courier, express and parcel: can it keep the momentum? · pdf file ·...

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

Authors

Ferry Salehi, partner, [email protected]

Lars Ryssel, consultant, [email protected]

COURIER, EXPRESS AND PARCEL: CAN IT KEEP THE MOMENTUM? | A.T. Kearney 1

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 renego-

tiations in 2009. 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) indus-try 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 business-to-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 side-bar: 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. Kearney2

performance in 13 countries, our final analysis foretells an industry that is slowly returning to growth.

The FindingsThe CEP industry is poised for growth, barring any major disruptions or the global economy fall-ing back into recession. The following highlights our five main findings: 1. International and domestic markets con-tinue 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 cumu-lative 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 offer-ings to include B2B. 2. Weight per shipment is changing. Weight per shipment (WpS) has increased internationally and declined domestically. Growth in interna-tional express is explained by more parcel ship-ments compared to document shipments, and

Figure 1Domestic and international CEP markets have rebounded, but revenues are still down from 2008

Sources: Annual reports, expert interviews; A.T. Kearney analysis

Revenues (€ billions) Shipments (billions)

2008 2009 2010

13.2(30%)

44.140.3

42.1

11.6(29%)

12.3(29%)

30.9(70%) 28.8

(71%)29.7

(71%)-7% +3%

-13% +7%

-9% +4%

2008 2009 2010

0.4(8%)

0.4(8%)

4.8 4.75.0

0.4(9%)

4.4(92%)

4.3(92%)

4.6(91%)-2% +6%

-3%

-2% +6%

+9%

InternationalIn DomesticDo


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 2008. Total shipment volumes are 5 billion today compared to 4.8 billion in 2008 and are expected to reach 5.7 billion by 2013. Most countries are back to their 2008 volume num-bers 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, inter-national 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 per-cent, and are expected to surpass domestic shipments. Germany, the United Kingdom, Poland, and Russia will become the fastest- growing 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 inter-national 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

Sources: Annual reports, expert interviews; A.T. Kearney analysis

Market performance by country 2010 vs. 2008

125

120

110

100

90

115

105

95

Inde

xed

volu

me

grow

th (i

n %

)

Indexed revenue growth (in %)

12570 75 80 85 90 95 100 105 110 115 120

Volume greaterthan 2008 level

Size of bubble represents market size in € billionsSiz

TR

PL

RUDE

CH

NL

UKBEES

FR

IT

IE

Volume andrevenue greaterthan 2008 level

SE


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 busi-ness; 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 cer-tain and deferred products. Unlike previous studies, we extended the upper weight limit to 2,500 kilograms.

Figure 2International standard markets are more fragmented, but consolidation has increased

1 Major players: DHL, UPS, FedEx, TNT, GLS/Royal Mail, DPD/La PosteSources: Annual reports, expert interviews; A.T. Kearney analysis

International standard market share, major players1

(€ billions)

France Germany Italy Spain UnitedKingdom

The Netherlands

0.4

25%

0.30.1

0.3

0.5

0.1

0.1

0.0

92%

66%

40%

75%

85%

28%

18%

57%

91%

1.1

85%

2010 average: 50%

2008 average: 46%

Size and market share network players

Gained market share,2008-2010

Remained stable,2008-2010

Sweden

Switzerland

Belgium

Russia

Poland

Ireland

Turkey

m

sia

Re20

g

s

Sweden

rlandd

umm

d

a

nd

a

d

nd

d

d

y

d

yy

Ga20

42%

82%


by the economic recovery as companies urgently sent large volumes of heavy, time-critical ship-ments (formerly freight) to replenish low stocks. We expect this is a one-time, two-to-three-month effect that also influenced the growth in interna-tional 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 out-paces B2C (see figure 3). This is primarily driven by the low Internet and smartphone penetration. Indeed, 43 percent of Europe’s domestic ship-ment volumes are businesses sending to consum-ers. Internationally, however, B2C still plays a minor role with roughly 10 percent of ship-ments 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 email or local letter services— a global trend not likely to subside. Only emerging markets such as Turkey and Russia report growth

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.

Figure 3For most domestic markets, B2C is the fastest-growing segment

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

Volume growth2009-2010

Belgium

Switzerland

Germany

Spain

France

Ireland

Italy

The Netherlands

Poland

Russia

Sweden

Turkey

United Kingdom

2%6%

3%

1%7%

4%

4%

4%

1%

0%

0%

14%

10%

17%

25%20%

3%

5%4%

7%11%

7%7%

5%

33%

2%

5%

B2BB2B2CB2B2C2CC2C2

6%10%

10%2%

0%-3%

-6%

-8%

-4%


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 PredictionsFrom our findings and analyses, we can draw sev-eral conclusions about the future of the European CEP industry:• TheEuropeanindustrywillreturntoits2008

revenue levels by the end of this year or early in 2012, and continue growing by 4 percent per year to 2013. Germany, the United Kingdom, Poland, and Russia will be the major growth areas (see figure 4).

• Consolidation in domestic markets will con-tinue. B2C niche players are broadening their B2B product offerings, while integrators are broadening their B2C offerings. In interna-tional 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

The CEP industry is poised for growth, barring any major

disruptions or the global economy falling back into

recession.

Figure 4Shipments are forecast to grow 4 percent annually through 2013

Sources: Expert interviews; A.T. Kearney analysis

Billions of shipments

2008 2010 2013

0.4(8%)

0.5(9%)

4.8

5.7

5.0

0.4(9%)

4.4(92%)

5.2(91%)

4.6(91%)+2%

+4%

+3%

+6%

InternationalIn DomesticDo Compound annual growth rateCo

+2%

+4%


single-provider solutions in order to receive further discounts. We anticipate a maximum price increase of 3 percent.

• Intra-Europeane-commerceandB2Cshippingwill weaken as larger e-commerce companies reach their growth targets and set up local ware-houses.

• Pricingwill remain a challenge as thedistinc-tions 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 GrowthAfter 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 prepar-ing for the challenges—market changes, evolving customer needs, and macroeconomic uncertainty.

ATK.1111.199

courier, express and parcel: can it keep the momentum? · pdf file ·...

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