Marketing Environment Analysis: East Central Ohio Freight (ECOF)

1. What is the competitive Structure of the TL and LTL Markets?

Competitive Structure of Truckload (TL) and Less Than Truckload (LTL) Markets:

TL LTL
Shipping charges are based on per-mile- Shipping charges are based on weight of
basis + fuel charges. the loads (hundredweight) and freight
class.
Lower fuel prices are advantageous for TL Decrease in fuel charges is going to
business. negatively impact LTL business.
ECOF Direct is one of ten TL carriers, YRC Worldwide Inc (Yellow) and Roadways
including FedEx Freight and American is one of the largest LTL providers in North
Freightways. America. FedEx Freight and Convey are other
major competitors.
There are 67 TL carriers located within 75 FedEx and UPS have entered LTL business.
miles of Cambridge. FedEx has raised the bar on service and
technology.
Need not have a major network of Must have networks to support many
terminals as shipping is from one terminal terminal locations.
to destination.

2. What factors impact the primary demand?

 Economic Factors: Significant market changes affect the transport industry. If the
aggregate demand in economy decreases, the demand for freight services will also
decrease.

 Manufacturing Sector: Most of the customers of freight services are the

manufacturers, any economic impact or recession in the manufacturing sector will
impact the primary demand.

 Service Quality: If transportation time is reduced, primary demand for the services
will increase. Also, clients are consolidating preferred carrier lists based on service
quality.
  Other Modes of Shipping: If the cost of services from other modes of shipping is low,
the primary demand will decrease.

 Rising cost of Fuel, Equipment, and Insurance: Increasing fuel cost increases the
transportation cost, impacting the profitability of TL. But LTL business may gain from
sustained higher fuel cost.

3. Provide an analysis of the strategic decision using the GE Model.

We need to analyse whether ECOF should step into the VLTL market or not.

Market Attractiveness of VLTL

Rank on a
  Weightage Reasons scale of 1 Score
to 10
Huge market size and highly
Market Size 0.3 10 3
fragmented industry
Future market growth of VLTL freight
Market Growth 0.3 carrier is expected due to cost 9 2.7
effectiveness
Barriers to entry is low for VLTL
Barriers to Entry 0.2 market in Cambridge but other 9 1.8
leading freight carriers may enter
Competitive skills play a key role in
Competitive Skills 0.1 6 0.6
determining market attractiveness
Legal requirements do not affect this
industry a lot, hence low weightage
Legal Requirements 0.1 9 0.9
and ECOF is already in freight
business

TOTAL 1     9

Strategic Business Unit (SBU) Strength of VLTL

Rank on
Weightage Reasons a scale of Score
1 to 10
VLTL service is unique in nature and cost
Service Uniqueness 0.3 8 2.4
effective to the customer

Location Advantage 0.2 Cambridge, Ohio is located at crossroads of 9 1.8

 interstates giving it a strategic logistical
position
The entry into business would require
Financial Strengths 0.2 significant investment, hence a crucial 7 1.4
determinant
Company needs strong managerial skills to
Managerial Skills 0.1 8 0.8
decide for the future course of action
The VLTL business does not have high
Technology
0.1 dependence on technology hence low 6 0.6
Orientation
weightage
Brands like UPS and FEDEX in the market
Brand Strength 0.1 7 0.7
provide stiff competition

TOTAL 1     7.7

Based on GE analysis, the SBU lies in the invest grid. Hence, entry of ECOF into the VLTL
market in Cambridge, Ohio can be considered. Moreover, ECOF is already running VLTL
operations in Indianapolis and Cincinnati locations, hence ECOF can leverage its
competence.

4. Conduct an analysis of the industry using Porter’s Five forces model.

Porter’s Five Forces: Analysis of Transport Industry
1. Competitive Rivalry: High
 FedEx and UPS have entered LTL business.
 FedEx has raised the bar on service and technology.
  YRC Worldwide Inc (Yellow) and Roadways is one of the largest LTL providers
in North America.

2. The Threat of New Entrants: Moderate

 Deregulation has removed barriers to entry and expanded pricing flexibility.
 Additional manpower and capital required for VLTL business may be easily
funded by big players.

3. Threat of Substitutes: Medium

 VLTL market is still less explored by other companies and they may expand
their operations based on ECOF success.
 If TL becomes cheaper for the customer, they will not prefer VLTL.
 Cheaper mode of freight carrier is available.

4. Bargaining Power of Buyers: High

 Product differentiation is low.
 Clients are consolidating preferred carrier lists.
 Many alternative options available for the buyers.

5. Bargaining Power of Suppliers: Low

 More trucks than freight due to recession.
 High turnover of owner/operators which means more choices available for
them.

5. Should the Company enter the VTL Market? Perform a Breakeven Analysis.
To perform break-even analysis, the following facts are available:

 ECOF is expecting 20% increase in sales.

 Transportation firms receive about 7 – 10% margin overall in TL business.
 Average haul is 1000 miles roundtrip.
 ECOF is shipping 500 loads a week on average company wide.
 Prime rate business loan is 8.5% and standard rate is 10.5%.
 Hire 4 people immediately and 12 over the course of time; for calculation purpose
we will take manpower of 10 people.
 Average cost per person is $800 / week + 40% Benefits.
We will make the following assumptions for breakeven analysis:

  Conservative Scenario Aggressive Scenario

Per Mile Cost + Fuel Charge (in

$1.50 $1.80
dollars)
Loads/Year (20% Increase) due
5200 5200
to VLTL (0.2*500*52)

Miles/Haul 500 1000

Profit Margin 7% 10%

(-) Additional Capital of $

Loan @ 8.25% (Prime Rate) Self-Funded
250,000

(-) Manpower 10 persons 10 persons

Manpower (Number) Cost per person/Year Manpower Cost

58,24 5,82,400
10.00
0.00 .00

Conservative Scenario

Per Mile
Loads/Year (20% Revenue (in
Cost+Fuel Charge Miles/Haul Profit Margin 7%
Increase) dollars)
(in dollars)
5,20 50 39,00,00 2,73,00
1.50 0.00 0.00 0.00 0.00
Principal +
Additional Capital Total Variable
Interest on Loan Interest after 1 Manpower Cost
taken as Loan Cost
Year
2,50,00 2,70,62 5,82,40 8,53,02
0.00 8.25 5.00 0.00 5.00

Aggressive Scenario

Per Mile
Loads/Year (20% Revenue (in
Cost+Fuel Charge Miles/Haul Profit Margin 10%
Increase) dollars)
(in dollars)
 5,20 1,00 93,60,00 9,36,00
1.80 0.00 0.00 0.00 0.00

Total Variable
Additional Capital     Manpower Cost
Cost

2,50,00 5,82,40 8,32,40

0.00 - - 0.00 0.00

Concluding from the breakeven analysis, entering the VLTL Market for ECOF in Cambridge,
Ohio will be profitable in the aggressive scenario.