Emery/Puralator Combination.
Company Name Share %
Federal Express 35%
UPS 26%
Airborne Express 9%
U.S. Postal Service 4%

11. Industry Evaluation,1987-1996
Pricing Trends:
Company Year Service Price Increase
UPS January 1989 Next Day Service 5%
UPS February 1990 Next Day Service 5.9%
Federal Express ,
Airborne and
Freightways
1990 Moderate
Increase.

12. Industry Evaluation,1987-1996(Cont..)
Product Trends
Second Day Delivery:
Airborne Express started Second Day Delivery in 1991.
Lower price than next day Delivery.
Federal Express made an average of $9.23 on second day deliveries.
Airborne Express accounted 42% of total volume in 1996 up from 37% in
1995.
Premium Service:
In 1994, UPS introduce premium service which guaranteed delivery packages
and letter by 8:30 a.m.
Premium Service Makes high profit margin.
In 1994, UPS price was $10.75 for letter delivery at 10:30 am
UPS price increase $10.75 to $ 40 for letter delivery by 8:30 am
Logistic Service:
The procurement, maintenance, distribution, and replacement of personnel
and materiel.

13. Industry Evaluation,1987-1996(Cont..)
Information Systems:
Ability to track a package
Invested in bar code Technology
Allows customer to schedule pickups, print shipping label and track delivery
online.
Globalization:
For the long-run future of the industry needs to increase Globalization.
Global Manufacturers deliver just in time for keeping down costs and fine
tuning production.
Company Market Share
DHL International 44%
Federal Express 21%
UPS 12%
TNT 12%
Others 11%
International Air Express Market Shares, 1995

14. Industry Evaluation,1997-2010(Cont..)
Pricing Trends:
 Unlike in recession in 1990-1991, there was no price war in 2001-2002.
In early 2002 UPS increase 3.5% in prices.
Others Company also increase the price following UPS.
Global financial crisis of 2008-2009, average revenue per overnight package fell
from $18.42 in 2008 to $16.02 in 2010.
Volume and pricing trends improve in 2011 am0ong with the economy and FedEx
rose to $18.08 by the fourth quarter of 2010.
Continue Growth of Logistic:
Company Share
DHL 5.5 %
UPS 3%
TNT 2.2%
 In 2006 TNT sold its logistic Business to Apollo Management L.P. for $1.88
billion.

15. Industry Evaluation,1997-2010(Cont..)
Expanding Ground Network:
 In the late 1990s and early 2000s all the main carriers supplementing their air
network with extensive ground networks.
Ground shipment are cheaper than air shipment.
Company Investment
UPS $700 million
FedEx $500 million

16. Industry Evaluation,1997-2010(Cont..)
Bundling:
Offering air delivery, ground package offering and logistic services to business
customer as a bundle.
Bundle Price is less than separately purchased price.
Entry and Exit of DHL:
DHL was acquired by Deutsche Post in late 1990s.
Deutsche Post also acquire several companies in the logistics business.
In 2003 DHL acquired Airborne Express(Truck Delivery) for $1.05 Billion.
DHL invested $1.2 Billion to upgrade the capabilities of assets acquired from
Airborne.
In 2006 DHL ran into integration problem.
Poor customer Service.
Missed delivery deadline.
DHL lost $500 million in the U.S in 2006.
In 2007 lost $1 Billion .
In 2008 DHL Exit in the U.S. market.

17. Industry Evaluation,1997-2010(Cont..)
U.S. and Global Market in 2010:
Company Overnight Express Deferred Air Ground
FedEx 54% 48% 22%
UPS 41% 52% 61%
USPS 6% 0% 16%
Market Size $14 billion $6 billion $34 billion
Source:WJ Green et al, ”Airfreight and Surface Transport Parcel Industry Primer”,Morgan Stanley,May 25,2011

18. Industry Evaluation,1997-2010(Cont..)
Comparing FedEx and UPS in 2010 :
FedEx UPS
Revenue $34.7 billion $49.5 billion
Net Income $1.12 billion $3.49 billion
Cash Flow $3.14 billion $3.84 billion
Capital Expenditure $2.82 billion $1.39 billion
ROIC 7.41% 19.39%
Source : Company Report

19. THE END