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UK Express Parcels: Market insight report

  • August 2013
  • -
  • Apex Insight
  • -
  • 59 pages

Summary

Table of Contents

Having fallen in the aftermath of the 2009 economic downturn, growth is now speeding up in the £8bn UK parcels market as traditional carriers and new entrants develop better models to meet home shopping and consumer demand.

This new report by Apex Insight looks at each of the three main segments of the parcels market: business-to-business, business-to-consumer and consumer/small business-consigned parcels. These segments were traditionally seen as separate markets, served by different providers. However, there has been convergence as home shopping growth has made consumers increasingly attractive to serve, drawing business carriers such as UPS, City Link and UK Mail to increase their focus on the area where they believe they can serve it profitably. At the same time, consumer-focused carriers like Yodel have invested in systems and sought business customers. New services have been developed by both carriers and third parties, such as internet brokers and parcel shop networks, to give consumers and small businesses access to a much wider range of services.

Home shopping has fuelled growth in the business-to-consumer segment throughout the last decade as penetration of broadband, smartphones and tablet computers have risen. The challenge for operators has been to develop a model to serve home deliveries profitably, so they can obtain exposure to this growth segment – which now represents almost a quarter of the market – without damaging their overall economics and impacting service levels for premium business-to-business customers. Latest data confirms that the economy has now started to recover, although later and more slowly than previously forecast, suggesting stronger performance can be expected in business-to-business parcels than in the recent past.

The UK market remains relatively fragmented with consolidation occurring at a slow pace. The only significant merger in the last year has been the incorporation of Nightfreight into DX Group. City Link was divested by Rentokil Initial into private equity ownership (Better Capital) while UPS’s attempt to acquire TNT was disallowed by EU competition authorities.

While overall industry profitability remains low, several operators earn healthy margins and the overall picture is distorted by on-going turnarounds at City Link and the old DHL Domestic business, now owned by Yodel.

Factors such as quality of operations and fit with segment focus have proven to be far more important than the effects of scale in determining profitability.
In this report we review the UK parcels market encompassing the business-to-business, business-to-consumer and consumer / small business consigned segments.

We quantify the market size, historical growth rates, segmentation patterns and levels of industry profitability while reviewing key factors behind these figures.
Our market size estimate is derived from our bottom-up model of the revenues of all of the operators in the market with adjustments made to take into account a range of factors. This model has been regularly updated and refined since it was first developed in 2004 .
We also carry 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.
Our forecast for industry growth by segment is based on this analysis of historical trends and our understanding of growth drivers.
This report is intended for parcels carriers themselves, users of their services, partners, investors, banks, analysts, consultants and other parties with interests in the sector
It 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
–Our 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

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