Another threat is that of strike. A previous strike debilitated the company, and those costs could appear again should the Teamsters desire to make more money for their constituents. No matter how well mitigated, there is the risk of a strike shutting down operations at YR for a significant length of time.
The final threat is that of legislation. Due to high accident rates, drivers are now subject to increased regulation, which adds to the cost of doing business. This has included special hazmat training and various registrations.
Competition is a threat. Although the industry is very fragmented (ATRI, 2004), there are still several strong competitors, both in terms of companies that offer a total shipping package the way YR does, and in terms of small operators who can specialize in a certain type of product or a certain geography. These may be able to undercut YR or offer better service.
There are, however, some opportunities. YR is the largest company in the LTL market, which gives their operation a certain size and scope that few trucking companies have. This has allowed them to ponder the opportunity to expand into the overnight and next day markets. The companies in those markets use a similar hub-and-spoke system, albeit based around a combination of air and lorry transport. YR does not have the airline capacity as yet, but they have the ground network and can begin to challenge in this segment. One of the biggest appeals to this option is that this market is growing, whereas the LTL market so crucial to YR has flatlined.
Another key opportunity is to continue to expand in China. They have a partnership with one of that country's largest conglomerates. With the booming economy in China, there is significant room for growth. This is in contrast to the U.S. market, where many of YR's core markets have stagnated. With their foot in the door and a local partner to smooth out the logistical and political details, YR has the ability to place increased emphasis on this market, potentially achieving dominant status.
The third major opportunity for YR right now is to put increased focus on improvements in its operations. Though often not viewed as an opportunity, there are sometimes tremendous cost savings that can result from a stronger focus on internal matters. In the case of YR, they have a strong opportunity to do this because they are still in the process of integrating their two most recent purchases into the company's operations. There is some overlap with one of those purchases, but even when there isn't customer overlap, there are opportunities for cost-saving through operations consolidation and the development of key synergies.
Porter's Five Forces
The five external forces that act upon a firm are: the power of buyers, the power of suppliers, the intensity of rivalry, the barriers to entry and the threat of substitution (Porter, 1979).
These five forces are analyzed in independence and help give a sense of a company's overall position in the marketplace.
Rivalry in an industry is important because firms consistently strive for a competitive advantage over their rivals. The intensity level of this rivalry often determines the margins that a company faces, as well as direct competitive pressure in the marketplace.
The intensity of competition in the trucking industry is very high (ATRI, 2004). There are over five hundred thousand trucking companies operating in the United States, for 900,000 customers. This forces the thousands of smaller firms to compete aggressively for business. That in turn drives prices down, to the detriment of the entire industry. It has also in past driven safety standards down, and that also was to the detriment of the industry as the government has instituted a multitude of standards to improve the industry's safety record, at significant cost to firms like YR.
As well, the industry is characterized by slow growth. The LTL segment, which is YR's core business at present, has seen negligible growth over the past fifteen years, which means that the pie isn't getting any bigger. Firms already hungry for business become more hungry when the entire market is zero-sum game.
Other conditions exist which render the rivalry highly intense. For example, the "product" is highly perishable. A lorry's capacity is just that - once it is gone unused it remain so forever. When unused capacity represents revenue lost forever, firms tend to fight very competitively to fill that capacity. Another aspect is the low switching costs, a reality because of the proliferation of competition and the tradition in the industry of paying per job,...
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