Porter’s Five Forces Analysis of United Parcel Service (UPS)
|Name||United Parcel Service|
|Industry||Transportation and Logistics|
|Headquarters||Atlanta, Georgia, United States|
US$ 100.33 billion,2022 FY December 31st
US$ 11.54 billion,2022 FY December 31st
|Competitors||Deutsche Post DHL Group,FedEx|
United Parcel Service, Inc. is a shipping and logistics service Provider Company with U.S. Domestic Packing Service, International Packaging Service and Supply Chain Providers.It was founded by James E. Casey and Claude Ryan in 1907.UPS gave a record revenue of above US$ 100 Billion in 2022 in it’s history with a record height of 13.8% margins from Operations in the previous 15 years.It ranked on number 100 on the Forbes Global2000 list and number 34thon the Fortune500 list as of FY 2022
UPS holds a head count of 500,000 employees.
Porter’s Five Forces Analysis
Porter’s Five Forces Analysis is used to determine the company’s competitive position reference to it’s Industry for better strategizing the companies’ operations for higher profits and less competition, defined by Professor Micheal E. Porter in 1979,at Harvard Business School.
UPS Rivalry among Existing Competitor
- United Parcel Service: The firm works in the ‘Courier Services’ industry, which comprises postal and courier services such as letter and parcel pickup, transit, and delivery under different arrangements. Delivery and messenger services are also available locally. UPS revenue has increased from US$53.11 billion in 2010 to US$97.29 billion in 2021 and its net income for last three year is US$12.890 billion, US$1.34 billionUS$4.44 billion in 2021, 2020 and 2019 respectively, that is highest among all its competitors worldwide.
- Competition with Existing Rivalry: UPS hold highest market share of 37% in the U.S. while Fedex is following by holding 33% of the US market volume, UPS Postal Service 17%, Amazon holding 12% and others holding 2% of the market share declared by Statista on Nov 21, 2022.
- Deutsche Post DHL Group:It is a German mail service and one of the world’s major international courier firms. DHL supply chain & global forwarding, one of its companies, was the world’s biggest third-party logistics company in 2020, with revenues of more than US$28.4 billion.
The Deutsche Post DHL Group works in a variety of global logistics submarkets, but in 2017, it controlled more than 40% of the Asia-Pacific and European courier and local delivery service provider markets.
Since its inception, Deutsche Post AG has acquired a number of national and international companies, notably DHL International and Street Scooter GmbH, the German market leader in light commercial electric vehicle sales until 2019. The Deutsche Post DHL Group generated the majority of its income for 2021 in Europe, with approximately €21.5 billion coming from its activities in Germany and €23.7 billion coming from the rest of Europe.
The firm distinguished itself from the majority of its top competitors by diversifying its operations throughout the logistics industry. Kuehne + Nagel, the major rival of the Deutsche Post DHL Group in third-party logistics, ocean forwarding, and airfreight forwarding, did not, for example, provide postal and parcel services.
Deutsche postworldwide annual revenue has increased from €60.44 billion in 2017 to €81.74 billion in 2021 and its net income for last three year is €5.42 billion, €3.18 billion €2.22 billion in 2021, 2020 and 2019 respectively.
- FedEx: It is an American international courier delivery service firm best known for its overnight shipping and delivery services. FedEx, which was founded in January 1998, has evolved to become one of the world’s leaders in courier and local delivery services. FedEx’s diverse operational sectors include overnight courier services, FedEx Express, FedEx Ground, FedEx Freight, FedEx Custom Critical, and FedEx Services.
FedEx Corporation’s portfolio has expanded further, with total assets approaching US$86 billion in 2022. FedEx bought TNT Express, a Dutch-owned international courier delivery service provider, in May 2016 in order to expand its operations in Europe. FedEx’s main competitors in parcel delivery are the United Parcel Service (UPS) and the Deutsche Post DHL Group. UPS and DHL will produce around US$97.29 billion and €81.74 billion in revenue in 2021, respectively.
FedExworldwide annual revenue has increased from US$39.30 billion in 2011 to US$83.96 billion in 2021 ,its net income for last three year is US$5.22 billion, US$1.28 billion and US$539 million in 2021, 2020 and 2019 respectively.
UPS Threat of New Entrants
- Capital Investment:It will deter new entrants because operating as a top player in the industry requires a significant capital investment. According to Forbes Global 2000 ranking list, the capital investments of the top players are as follows: Deutsche Post, United Parcel Service, FedEx has total assets of US$75.14 billion, US$69.41 billion and US$84.11 billion respectively.
- Worldwide Monopoly:In 2021, the top three logistics players in the world were famous for air couriers, with United Parcel Service receiving the greatest revenue of US$97.2 billion and these company have monopoly to charge the customer for service due to their global operations.
UPS Bargaining Power of Suppliers
- Major players in the market: They have enormous influence over their suppliers because they are the industry leader. USP operates in over 220 countries and delivered an average of 25.2 million packages per day in 2021, in total 6.4 billion goods annually.
- Diverse Supplier Portfolio – Policy of “DEI”-Diversity, Equity and Inclusion: UPS follows the policy of DEI as mentioned in their Annual Report 2022 for maintain their diverse supplier portfolio.
- Efficient Supply Chain: USP owned one of the largest airplane and vehicle fleet which provides UPS a good base for efficient supply chain solutions and strong bargain power over it’s other supplier portfolio.
UPS possess 291 Owned and Finance Leased from Boeings and Airbus (52 from Airbus) while 295 other aircrafts on Operating Lease form other suppliers. Boeing and UPS also has a long term signed contract for business execution.
UPS Bargaining Power of Buyers
- Large and diverse Customer base:UPS has the greatest client base in its sector, which greatly reduces its consumer negotiating power. It delivers items for 1.7 million shipping customers and 11.8 million delivery customers.
- Consumer Satisfaction index:UPS has the largest market share in the United States, accounting for 35% of the market. Customer service is critical for a company’s ability to create income and thrive. UPS achieved a score of 75 on the American Consumer Satisfaction Index in 2021. FedEx scored a better grade as well, while the US Postal Service received a 73.
UPS Threat of Substitute Products or Services
- Mode of transportation by train: If we review only freight revenue of all companies worldwide, UPS generated US$72.59 billion, FedEx generated US$70.46 billion and China state railway corporation generated US$46.37 billion in 2021, and Deutsche Post to US$26.78 billion; in this way some state owned or other mode of transportation may give tough competition in coming years.
- Mode of transportation by Sea:Because transporting big goods by plane is inefficient, it is reserved for rail freight or huge container ships. The world’s largest container ships can transport nearly 22,000 twenty feet standardized cargo containers. Intermodal containers are containers that allow physical commodities to be transported across many modes of transportation. While releasing significant volumes of CO2, these megaships are the most efficient form of transportation per unit weight of cargo. Each, seaborne boats move around 11 billion tons of goods, compared to 60 million tons by air.
- Competitive advantage across all segments: UPS has observed strong growth in revenue across its all segment; domestic, international and Supply chain solution. In Domestic packages its revenue increase from US$46.49 in 2019 to US$60.31 in 2021, In International packages its revenue increase from US$14.22 in 2019 to US$19.54 in 2021 and in supply chain solutions its revenue increase from US$13.38 in 2019 to US$17.43 in 2021. This strong hold across all segments reduces the chances of substitute market players
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- World’s leading companies in the logistics industry in 2021, based on sales(in billion U.S. dollars) at Statista
- Leading freight transportation companies worldwide in 2021, based on freight revenue(in million U.S. dollars) at Statista
- FedEx Corporation – statistics & facts at Statista
- Deutsche Post DHL Group – statistics & facts at Statista
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- FedEx income statement from 2017 to 2021, WSJ
- FedEx Corporation’s revenue from FY 2009 to FY 2022(in billion U.S. dollars) at Statista
- Statista (Nov 21, 2022) Market share of the leading couriers and local delivery providers in the United States (U.S.) in 2021, based on revenue| Statista. [Online].Available at Statista