The Small Parcel Oligopoly

Discussion in 'The Latest UPS Headlines' started by cheryl, Sep 20, 2010.

  1. cheryl

    cheryl I started this. Staff Member

    The Small Parcel Oligopoly - Seeking Alpha

    Both globalization and changing consumer purchasing patterns have been welcome shifts to small parcel transportation providers, an industry in the United States that consists of just two companies: UPS (UPS) and FedEx (FDX). How is it that the overnight and ground small parcel shipping markets have become so concentrated in just two companies? What are the similarities and differences between the business models of UPS and FedEx? What are the financial prospects for transportation providers and how well is that currently reflected in stock prices? It is to these questions that we now turn our attention.

    Perhaps the most important question for both UPS and FedEx is whether or not the small parcel oligopoly in the United States continues. The simple answer is that it is very likely that it will. This does not make very good economic sense since over the course of an economic cycle the existing carriers earn substantially more than their cost of capital. Why is it that this has not and will not attract competition? Looking at the global market it would seem likely that both DHL and TNT would eventually make a move to capture a share of the United States market. Of course, DHL did enter the market and failed. Why? DHL’s experience is key to understanding the future of small parcel shipping in the United States.