Posted on: 22 Dec, 2019
Aramex was founded in 1982 by Fadi Ghandour and Bill Kingson with the aim of being the first courier company in the middle east.
It is the first arab based company to be listed on the Nasdaq Stock Exchange and since then has been listed on the Dubai Financial Markets, essentially carving its name at the top of history books for MENA startup successes.
In this article we’ll look at their business model to understand how they function and what we can learn from them.
Let’s do this.
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2 years into its founding and with razor thin cash flows, Aramex approached one of the worlds most respected logistics companies, Airborne Express, with an offer of $100K for a 50% stake in the company.
Airborne turned down the offer but an agreement was reached for Aramex to handle whatever business available in the Middle East.
In the words of Fadi Ghandour:
I realized immediately that Airborne’s offer would give us an opportunity to learn from one of the world’s most successful courier companies—and, more crucial, to take advantage of its technology and global reach. Instead of getting a 50% owner, we would get a master class on how to grow our own business. That partnership would make the difference to our survival—and provide us with the rapid learning curve to set our own ambitions high
This concept is called “piggybacking”.
It’s the same growth approach that we’ve seen time and again.
When Zynga “piggybacked” Facebook, Paypal with eBay and Whatsapp with mobile organic phone networks.
By partnering with Airborne, Aramex instantly had access to world class shipping technology that would give it an edge over other players in the region.
Airborne did eventually acquire a stake in Aramex.
A 9% stake.
For $2 million.
And with that $2 million injection, Fadi says:
“I had the first good nights sleep in 14 years”
Airborne went on to create a global network called the OEC of which included Aramex and about 40 other companies and Airborne provided technology access to all the network partners.
As Aramex grew, it realized it had an achilles heel.
If for any reason their partnership with Airborne was to come to an end they would lose all access to the tracking technology and jeopardize their whole business.
So they IPO’d on Nasdaq raising $7 million, then raised another $7million from investors and got to work on building their own tracking technology.
Eventually, their precaution was justified.
The alliance with Airborne was forced to an end as it was being acquired by DHL.
With Airborne moving out, Aramex informed the other members of the OEC that they could instead provide the necessary tech tracking system that would maintain the alliance.
As a result, the Global Distribution Alliance (GDA) was created.
In that single moment, Aramex instantly went from player to global leader.
Here’s how Aramex functions today.
In his 2018 letter, Bashar Obeid lays out clearly the strategic objectives for the company:
There is no denying that the tremendous changes in technology that we are witnessing have changed whom we compete with and how we differentiate ourselves. Traditional logistics providers are no longer the sole threat to our business model, which means it is no longer a game of volumes and pricing – it goes beyond that. It is about speed, reliability and quality
Aramex also creates value for shareholders, community and its people.
Source: Aramex 2018 annual report
During its early days the focus was on shipping services for a specific target market i.e. cost-sensitive small to medium sized businesses.
Today E-commerce businesses play a major part in Aramex’s growth due to the explosion in this sector globally.
As Bashar explains:
Our performance in 2018 was largely driven by the growth of global e-commerce activities, which continue to be the main contributor to the growth of our Express business.
Bashar Obeid, CEO
Aramex is now looking to grow its B2B customers by targeting vertical industries such as:
Aramex has built a diversified revenue stream consisting of 5 categories.
This refers to the part of the business for sending documents and parcels internationally and can be either export or import.
The Export Express business is tiered into Priority Express and Value express depending on the time sensitivity required for the package to arrive at its destination.
Generating almost 2.3 Billion AED in 2018, International Express is the activity that generates the largest revenue at almost 45% of total revenue.
Represents deliveries within your country or city.
This involves 4 types of services:
Combined, the international and domestic express businesses make up 65% of revenues.
Aramex uses a service based model where the fee for its transportation solutions is based on a variety of factors that affect the cost of shipment such as but not limited to:
Refers to the shipping of cargo by sea, air, land or rail or a combination of these.
The freight forwarding service generated almost 22% of revenues.
As with Express this works on a service-based model where the price is determined by factors such as the weight and size, speed and distance of shipment.
Logistics is a part of supply chain management that deals with management of the flow of activities from the point of origin to the point of delivery.
This service generated about 6% of revenues.
Here Aramex provides services such as:
Includes services such as catalogue shipping services, document storage, airline ticketing and travel, visa services, and publication and distribution.
This segment represents just under 6% of revenues.
Take a look at the chart below for revenue breakdown since 2014.
Any successful business has to be able to retain existing customers.
Here's a representation of Aramexs retention numbers.
Question is, how does it achieve this?
Is make it possible to engage with customers across a wide range of channels for continuous customer feedback:
Aramex spent 7.5% of its gross profit on sales and marketing to continue to build customer trust in the brand and drive customer acquisition.
Thats just over 207 Million AED.
Is continuing to invest in technology and innovation for improved customer satisfaction.
Through these tools they provide touch points where they can support customers with supply chain management and technical support such as:
A fantastic innovation that compliments the business beautifully.
Here’s how it works:
Let’s say you want to purchase a product online but for some reason the product cannot be shipped to your destination.
Through shop and ship the product would be sent domestically to an Aramex warehouse
in the country where the product originates from.
When it reaches the warehouse, Aramex through a simple code in the address knows exactly where to deliver your product to you in your home country.
Here's why is this innovation so interesting to their business model:
We already established above that Aramex takes a proactive approach to investing in upgrading their technology and innovation, sales and marketing and operation optimization for improved customer experience.
Overhead spending was 75.5% of gross profit including things such as: vehicle running, maintenance, communication expenses and supplies among others.
It's interesting to note that although the International Express segment has the highest revenue the largest gross margin is actually from the "Other" segment.
Source: Aramex 2018 annual report
Outside of that Aramex also spends on Investing activities.
Activities such as the purchase of property, plants and equipment along with investments in joint ventures and acquisitions to increase their capabilities and cross border expansion.
The final piece of the business model is to understand the ecosystem that Aramex has built.
It's an ecosystem where all the stakeholders involved can grow and prosper together with Aramex at its centre.
Alliance Network: The Global Distribution Alliance founded by Aramex provides the network with the tracking management solution that used to be provided by Airborne.
Partnerships with airlines, carriers and logistic partners: These helped international carrier express business to witness 13% growth
Aramex focuses on its core values of speed, reliability and quality to grow its business.
It uses a service based revenue model and asset light cost structure to capture the value it creates for its customers.
The revenue model is diversified across 5 core segments.
With a strong focus on e-commerce and entering new verticals, Aramex maintains its advantage by continuing to invest in technology and innovation to create solutions for its customers.
This innovation in tools and solutions as well as investing activities helps expand their customer base and expand into new territories.
Retention numbers are addressed by focusing on customer experience and upgrading last mile delivery.
Finally, Aramex has built a thriving ecosystem of partners that can prosper and grow together.
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