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UK Express Parcels: Market insight report
Apex Insight, July 2012
What Does The Report Contain?
In this report Apex Insight reviews the UK parcels market encompassing both the business-to-business and business-to-consumer segments. The report quantifies the market size, historical growth rates, segmentation patterns and levels of industry profitability while reviewing key factors behind these figures. It also carries out an in-depth analysis of the relevant drivers of industry growth – in particular the macroeconomic environment and home shopping – setting out historical trends and available forecasts. The forecast for industry growth by segment is based in this analysis of historical trends and our understanding of growth drivers. While many reports on the industry contain data and description, a critical objective in writing this report has been to supplement this with insights and conclusions
Who And Why Should Buy This Report?
The UK parcels industry has continued to evolve dynamically with Continued overall growth. Macro factors such as the trend growth of home shopping and the cyclical impact of the economy on volumes continuing to provide challenges and opportunities. Some continued consolidation of the market through acquisition. Ongoing refinement of operating models to enable evolving customer needs to be served profitably. In order for those involved in the market to make the best decisions in this complex and changing environment, they need to have access to the best information. The aim of this report is to provide this. It is intended for parcels carriers themselves, users of their services, partners, investors, banks, analysts, consultants and other parties with interests in the sector.
What Are The Sources And Methodology?
This report is based on:
- Financial analysis of the accounts of companies in the industry
- Interviews with senior-level contacts in the market
- In-depth analysis of the macroeconomic environment and relevant market drivers
- Apex Insight's own experience of advising both companies and investors in the express parcels industry.
Information from these sources has been synthesised and presented clearly and concisely with extensive use of charts and tables to illuminate points and support conclusions.
Contents
Introduction 2
About this report
Executive summary
About Apex Insight
Contents 5
List of charts and tables
Parcels market 7
Background
Market size and growth
Segmentation
Volume and value trends
Adjacent markets and SIC data
Market drivers 20
Discussion of market drivers
GDP
Inflation
Population
GDP: inflation, population and real output per head
Household disposable income and retail sales
Internet shopping value
Household penetration
Internet shopping: international comparisons
Internet shopping and mail order
Transaction size
Returns rate
Competitive landscape 34
Types of parcels carriers
Carrier size and growth
Operating models and segment focus
Carrier profitability
Employment and productivity
Industry cost inflation
Share price performance
Forecasts 57
GDP
Inflation
Household disposable income and retail sales
Parcels market forecast
Forecast assumptions
Appendix 63
List Of Figures
UK express parcels market size and growth
Business and consumer delivery segmentation
Indicative market segmentations
FedEX UK: revenue and parcel volume
FedEX UK: revenue per parcel
Revenue per parcel benchmarks
Express parcels and adjacent market sizes
UK GDP
UK Inflation
UK population growth
UK GDP, inflation, population and real GDP per head / % annual changes
UK household disposable income and retail sales / % annual change
Internet sales: value and as % of all retailing
Household penetration of PC ownership, broadband access and internet shopping
Internet shopping penetration for selected EU countries
Internet sales and mail order
Average internet shopping transaction value
UK home shopping transactions per year
Internet shopping returns rate by category of item
UK home shopping movements per year
Leading UK carriers – revenue
Carrier size and growth
City Link revenue – 2011 vs 2006
Revenue growth by carrier
Operating models and segment focus
Revenue per employee
Revenue per depot
EBIT margins – overall sector and by carrier
EBIT margin by carrier
RoS vs RMS for UK carriers
Return on Capital Employed
Industry employment and productivity
UK inflation by category – Transport sector wages vs whole economy and CPI / 2002=100
UK inflation by category – fuel and motor vehicles vs CPI / 2002=100
Parcels carrier share prices vs FTAS: end of calendar year values / December 2005=100
UK GDP: historical and forecast
UK inflation: historical and forecast
UK household disposable income and retail sales / % annual change : historical and forecast
UK express parcels market size and growth: historical and forecast
UK express parcels market forecast assumptions
Market growth and drivers
The UK express parcels market is approaching £7bn in size, having grown slowly in recent years in response to economic conditions. Parcel volumes suffered during the 2009 economic downturn and price pressure continued into 2010 with conditions only improving slightly in 2011-12.
The main drivers of parcel volumes are :
The growth of home shopping, which has been the main driver of growth in the consumer delivery sector right through the last decade, and depends on both customers' shopping habits and household penetration of enablers such as PCs and broadband access.
The overall level of economic activity, because parcels carriers serve such a wide variety of customers across so many different sectors of the economy: this stalled during 2008-09 and has faltered since.
Segmentation
In the past, business parcels was considered to be a separate market from consumer deliveries. However, there has been convergence as
Home shopping growth has made consumer an increasingly attractive segment, drawing business carriers to enter the area where they think they can make money.
Consumer carriers have increasingly invested in tracking and tracing systems and, in some cases, sought business customers.
Key industry issues
An ongoing challenge for operators has been the development of a model to serve home deliveries profitably, enabling them to exploit the growth segment without damaging overall economics and service levels.
Customer retention has traditionally been a challenge in what is a highly competitive industry with interviews suggesting that churn rates of over 20% were not unusual.
Scale economies are important in increasing route density and hence profitability. However, operators have not always been able to capture this; scale has not generally resulted in higher profitability for UK parcels carriers.
For many customers, the physical goods shipped in a parcel represent a decreasing proportion of overall value relative to information, intellectual property and brand. This ultimately makes basic parcel delivery less valuable as a service
Operator trends
- There has been a trend for the operators with international networks and home delivery focus to increase their share of revenues at the expense of standalone UK B2B players such as UKMail and City Link.
- The sector continues to operate on narrow margins and, as an industry with significant fixed costs, is vulnerable to dips in volumes
- Combined profitability across all the major operators fell from over 2% (EBIT) in 2006 to a net overall loss in 2008. It returned to profit in 2010 but available figures suggest another overall loss in 2011
- Factors such as compatibility of operations with market segment focus appear to be far more important than the effects of scale in determining operator profitability.
Outlook
Economic recovery appears weak with economists now expecting 2012 GDP growth to be only slightly above zero. The possibility of intensification of the Eurozone crisis and further weakening of domestic demand from government ‘austerity' policies remain risks. Continued internet shopping growth brightens the picture although pressure on household disposable incomes – and continued retail bankruptcies – imply caution. The market forecast takes these factors into account.
- APC
- City Link
- DHL
- DPD
- DX
- FedEx
- Hermes
- Interlink
- Nightfreight
- Parcelforce Worldwide
- Royal Mail
- TNT Express
- Tuffnells
- UK Mail
- UPS
- Yodel
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