From cost structure to strategy: the impact of the cost structure on the strategic behaviour of integrators

Date: 23 October 2013

Venue: Promotiezaal 'Grauwzusters' - Stadscampus - Lange Sint-Annastraat 7 - 2000 Antwerpen

Time: 5:00 PM

Organization / co-organization: Faculty of Applied Economic Sciences

PhD candidate: Evy Onghena

Principal investigator: Prof. dr. Eddy Van de Voorde en prof. dr. Hilde Meersman

Short description: Phd defense Evy Onghena - Faculty of Applied Economic Sciences

Abstract: Despite the strong growth of integrators, the oligopolistic market structure and their importance for shippers, airports and regions, their strategies are hardly examined in the existing academic research. This study aims to fill the gap in the literature by providing an answer to the main research question whether the strategies of integrators are consistent with their cost structure.

In order to better understand how the Big Four integrators (FedEx, UPS, DHL and TNT) developed into vertically integrated, one-stop-shop providers, their growth and cooperation strategies over the past 15 years are investigated. In addition, the strategies of a selection of their main competitors are studied in more detail.

To analyse the cost structure of integrators, two tools are selected and developed: a translog cost function and a cost simulation model. The translog cost function reveals the cost structure and cost characteristics of the airline operations of FedEx and UPS, while the cost simulation model focuses on the cost structure of the total, door-to-door chain of integrators.

The translog cost models support the existence of large scale and density economies for the airline operations of both FedEx and UPS. Thus, the aggressive growth and cooperation strategies pursued by the integrators in the past are in line with their cost structure. The large scale economies are the most important structural entry barrier in the integrator industry. Next to the quantification of scale and density economies, the translog cost models reveal important differences between FedEx and UPS regarding the cost structure of their airline operations.

The cost simulation model looks at micro-level to the cost structure of an air express shipment with specific characteristics. The model concentrates on three parts of the multimodal, door-to-door chain: pick-up and delivery (PUD), hub & gateway operations and air line-haul operations. Including on a number of assumptions, the model reveals the relative importance of the various cost items in the door-to-door chain and shows which are the most important cost drivers.

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