United Parcel Services (UPS) Porter Five Forces Analysis

Published by MBA Skool Team, Last Updated: February 17, 2022

Porter’s Five Forces Analysis of United Parcel Services (UPS) covers the company’s competitive landscape as well as the factors affecting its sector. The analysis focuses on measuring the company’s position based on forces like threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers and competitive rivalry.

United Parcel Services (UPS) Five Forces analysis helps to analyze its current position in the market based on multiple internal and external factors like competitors, customers, suppliers (vendors and partners), financial strength, future scope & alternate solutions.

Let us start the United Parcel Services (UPS) Porter Five Forces Analysis:

Threat of New Entrants:

The threat of new entrants in the United Parcel Services (UPS) Porter Five Forces Analysis can be explained as follows:

On a global scale, the courier service business requires many fixed capital investments in automobiles, warehouses, and employees. The large, fixed capital investment will make the threat of new entrants low. Also, the already established players like UPS, FedEx, DHL, etc. have been in operation for a long time. They have optimized all their operations to operate at a very low cost with profitability. It is very difficult for any new player to establish a competitive cost structure and match their massive distribution reach. However, there can be players operating at the local level with less capital investment and can give competition to big courier services domestically like delivery, blue Dart in India, and other players in other countries. Still, they may not be able to compete with worldwide courier services like UPS. So, the threat of new entrants in the courier industry globally is low.


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Threat of Substitutes:

Below are the threats of substitute products of Porter’s Five Forces analysis of United Parcel Services (UPS):

The direct substitutes for courier companies like United Parcel Services are facilities like email, online communication, fax, telephone etc.

All documents which otherwise would have to be sent by courier, can now be shared online. Also, with the growth of e-commerce, please can buy new goods rather than spending on courier to transport their old goods. Other available way for international transport of a large number of goods involves shipping and Rail networks, which can offer a substitute in domestic and international markets. The consumer also has the option of strong domestic players who operate at a low fixed cost and can choose them for low-distance parcels. Consumer, while sending courier excepts a relationship with their courier relationship manager and is highly loyal towards certain service till its product are transported at comparable cost and with safety, so consumers would be sticky in changing the service once acquired. Hence the threat of the substitute is medium.


Bargaining Power of Customers:

In the United Parcel Services (UPS) Porter Five Forces Analysis the bargaining power of the customers can be explained as:

Customers in the courier industry have specific requirements and are generally loyal to the courier service, which provides good relationships and safe delivery of their products. The big players who transport globally are generally very price competitive and increase or decrease their prices in sync to retain their market share. They have a specialized set of differential advantages. UPS gives the best courier services on the road, DHL provides overnight delivery of couriers through planes, etc. So, customers are generally associated with the best use the courier service provides and the relationship they offer. The switching cost is low as multiple carriers are available, and they're also some domestic players.

UPS is one of the largest courier companies with a wider distribution network and offers, lowering customers' bargaining power.


Bargaining Power of Suppliers:

Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of United Parcel Services (UPS):

Suppliers in the courier industry can be transported and packing delivery partners. Big firms like UPS, FedEx, DHL, etc., have their command of the transportation system and do not depend on any large transport supplier. If they need it, they can hire transportation among multiple vendors available at a negotiable price making their bargaining power as low. Talking about the packing material, the global courier firms require a large volume of packing material, and there are multiple vendors available in the market. As these give volume profit to any vendor, they tie in, so every vendor is ready to negotiate with them to offer the best price in the market. Another supplier can be the employees, but as per huge unemployment in every country, truck drivers and employees are available, and there is no shortage of them. Hence the bargaining power of the suppliers is low.


Competitive Rivalry:

The impact of key competitors in the United Parcel Services (UPS) Porter Five Forces Analysis is as follows:

The courier industry is highly competitive among big players like UPS, FedEx, DHL, etc. They have invested a large amount of fixed capital in the infrastructure and offer a unique set of value to the customers for a different courier mode. The market is growing due to the eCommerce sector and higher demand of goods worldwide due to globalization and decrease in trade restrictions and tariffs, and this market will continue to be led by big players who can offer competitive prices at a faster delivery time. The big players like United Parcel Services aggressively try to grab each other customers by providing a quality experience and good relationship experience. With the onset of the internet, the courier industry is touching new heights, providing details of the courier at every step and making the companies optimize more and more to attract customers. But all the carriers have expertise in one area or other, decreasing chances of losing their customers.

So, the intensity of rivalry within the industry is medium to high.

To conclude, the above United Parcel Services (UPS) Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.

This article has been researched & authored by the Content & Research Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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