Courier, Express and Parcel: Can It Keep the Momentum? As volumes increase, the CEP industry waits for revenues to return

Transcription

1 Courier, Express and Parcel: Can It Keep the Momentum? As volumes increase, the CEP industry waits for revenues to return

2 Authors Ferry Salehi, partner, Berlin Lars Ryssel, consultant, Berlin

3 Europe s courier, express, and parcel industry had a banner year in 2010, posting impressive gains and returning to pre-downturn volumes. However, revenues still lag in the wake of tough renegotiations in Customers are moving to cheaper forms of shipping, and with less expensive standard offerings stealing business, the pressures will not ease any time soon. The latest A.T. Kearney study on the CEP industry finds that several dominant trends are having a huge impact on companies and their future prospects. Europe s courier, express, and parcel (CEP) industry gained momentum in 2010, moving along at a good clip with revenues rising by 4 percent and volumes by 6 percent. Impressive indeed, and evidence that the industry continues to be a harbinger of performance in the overall economy (see sidebar: Snapshot of a Growth Industry on page 3). Still, while volumes match those of 2008, the industry has not reached its 2008 revenue levels. In fact, revenues are 5 percent lower today than three years ago, resulting in a decline in revenue per shipment (RpS) (see figure 1 on page 2). When asked why revenue growth isn t faster or more significant, industry executives are quick to answer: Difficult customer renegotiations, explains one CEO; adding that 2009 was a particularly difficult climate. Another executive points to a preponderance of lightweight businessto-consumer (B2C) shipments as the problem. We are seeing lots of volume but the margins aren t there, he explains. While these issues are no doubt familiar to CEP executives worldwide, other issues are closer to home and unique to Europe. European customers are enticed by cheaper yet decent quality offerings for standard domestic and international shipments, drawing them away from express shipping. Many businesses stopped using express during the downturn and have not come back a main reason for the overall decline in revenues. Within this context we launched our biennial study to determine the current state and future direction of the European CEP industry (see sidebar: About the Study on page 4). From interviews with industry executives and research on company COURIER, EXPRESS AND PARCEL: CAN IT KEEP THE MOMENTUM? A.T. Kearney 1

4 Figure 1 Domestic and international CEP markets have rebounded, but revenues are still down from 2008 Revenues ( billions) Shipments (billions) (30%) -9% +4% % % (29%) (29%) 0.4 (8%) -2% +6% % 0.4 (8%) +9% (9%) 30.9 (70%) -7% % (71%) 29.7 (71%) 4.4 (92%) -2% 4.3 (92%) +6% 4.6 (91%) International Domestic Sources: Annual reports, expert interviews; A.T. Kearney analysis performance in 13 countries, our final analysis foretells an industry that is slowly returning to growth. The Findings The CEP industry is poised for growth, barring any major disruptions or the global economy falling back into recession. The following highlights our five main findings: 1. International and domestic markets continue to consolidate. Consolidation continues across Europe, but the trends are different for international and domestic shipping. International. In standard shipping, players in the international network increased their cumulative market share from 46 percent to 50 percent between 2008 and 2010, with the two largest road networks La Poste/DPD and Royal Mail/ GLS leading the way (see figure 2 on page 4). In express shipping, already tightly merged, the top six companies grew by a percentage point now owning 90 percent of the market thanks to gains in countries such as France, Italy, and the Netherlands, and despite slight losses in Germany. Domestic. In domestic shipping, market share for the biggest players has been stable over the past two years, rising from 44 percent to 45 percent. Market share rose in the smaller markets of Poland, Russia, and Sweden, where local incumbents and niche players are benefiting from an e-commerce boom. The big players are also focusing on e-commerce, but only in their home markets (for example, DHL in Germany and La Poste/DPD in France), while the B2C niche players are broadening their product offerings to include B2B. 2. Weight per shipment is changing. Weight per shipment (WpS) has increased internationally and declined domestically. Growth in international express is explained by more parcel shipments compared to document shipments, and 2 COURIER, EXPRESS AND PARCEL: CAN IT KEEP THE MOMENTUM? A.T. Kearney

5 Snapshot of a Growth Industry Total revenues in today s European courier, express, and parcel (CEP) industry are close to 42.1 billion, compared to 44.1 billion in Total shipment volumes are 5 billion today compared to 4.8 billion in 2008 and are expected to reach 5.7 billion by Most countries are back to their 2008 volume numbers but still lag in revenue, with the exception of five: Turkey, Poland, Russia, Germany, and Switzerland; all have exceeded both their 2008 volume and revenue numbers (see figure). International versus domestic. The European CEP market has grown faster internationally than domestically, in line with pre-crisis growth patterns. That said, international had more room to grow, as its decline during the downturn was more severe than domestic (-13 percent compared to -7 percent). Within international, we found little difference in growth patterns between intra- and intercontinental destinations. Key intercontinental growth lanes continue to be Europe to China and Hong Kong, and Europe to the United States. International shipments will increase at an annual rate of 6 percent, and are expected to surpass domestic shipments. Germany, the United Kingdom, Poland, and Russia will become the fastestgrowing markets. Standard versus express. In a breakdown of standard versus express shipments, standard outpaces express except in Russia and Italy. In Germany, France, the Netherlands, and the United Kingdom (where B2C is quite common), the rate of standard shipping is equal to or larger than express. Ireland, the Netherlands, Sweden, and Poland are the only countries where international express grew faster than standard. Standard is experiencing growth in intercontinental lanes and in areas focused on reducing supply chain costs. Figure: Most countries volumes are back to 2008 levels, but not revenues Market performance by country 2010 vs Indexed volume growth (in %) Volume greater than 2008 level ES IT FR BE IE UK NL SE Volume and revenue greater than 2008 level DE CH RU PL TR Indexed revenue growth (in %) 125 Size of bubble represents market size in billions Sources: Annual reports, expert interviews; A.T. Kearney analysis COURIER, EXPRESS AND PARCEL: CAN IT KEEP THE MOMENTUM? A.T. Kearney 3

6 About the Study To determine the status and future direction of the CEP industry in Europe, we studied 13 countries: Belgium, France, Germany, Ireland, Italy, the Netherlands, Poland, Russia, Spain, Sweden, Switzerland, Turkey, and the United Kingdom. Our analysis focused on the scheduled express and standard network business; non-network-related traffic such as same-day, in-night, and intra-city services were not included. The findings reflect all country-billed volumes, including import shipments. Express includes the fastest possible services with guaranteed delivery times. Standard comprises day certain and deferred products. Unlike previous studies, we extended the upper weight limit to 2,500 kilograms. Figure 2 International standard markets are more fragmented, but consolidation has increased International standard market share, major players 1 ( billions) 85% 91% 82% 92% 85% 75% 66% 2010 average: 50% 57% 2008 average: 46% % % 25% 28% 18% France Germany Italy Spain United Kingdom Remained stable, Gained market share, Size and market share network players 1 Major players: DHL, UPS, FedEx, TNT, GLS/Royal Mail, DPD/La Poste Sources: Annual reports, expert interviews; A.T. Kearney analysis The Netherlands Sweden Switzerland Belgium Russiasia Poland Ireland Turkey 4 COURIER, EXPRESS AND PARCEL: CAN IT KEEP THE MOMENTUM? A.T. Kearney

7 Europe s courier, express, and parcel industry has returned to pre-crisis volume levels, but revenues still lag. Several trends are having a huge impact on companies and their future prospects. by the economic recovery as companies urgently sent large volumes of heavy, time-critical shipments (formerly freight) to replenish low stocks. We expect this is a one-time, two-to-three-month effect that also influenced the growth in international standard shipments. The decline in domestic WpS is the direct result of more lightweight B2C and e-commerce shipments. 3. B2C and e-commerce are major growth engines. B2C and e-commerce shipping remain the growth engines in domestic markets and are fast becoming so in international markets. B2C has grown faster than B2B in nearly all domestic markets studied, except Russia, where B2B outpaces B2C (see figure 3). This is primarily driven by the low Internet and smartphone penetration. Indeed, 43 percent of Europe s domestic shipment volumes are businesses sending to consumers. Internationally, however, B2C still plays a minor role with roughly 10 percent of shipments going to private households, but is growing at 12 percent annually. 4. Document shipping stagnates. Document shipping is stagnating and even declining, both domestically and internationally. Not surprisingly, much of the volume in document shipping has been replaced by or local letter services a global trend not likely to subside. Only emerging markets such as Turkey and Russia report growth Figure 3 For most domestic markets, B2C is the fastestgrowing segment Volume growth Belgium Switzerland Germany Spain France Ireland Italy The Netherlands Poland Russia Sweden Turkey -8% -6% -3% United Kingdom -4% 0% 1% 1% 2% 6% Notes: B2B is business to business; B2C is business to consumer; C2C is consumer to consumer. For Belgium, Ireland, Poland, and Turkey, no distinction is made between B2C and C2C. Sources: Annual reports, expert interviews; A.T. Kearney analysis 3% 0% 2% 0% 2% 4% 5% 4% 4% 3% 5% 7% 6% 10% 10% 10% 11% 7% 4% 5% 7% 7% 14% 17% B2B B2C C2C 33% 25% 20% COURIER, EXPRESS AND PARCEL: CAN IT KEEP THE MOMENTUM? A.T. Kearney 5

8 The CEP industry is poised for growth, barring any major disruptions or the global economy falling back into recession. in documents both places where a rush of new businesses requires document services. 5. Customers are returning to express, but not as quickly as expected. Of the customers who shifted from express to standard shipping during the economic downturn, many have not returned especially those who sent intra- European shipments. Customers remain satisfied with the limited differences in transit time between standard and express, and comfortable with the lack of a guaranteed delivery time. For intercontinental shipments, however, customers still pay for speed. Sensitive to the longer transit times of standard, many have returned to express. Market Predictions From our findings and analyses, we can draw several conclusions about the future of the European CEP industry: The European industry will return to its 2008 revenue levels by the end of this year or early in 2012, and continue growing by 4 percent per year to Germany, the United Kingdom, Poland, and Russia will be the major growth areas (see figure 4). Consolidation in domestic markets will continue. B2C niche players are broadening their B2B product offerings, while integrators are broadening their B2C offerings. In international express, we do not expect further organic consolidation as the top six players already own 90 percent of the market. Watch for agreements between the big players and smaller, local postal providers. Production costs (line haul, pick-up, and delivery) and fuel surcharges will rise, forcing revenue per shipment upward in the next three years. Providers will not be able to pass all of these incremental costs on to customers. Agreements with large customers will be updated to include further rebates, while smaller customers will continue focusing on Figure 4 Shipments are forecast to grow 4 percent annually through 2013 Billions of shipments 0.4 (8%) (92%) International +2% +3% +2% Domestic 4.6 (91%) Sources: Expert interviews; A.T. Kearney analysis 0.4 (9%) +4% +6% +4% (91%) 0.5 (9%) Compound annual growth rate 6 COURIER, EXPRESS AND PARCEL: CAN IT KEEP THE MOMENTUM? A.T. Kearney

9 single-provider solutions in order to receive further discounts. We anticipate a maximum price increase of 3 percent. Intra-European e-commerce and B2C shipping will weaken as larger e-commerce companies reach their growth targets and set up local warehouses. Pricing will remain a challenge as the distinctions between express and standard shipping blur. In some shipping lanes, transit times are nearly identical, and the only difference is that express guarantees a delivery date and time. In reality, many companies are offering express service at standard prices. Back to Growth After a few shaky years, solid growth numbers portend a courier, express, and parcel industry once again on the rise. However, navigating the years ahead will require understanding and preparing for the challenges market changes, evolving customer needs, and macroeconomic uncertainty. COURIER, EXPRESS AND PARCEL: CAN IT KEEP THE MOMENTUM? A.T. Kearney 7

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