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As in previous years, growth has been driven by internet retail which continues to expand and is expected to do so into the future. As the report describes, this will lead to increases in the numbers of home deliveries, despite the rapid growth of other last mile solutions such as click and collect. Nevertheless, an ongoing challenge for operators is the refinement of their model to serve home deliveries profitably, enabling them to exploit the growth segment without damaging their overall economics and service levels. The UK parcels report describes the approaches taken by different carriers, how successful they have been and what impact they have had on growth and profitability.
The last year has seen the exit of City Link from the market but there has been no other significant further consolidation through acquisition. However the organic growth records of leading carriers show a significant degree of divergence between winners and losers. Operators who have gained share include Royal Mail / Parcelforce now under private ownership; DPD, which has made a series of B2C wins on the back of service enhancements; APC, where feedback on service remains strong; Hermes, which has also performed strongly in B2C based on its cost-leading business model; newer players such as brokers (Interparcel, Parcel2Go), networks (Collect+) and finally, potential industry disruptor, Amazon Logistics, which now operates a sizeable UK parcels network. Those who have lost market share include TNT Express, which has been impacted by contract losses, disruption from the UPS and FedEx bids and lack of exposure to the high-growth B2C segment and DX, where some business has been exited during the merger of the Nightfreight and DX parcels networks.
Overall industry profitability has improved, largely as a result of the closure of City Link and progress in the turnaround efforts at Yodel, but remains modest with continued price pressure resulting from the competitive nature of the market, the powerful bargaining power of big retailer cusotmers and significant excess capacity (despite the closure of City Link). Although recent profit warnings at UK Mail and DX serving as a reminder that things could get worse, several operators now earn respectable margins with six carriers having EBIT margins of at least 8%. Factors such as compatibility of operations with market segment focus continue to be more important than the effects of scale in determining operator profitability.
The full market report: UK Parcels Market Insight Report 2015 includes a review of industry trends, an analysis of its economics including, in particular, how home shopping growth translates to demand for parcels services, and the relationship between GDP growth and B2B parcels, as well as growth forecasts for the market and its key drivers.
About Apex Insight
Apex Insight is an independent provider of research and consulting services covering business and financial services markets in the UK and Europe. It publishes insightful market reports and carries out commercial due diligence and other bespoke consulting exercises to support managers, investors and advisers in making better business decisions.
