Case: East Central Ohio Freight

PESTLE Analysis
Political/Legal
No barriers to entry and flexible pricing due to deregulation. (+)
Union contracts, health care and other union related issues becoming too costly. (-)
The country has still not recovered from the last recession. (-)

Economic
So-called freight recession in the market, which could get better in few years. ( )
Fuel costs are relentlessly high but are expected to get lower. ( )
Strong downward pressure on pricing due to increasing competition and reduced margins. (+)
Recession and unemployment in other major industry sectors like manufacturing in Ohio, hence
diminshing demand for loads. (-)
While the short term economic conditions are generally weak, the long term outlook for freight
trucking is good. (++)
Increasing costs of insurance, maintainance and new equipments. (-)

Social/Cultural
30% turnover with owner/operators while industry average is 100 %. Open door policy all the time.
But this loyalty would decrease if there are no loads on trucks. (+)
Overall Trust issues between carriers and customers due to price hikes and service problems. (-)

Technological
Robust system to match up two or more shipments of a same route to fill up the trailer. (+)
VLTL usually takes one to two days longer than LTL as careful acceptance and matching of loads has
to be done. (-)

i. Competitive Structure of TL and LTL Market:

TL
ECOF is one of the 10 TL carriers in Cambridge,
including FedEx Freight and American
Freightways.
67 TL carriers within 75 miles of Cambridge.
Recession in Manufacturing Industry impacted
the TL market adversely.
Shipping lanes can easily support consistent front
haul and back haul opportunities, hence
permitting lower payments to carriers.
Costing based on per-mile basis in addition to
fuel charge.
LTL
YRC Worldwide, Inc. (Yellow and Roadway):
Largest LTL carrier in North America.
FedEx Freight and Convey are other major
competitors.
Many other TL carriers are entering LTL Market
like UPS.
Costing by hundredweight and differences in
freight class.
Larger networks to support multiple terminal
locations, which gives them flexibility and
efficiency.
ii. Factors impacting the primary demand:

General Economic Outlook: If the country is growing demand for all products will increase, leading to increase in
demand of freight Services
Growth of manufacturing Sector: Since manufacturing sector is the biggest user of these services , growth of
manufacturing sector would lead to increase in demand
Relative location of Industries: The demand is higher if these industries are concentrated in certain geographies
instead of being spread over the country
Cost of Fuel: It is major contributor to the shipping cost. If cost of fuel rises he demand for freight transportation
falls.
Other costs like insurance, maintenance etc.: Increase in these costs, results in higher shipping costs and lower
demand.
Quality of Service: A better quality service will increase demand. For ex: If the time of transportation is
decreased it will increase the demand for service.

iii. Analysis of strategic decision using the GE Model

Market Attractiveness
Rank (on a scale of Coordinate
Weightage Reasons for weights
1 to 10) for Market for Market
As given in the case, market has
declined and growth is one of the key
Growth 0.3 9 2.7
driver and a crucial factor in
determining attractiveness

Entry barrier may not be a crucial

Entry Barriers 0.1 factor as per the case, but it is a 10 1
factor of medium importance

With increasing competition,

Competitive
0.1 competitive skills play a key role in 8 0.8
Skills
determining market attractiveness

This industry does not have high

Technology
0.05 dependence on technology hence low 6 0.3
Orientation
weightage
Size is an important factor in making
Size 0.2 10 2
a business profitable
Being logistics industry, distance is an
Distance 0.2 7 1.4
important determinant

Legal Legal framework doesnt affect this

0.05 10 0.5
Framework industry a lot, hence low weightage

Total 1 8.7
In order to analyze whether to go for the VLTL business, we need to first analyze the Market Attractiveness of
the new business and as well as the strength of the Strategic Business Unit. Using the GE Model, we first identify
the various criteria and assign appropriate weights. Then these criteria are provided appropriate ranks as per
our judgment. The coordinates of the Market Attractiveness and SBU strength are thus computed and plotted
on the Matrix.

SBU Strength
Rank (on a scale of Coordinate
Weightage Reasons for weights
1 to 10) for SBU for SBU
The entry into business would
Financial
0.4 require significant investment, hence 7 2.8
Strengths
a crucial determinant

Company needs strong management

Managerial to lead at this crucial situation and
0.4 8 3.2
Skills face the new competition, hence a
very important determinant

This industry does not have high

Technology
0.05 dependence on technology hence 6 0.3
Orientation
low weightage
Brand Brands like UPS and FEDEX in the
0.15 7 1.05
Strength market provide stiff competition

Total 1 7.35

GE Matrix - VLTL
Market Attractiveness

Analyze Invest Invest

Divest Hold Invest

Divest Milk Milk

SBU Strength
 As the VLTL business units fall into Invest box, it promises high returns in the future. It is essential to provide as
much resources as possible to VLTL business so there would be no constraints for it to grow.

iv. Analysis of Industry using Porters Five forces model

Porters 5 Forces

SUPPLIER POWER - LOW BUYER POWER - HIGH

Too many options available
Time of recession so easy
Product Differentiation low
availability of drivers
More Trucks than Freight
Carriers offering price cuts to
shippers

INDUSTRY RIVALRY - HIGH

Big Players like FedEx and UPS
FedEx has raised the bar on
Service & Technology
Yellow is the largest LTL provider

High Capital & Operating

costs Customer Loyalty
Competition may get VLTL is cheaper than LTL & TL
interested based on success of No other player currently in
ECOF VLTL
Deregulation removed
barriers to entry
THREAT OF ENTRANTS- MODERATE THREAT OF SUBSTITUTES-LOW
v. Analysis of the strategic decision using Ansoffs matrix.

Current Products New Products

1. Decrease the price of TL in Cambridge 3.Launch VLTL terminal in Chicago
Markets to attract more shippers
Current

2. Increase the sales force in for TL in

Cambridge

4. Add new terminal for TL in New York 5. Add new terminal for VLTL in other
Markets

City. cities outside Ohio.

New

Reasons:

1. As the shippers are very price sensitive this would help gain new prices
2. Due to high completion and as each buyer has unique requirements, it requires multiple interactions with
sales personnel to convince the buyer
3. The VLTL model is doing well in Cincinnati and Indianapolis while the TL market is declining in Cambridge
4. There is too much competition of truckers in Ohio, Opening a new terminal win New York City will help to
capture the high Freight density in New York.
5. This will help capturing new customers and expanding network.

Break Even Analysis:

Fixed Cost Calculation
Employee Costs per week $800
# Employees 4
Employee Cost $1,66,400
Additional Benefits 40%
Total Employee Cost $2,32,960
Capital Cost $2,50,000
Capital Cost to be recovered in 10 years
Capital Cost per year $25,000

Total Fixed cost $2,57,960

 Break Even hauls for LTL
Total TL Hauls per week 500
Total Front Hauls per week 250
Back Hauls per week 250
Sales from VLTL 20% Given that sales will increase by 20 %
# weeks 52
1 VLTL haul 1.1 VLTL haul
Equivalent hauls from VLTL 2,364 250*52*20%/1.1
*We have taken the assumption that the back hauls do not give any profit

Break Even Analysis

Aggressive Scenario Conservative Scenario
Revenue per mile for TL 1.8 1.5
Revenue per mile for TL 1.98 1.65
Cost per mile(assuming 10% profit in
1.64 1.40
aggressive & 7% profit in conservative)
Profit per mile 0.34 0.25
Total Fixed Cost $2,57,960 $2,57,960
# miles $7,50,677 $10,39,613
# hauls 751 1,040

As we can see that the Break Even for the Aggressive Analysis is achieved at 751 hauls and for the Conservative
Scenario is achieved at 1040 hauls; whereas VLTL gives the profit equivalent to 2364 hauls. Therefore, from the
break-even analysis, we find that it is profitable to go for the VLTL method.

Our Recommendation:
Based on our analysis using GE model and break-even analysis, ECOF should invest in VLTL business in
Cambridge, Ohio.