Risks in Transportation and Logistics Industry (FedEx)

By Abhilash Bommaraboina and Arul Dass of PGDRM Batch July’20-21

Brief about FedEx

FedEx (Federal Express) Corporation is an American Multinational Delivery service company located in Memphis, Tennessee.​

Founded: 1973​

Founder: Frederick W. Smith​

Products: Post delivery, Express mail, freight forwarding, third party logistics​

Number of employees:  over 6,00,000​

Revenue:$84 billion(2021)

Key Performance Indicators (KPI’s)​

Business Model

Risks in Logistics Industry​

Strategic risks​

Competitor​

Intensive competitive environment driven by a number of companies competing in one or more segments of the industry with limited firms having a global network. ​

•  As per statistca, the market share of DHL is 39%, FedEx is 30%, UPS 22% and others 9%.​
• Split with Amazon.​

 Mergers and Acquisitions​

Improper M&A will lead to overpaying or the inability to properly integrate the two companies. M&A can affect a company in a number of ways, including its capital structure, stock price, and future growth prospects​.

•  FedEx acquired TNT in 2016, worth 4.4 billion euros (almost $5 billion at the time) ​
• FedEx Corp. is planning to slash as many as 6,300 jobs in Europe​

Slowdown in economy​

Economy backed by decreasing demand for commodities and a drop in exports and imports, negatively affecting shipping business.

• During 2019 weakness in the global economy adversely affected Fed Ex results of operations, and this weakness continued during 2020.

Change in Customer Preference​

Uncertainty in customer demand due to changes in shipping and freight market from general economic fluctuations, decline in international freight demand and increasingly severe competition.​

•  In 2019, FedEx saw a customer preference for slower, less costly shipping services.​

Strategic Decision risk​

Not able to successfully implement business strategy and effectively respond to changes in market dynamics will adversely affect future financial results.​

• Aircraft fleet modernization, hub modernization and expansion at FedEx Express and expansion of FedEx Ground residential delivery operations to seven days per week.​

Operational risks​

IT Risk​

IT risks relating to malfunction or disruption in the operation of the systems, or a security breach, could adversely impact the company’s ability to compete.​

• FedEx uses information technology to receive package level information in advance of physical receipt of packages, to track items that move through their delivery systems, to efficiently plan deliveries, to execute billing processes, and to track and report financial and operational data.

Fluctuation in fuel prices

Rising cost typically forces carriers to either raise prices or suffer financial losses​.

•  FedEx must purchase large quantities of fuel to operate our aircraft and vehicles, and the price and availability of fuel is beyond our control and can be highly volatile. In addition, our purchased transportation expense may be impacted by fuel costs​.

Human Resource​

Operational risk resulting from disruption by labour unions, strikes, work stoppages, driver shortage.

• Except pilots at FedEx Express and​ drivers at one FedEx Freight,FedEx U.S. employees have thus far chosen not to unionize but certain of FedEx Express’s non-U.S. employees are unionized, and a union has been certified to represent owner-drivers at a FedEx Freight Canada, Corp. Facility.​

Supply chain Disruption​

Exposure to supply chain disruptions due to lengthier supply chains, harsh weather conditions and uncertainty due to varying international operating procedures​.

• Prolonged interruptions or disruptions at a key location such as Memphis World Hub or one of our information-technology centers could delay in dispatch of goods​.

Global Aviation or other transportation rights​

International Aviation laws and independent  country laws will impact daily operations in transportation industry​.

•  FedEx has to obtain the permission of foreign governments to provide specific flights and services. Failure to obtain or maintain aviation or other transportation rights in important international markets could impair our ability to operate our networks.​

Customer Experience​

Customer dissatisfaction may lead to loss of customers and eventually causes financial and reputational losses​.

• All the other risks will eventually impact customer satisfaction, improper management of inventory, delay in dispact.​

Financial risks​

•  Volatility in commodity and fuel prices leading to instabilities in revenue streams and operational costs of companies.​
•  Financial risks relating to credit risk, liquidity and refinancing risks can adversely hamper a company’s liquidity. ​
• Fluctuations in freight rates in container liner business due to significant structural imbalances between supply and demand. ​
• The risk of adverse movements in interest rates and exchange rates. ​
•  Owing to the capital intensive nature of the industry, inaccuracy in forecasting future capital requirements can affect liquidity and access to capital​

 ​Compliance risks​

• Aviation Laws and Regulatories​
• Shipping Regulatories​
• Cyber security laws​
• Environmental Regulatories​
• Cross border trade policies​

SWOT Analysis​

Disclaimer

This report has been produced by students of Global Risk Management Institute for their own research, classroom discussions and general information purposes only. While care has been taken in gathering the data and preparing the report, the student’s or GRMI does not make any representations or warranties as to its accuracy or completeness and expressly excludes to the maximum extent permitted by law all those that might otherwise be implied. References to the information collected have been given where necessary.

GRMI or it’s students accepts no responsibility or liability for any loss or damage of any nature occasioned to any person as a result of acting or refraining from acting as a result of, or in reliance on, any statement, fact, figure or expression of opinion or belief contained in this report. This report does not constitute advice of any kind.

Get the full research study here: Risk in Transportation and Logistics Industry (FedEx) – Abhilash B and Arul Dass

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