presentation_spring 2016.pdf
TRANSCRIPT
Courier Industry in the Age of Technological Revolution
Agenda
Genesis:Where it All
Began
Current State of the Industry
Industry AttractivenessFedEx’s Position
Finish
1. Genesis: Where it All Began
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...
Delivery Location 130
Private carrier
Common carrier
Fullfillment center
Expedited service path
Hub 120c
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
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%
Asia Pacific
UPS 3%
DHL 49%
FedEx 9%
TNT 10%
Others 29%
MEA
Sources: Financial ST: FedEx, UPS, DHL TNT
Products & Services Segmentation
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
Product Segment
Source:10TopTenReviews
Customer Service Options
Source: 10TopTenReviews
2. The Current State of the Industry
Genesis:Where it All
Began
Current State of the Industry
Growing Industry
Revenue 38.2 Billion Operational results 4,371Number of employees 398,300Number of vehicles 94,946Number of aircraft 523Number of company representatives 220
Tight Competition in CEP
2
$0
$10
$20
$30
$40
$50
$60
2011 2012 2013 2014 2015 2016
MIL
LIO
N
REVENUE UPS REVENUE FEDEX REVENUE DEUTSCHE POST AG
UPS FDXOperating Margin 11.97 8.86
Net Margin 7.34 5.36EBITDA Margin 15.59 14.42
ROIC 20% 13%ROE 78% 17%
Debt/EBITDA 1.57 0.79Debt (adj. for op. 1.86 2.96Leases)/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
Global vs. U.S.
GDP growth 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
BILL
IONS
MARKET SIZE
GLOBAL US
0
50
100
150
200
250
300
1 2 3 4 5
THO
USAN
D
TOTAL EMPLOYEES
GLOBAL US
Positive Indicators
Revenue growth 3.2X UPS 4.1X FEDEX 0.1X DHL declineOperating Profit Growth UPS & FEDEX decline, DHL increase
2011-2016 Compound Growth: 2.38%Forecasted 2016-2021 Compound Growth: 2.83%
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$10
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$60
2011 2012 2013 2014 2015 2016
MIL
LIO
N
PROFIT MARGIN
UPS REVENUE UPS PROFIT FEDEX REVENUEFEDEX PROFIT DEUTSCHE POST AG REVENUE DEUTSCHE POST AG PROFIT
4
Sources: Financials UPS, Fedex, TNT, DHL, Yamato
The BI declined 5.5%, still outperformed the S&P 5002016 GDP forecast to 1.7% from 1.8%
Deutsche Post down 22.3%FedEx also down 12.5%
Decline in Express Stocks Milder than BroaderMarket Weakness
Source: Bloomberg Report
Express Carriers' P/E Drop 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
6Source: Bloomberg Report
Stock Performance in the CEP Industry
Worst performing StocksYamato 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 stocksATSG 54.56%
TNT Express 15.56%
FedEx Corp. 9.07%
Forward Air Corp 6.51%
UPS 1.68%
7Source: Bloomberg Report
Profitability Decline
ROA decreased 2.83 %, due to deterioration of net income -49.93%
ROE decreased compare to previous year to 7 %
Sources: Fedex; Yahoo Finance
Global Consumer Spending Growth: a Potential Opportunity for the Industry
Data Source: Euromonitor International
¾ Industry revenue is expected to grow due to increasing demand from consumers.
¾ 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
$50
2010 2011 2012 2013 2014 2015 2016 2017 2018
Billi
om
Trill
ion Industry Revenue - World World Consumer Expenditure - World
Changes in World Trade Volume to Impact Revenue Growth
Data Source: IBIS World
¾ The global economic slowdown caused the total world trade to decline in 2009, as the largest economies in the world went into recession. Consequently, demand for the transportation of packages and parcels diminished, causing industry revenue to plummet in 2009.
¾ As the economy recovered, world trade bounced back to positive numbers and has been growing steadily but at a low rate
05.4 3.7
-12.8
7.1 6.5
-0.30.8 1.1 0.7 0.7
15.72
17.4214
-19.3
19 18.87
1.57 3.24 1.75 2.8 2.89
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
% Revenue Growth % Change in world trade volume
Global E-Commerce Market Growth Boosts Package Volume
Source: Bloomberg
¾ Growth in e-commerce in various other economies such as Europe, India, and China opens up new opportunities for international players such as FedEx and UPS.
¾ Retailers everywhere want to expand their operations to include online shopping- This will result in higher demand for package delivery
Tech Innovation Goes Goth Ways
Challenges Opportunities
No oil needed!
Digital Documents
Image Sources: Google Images
Fastest route
Pocket PC, e-sign
Growing Consumer
Expenditure• Increases demand
Growing Trade
Volumes• Increases demand • Enhances supply-chain
Increase of Internet Usage
• Drives e-commerce growth
• Decreases need for couriered documents
• Improves customer relationship
• Lowers costs
External Trends Matter in Terms of Revenue Growth
Data Source: IBIS World
Reaching a Plateau
Source: IBIS World
-
Mail revenue 2012-2014 Bubble size indicates 2014 revenues in US$
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
Recalibrating
Source: IBIS World
-
Parcel revenue 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
Invest in Parcels Opportunity
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
B2C Implications
Source: IBIS World
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.”
Competition Basis
Sources: IBIS World, 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
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
Head-to-Head Competition
Source: Stamps.com
Packages shipped from three cities 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
3. FedEx’s Position
Genesis:Where it All
Began
Current State of the Industry
FedEx’s Position
Superior
financial returns
Meeting customer
requirements
Rewarding relationship with
employees, partners and
suppliers
Safety first
Ethical and professional
standards
’s Road to Success
Source: Investor Relations. FedEx.
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
$39,304.00 $42,680.00 $44,287.00 $45,567.00 $47,453.00
2011 2012 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.
$0.11 $0.08
$0.16
$0.31
$0.48
2011 2012 2013 2014 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.
$90.96
$87.13
$94.75
$142.51
$172.09
2011 2012 2013 2014 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
Continually seeking new ways 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
Alternative Methods of Delivery
Retail giant 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.
ü Anticipation of roller 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.
4. Further Adaptation of Technology
Genesis:Where it All
Began
Current State of the Industry
Industry Attractiveness
FedEx’s Position
Digital & Electronic
DocumentsFew Choices
to deliver 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”
Change in the Society
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
Rise of the Digital Consumer
Source: Accenture Analysis
As More Shopping is Done Online, Faster Delivery is Required
¾ 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 instore
Search online, buy online
Share of respondents
Most Used paths to shop
¾ 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 daydelivery
One/twodelivery
Specific timeframe fordelivery
pick up froma convenient
location
90-minutedelivery forstore-based
purchase
Locker/boxcollection
Other
Shar
e of
resp
onde
nts
Preferred methods of delivery
Sources: PWC, Statista
A Strategy Fit for the Future
¾ Radical ideas rely on a combination of technology change and business model innovation
¾ 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
New
Clo
se to
exi
stin
g
Tech
nolo
gy c
hang
e
Close to existing New
Business model change
Breakthrough ideasGame changers
Radical ideasNew businesses
Incremental ideasProtect/improve existing
Breakthrough ideasGame changers
The Drone Delivery Business 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:¾ Requires a distribution center within 20 miles of the delivery
location¾ Requires a 20 x 20 feet landing area for safe landing¾ Current FAA regulation limits drone flights within line of sight and
under 400 feet above ground.
Potential Success:¾Medical samples/supplies delivery¾3D printing Industry
FedEx - Acquisitions
1984: First acquisition – 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.
Decrease global community investement 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
Security Chip Prevent losses of
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
Visibility Creates Transparency
The Best 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
Simplify the Process
Return tax become one of the easiest process
Source: Itunes, TurboTax
New Technology
Source: Google, TrackRBravo
Track R Bravo Google smart contact lens
New Packaging Era
Sources: FedEx, Amazon, Ebay, Nike Air, custom package Etsy
Current State of Industry
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
Genesis:Where it All
Began
Current State of the Industry
Industry Attractiveness
FedEx’s PositionFinish
5. Q&A