Transportation Industry Analysis: Porter’s Five Forces

Subject: Transportation
Pages: 6
Words: 1464
Reading time:
6 min
Study level: College

Abstract

The transportation industry is often taken for granted since the effects of its performance are rather difficult to evaluate in detail. Moreover, the abundance of transportation modes, as well as the companies operating in the target environment, makes the process of analysis rather difficult. However, a detailed overview of the subject matter will show that the target area has been experiencing a significant rise over the past few years.

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Although the transportation industry is facing a variety of challenges currently, the key one being the exhaustion of natural resources and the need to switch toward a more sustainable approach, the industry has been thriving. The current rivalry rates in the target area are very high due to the low bargaining power of buyers, the high threat of new entrants, the huge bargaining power of suppliers, and a comparatively high threat of substitutes.

It is suggested, though, that the introduction of a more sustainable approach should be viewed as a necessity. By promoting the focus on lean management and the promotion of sustainable resources usage, the industry members are likely to attract even more customers. Thus, the further growth of the industry can be expected.

Introduction

Transportation services have become a part and parcel of the day-to-day reality for quite a while (Moraglio & Kopper, 2014). As a result, the industry under analysis is often taken for granted. However, a more scrupulous look at the subject matter will reveal that the rather dramatic events occur in the identified environment. Primarily, the issue of increasingly high competition rates needs to be mentioned. Applying Porter’s Five Forces Analysis, one may assume that, because of the use of finite resources and, therefore, the immense bargaining power of suppliers, the industry can be deemed as very competitive.

Porter’s Five Forces Analysis

The threat of New Entrants

Because of the immediate benefits that the introduction to the industry under analysis implies for organizations worldwide, the threat of new entrants is immense in the transportation field. To be more accurate, whenever a company that can offer lower prices for roughly the same equality level emerges, the organizations operating in the designated environment experience the danger of being deprived of their current leading status. Therefore, the firms that are currently at the helm of the industry are doing everything possible to retain their positions and keep their influence on the target audience intact (FTA, 2015).

Threat of Substitutes

Seeing that the industry features a range of transportation methods, including surface transport, water transport, airways, etc., the threat of substitutes can be deemed as very high in the target environment. The above characteristic of the industry contributes to a significant increase in competition rates, as the means listed above are often interchangeable. However, even when it comes to choosing a particular type of transportation, the rivalry rates remain just as high, with numerous companies competing for being chosen as the preferable one.

Bargaining Power of Buyers

Seeing that the resources used for transportation purposes are exhaustible and that the need for the corresponding services is consistent, the bargaining power of buyers is very low in the target area. It is expected that the clients will purchase the corresponding services without questioning the issue of price as the need for transportation emerges on a daily basis. The low rates of purchasing power of buyers elevate the rivalry rates even higher in the designated area, making the competition increasingly tight (Papageorge, 2016).

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Bargaining Power of Suppliers

The chances that the environment of the transportation industry provides to suppliers for setting prices are truly ample. As it has been stressed above, there is an unceasing need for the services of the transportation industry. Consequently, the prices set by the suppliers are unlikely to be debated or argued against by the customers. The above feature of the industry can be interpreted as the pivoting point for determining the intensity of the industry rivalry. The rates of the latter are beyond impressive; because of the consistent need for transportation services, there is an increasing demand for them, which compels the companies operating in the specified realm to compete against each other (Gerken, Melzer, & Wampula, 2014).

One must also note that the transportation industry needs to be viewed as a combination of three sub-industries that coexist in the designated environment (i.e., the water transport, the surface one, and the airlines). Therefore, the bargaining power of suppliers needs to be considered in each of the three. When addressing the competitive rates in the air transportation industry, one should bring up FedEx and UPS Airlines (The top 50 cargo carriers: FedEx, UPS top rankings, but the Middle East grows at the fastest rate, 2014). The companies that define the success of airline transportation, create an environment of outstandingly high competitiveness and prevent any new entrants from taking over the industry.

Similarly, the environment of water transportation is dominated by several organizations that define its further evolution. For instance, the firms such as Alexander and Baldwin, American Commercial Lines, Inc., and the American River Transportation Company (List of water transportation companies, 2016) need to be brought up as the giants that set the bar for the customer’s expectations.

Last but definitely not least, the land transportation domain needs to be scrutinized. According to the latest reports on the subject matter, the above area is currently dominated by a range of companies, therefore, creating premises for a rather successful market entry for a new organization (Land Transportation Authority, 2016). The reasons for the above phenomenon concern primarily the variety of land transportation means. Being a sector of the transportation industry as a whole, the target area swarms with transportation tools, including the ones for tourism, the ones for personal use, the ones used in business, etc. Thus, the industry rivalry rates are comparatively low here.

Profitability Expectations

Short Run (1-2 Years)

In light of the fact that the competitive rates are getting increasingly high in the target environment, as Porter’s Five Forces analysis carried out above has shown, it is reasonable to assume that the profitability of the designated area is going to grow within the next 1-2 years. The industry will presumably remain just as profitable as it currently is. Claiming that the transportation industry will remain dormant over the next 1-2 years would be an overstatement; however, it is unlikely that groundbreaking discoveries will be made with the subsequent efficient substitution of the finite resources. Since the transportation environment is currently in a very enviable position, the profitability rates are likely to be increasing steadily.

Long Run (5-10 Years)

As it has been stressed above, the issue regarding the sustainable use of resources is gaining more attention as technology progresses and the environmental concerns gain weight. Thus, it can be assumed that the industry may suffer a significant reduction in competitiveness once a substitute is designed and introduced into the target market. However, given the fact that the current alternative (e-vehicles) is still much more expensive and complicated as a solution, it is unlikely that the profitability of the transportation industry is going to shrivel (American trucking industry predicts major industry growth, 2014).

Therefore, a 5-10 year forecast suggests that the profit margins within the transportation industry are going to increase significantly. The companies that are at the top of the industry will remain in their places while the newcomers will be suffering from immense competition rates. It could be expected, though, that a new mode of transportation will be designed, therefore, contributing to a shift in the existing paradigm and compelling the current leaders to take the pressure off the transportation industry environment.

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Conclusion

The transportation industry is one of the few areas that have been experiencing consistent growth over the past few decades. Because of the unlikelihood of the introduction of substitutes and the incredibly huge bargaining power of suppliers, the target realm is going to experience major success in the future. Moreover, there are very few factors that may possibly inhibit the development of the target industry, even though the pace of technological development has been increasing fast over the past few decades.

Despite the fact that the number of suppliers is comparatively large, the ones that determine the further development of the industry are not very numerous. Seeing that the bargaining power of the suppliers is very high in the transportation industry and that new entrants are attempting at seizing power from the current leaders, the competition rates are very high. Therefore, the industry rivalry can be deemed as outstanding even by the global economy standards. Unless a technological discovery that will reinvent the transportation industry and make the use of natural resources obsolete is made, the rivalry rates are going to stay just as high, and the companies mentioned above will remain in power.

Reference List

American trucking industry predicts major industry growth. (2014). Web.

FTA. (2015). Logistics report. Web.

Gerken, A., Melzer, T., & Wampula, M. (2014). Managing supplier risk in the transportation and infrastructure industry. Web.

Land Transportation Authority. (2016). Annual report 2014/2015. Web.

List of water transportation companies. (2016). Web.

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Moraglio, M., & Kopper, C. (2014). The organization of transport: A history of users, industry, and public policy. New York, NY: Routledge.

Papageorge, J. (2016). Arena drives suppliers in the transportation industry. Web.

The top 50 cargo carriers: FedEx, UPS top rankings, but the Middle East grows at the fastest rate. (2014). Web.