Their success is evidence of this. .
There is a high barrier to entry in this industry. The tremendous infrastructure necessary to compete with the likes of FedEx keeps out potential new entrants. .
In the market segment where packages can be picked-up as late as 9:00 p.m. and delivered by 10:30 a.m. there is only one player FedEx-the threat of substitute products is not very real. .
(Company Analysis) In 1965, as a Yale undergraduate, Fred Smith, founder of Federal Express wrote a term paper on the topic of air freight shipping. From the ideas in this paper Federal Express would emerge. Looking back at this paper Smith says, " I sure had the right idea in pointing out that the air freight industry's future was by no means assured. The passenger route systems used by most air freight shippers were totally wrong for freight distribution. The costs would not come down with volume. It was a technical, an economic impossibility. Air freight would only work in a system designed specifically for it, not as an add on to passenger service." .
Smith felt that there was a huge market out there for an efficient service for moving high priority, time sensitive, small shipments like medicines, computer parts, and electronics. The American public was not being well served. He described the current air freight system inefficient as packages were hippety-hopping around the country from city to city and from airline to airline before reaching their destination. And he observed that there was no control over the packages by the original air carrier if the packages had to be carried by additional airlines before reaching their final destination. .
Smith's idea for Federal Express was a concept of a hub-and-spokes system for distributing the daily haul of packages from around the country. Packages could be picked up from around the country, flown to a central sorting point, sorted by destination city, reloaded on planes and then flown in reverse.
