Market will Exceed ?12 Billion Driven by Home Shopping in the Face of the Patchy Performance of the UK Economy

DUBLIN, Oct. 25, 2019 /PRNewswire/ — The “UK Parcels Market Insight Report 2019” report has been added to ResearchAndMarkets.com’s offering.

The UK parcels market will exceed £12bn in 2019, with growth driven mainly by home shopping in the face of the patchy performance of the UK economy.

The three main market segments (business-to-business, business-to-consumer and consumer/small business-consigned parcels) were traditionally regarded as distinct markets served by different providers.

However, there has been convergence as:

• Home shopping growth has made consumers an increasingly attractive segment, drawing business carriers to enter the area where they believe they can serve it profitably.
• Consumer carriers have invested in tracking and tracing systems and introduced premium services.
• New services have been developed by both carriers and third parties such as internet brokers to give consumers and small businesses access to a much wider range of options.

B2C is now clearly the largest segment and, given its faster growth, the market will become increasingly skewed to B2C in the future. The author expects B2C to represent 53% of market value and 73% of volume by 2023.

Same day delivery is a potentially important segment and is being offered as a premium option by more retailers but current take up is low, at well under 1% of home delivery orders.

Key industry issues
An ongoing challenge for operators has been the development of a model to serve last mile home deliveries profitably, enabling them to exploit the growth segment without damaging their overall economics and service levels. To that end, most have invested in parcel shop networks to provide additional delivery options. Other options, such as the use of cargo bikes, special urban depot configurations and even mobile depots, appear more viable now than in the past.

Customer retention remains a challenge in the B2C segment where large retail customers both negotiate a hard bargain and have a higher propensity to switch, creating greater instability within the market and more share mobility amongst carriers

Having risen for several years, Industry margins have now fallen as powerful customers, such as the big retailers, have negotiated down price increases in a competitive market.

Operator trends
The organic growth records of leading carriers show a significant degree of divergence between winners and losers.

Operators who have gained share include:

• Amazon Logistics, which has now rolled out to c.50 depots and delivers the majority of parcels on behalf of its parent and also marketplace sellers
• Hermes, which has also been very strong in B2C based on its cost-leading business model underpinned by ongoing investments to improve its service and add capacity
• DPD, which has made a series of account wins on the back of service and systems enhancements, establishing itself as the leader at the high end of the B2C segment. While it is no longer gaining market share, DPD now has margins far higher than those of any other carrier
• Newer players with models meeting the needs of a customer segment such as brokers (Parcel2Go, ParcelHero), networks (Collect+) and international B2C specialists (P2P Mailing)

Those who have lost market share include:

• TNT Express, which has been impacted by contract losses and lack of exposure to the high-growth B2C segment
• DX, where some business was exited during the merger of the Nightfreight and DX networks and profit warnings led to a change of management
• Royal Mail which, despite a strong performance in its latest year, has been most directly affected by Amazon’s ongoing insourcing of its volumes

In overall terms, the market is more competitive than in the past despite recent mergers with Royal Mail’s reduction in share being the major factor.

Outlook

• The author expects to see continued growth in the market as home shopping continues to grow and a recovering economy supports the outlook for B2B parcels.
• Price increases are expected to continue to be modest with the volume being the main driver of market growth.
• Amazon Logistics is likely to gain further share with the roll-out of its Shipping With Amazon service meaning it is now targeting customers who do not sell on its website or keep stocks in its warehouses.
• The last mile is ripe for innovation as both commercial and environmental pressures make the traditional van delivery model increasingly problematic

Key Topics Covered:

1. Introduction

• About this report
• Executive summary

2. Contents

• List of charts and tables

3. Parcels market

• The parcels market includes next day or deferred delivery of parcels from around 0.75-40kg in weight
• Key features of the market include high operational gearing, low capital intensity, scale economies arising from consolidation and low customer retention
• B2B, B2C and C2X segments have converged but retain distinct characteristics
• Franchised models are receding but other forms of outsourcing are widespread
• The last mile for home delivery remains both a challenge and an area of innovation

4. Market size, growth and segmentation

• Actual vs forecast
• Our market size estimate is based on company revenues
• Non-parcel activities of the main networks have been excluded and parcels activities of other operators have been included
• The market has grown strongly since
• Figures from Ofcom support our views of market size and growth
• The B2B, B2C and C2X segments are impacted by different drivers hence have grown at different rates
• The market is often segmented by the speed of delivery, type of item and international/domestic delivery
• Consumers are increasingly opting for premium delivery services
• Growth of internet retail is supporting the shift towards more deferred / economy deliveries, although the picture is more complex
• Domestic deliveries account for the majority of the market
• Larger / heavier items are not compatible with highly automated parcels sortation processes
• Volume trends
• Price trends
• Evidence supports a lack of price increases

5. Market drivers

• The main drivers of the parcels market are online shopping and the overall level of economic activity
• Pricing is largely driven by competition
• UK GDP growth slowed in the uncertainty around Brexit
• B2B parcels has broadly tracked but been lower than, movements in real GDP
• Retail sales has continued to grow
• Of the range of routes via which an online purchase can reach a consumer some, but not all, require a parcel delivery
• Online retailing has grown considerably over the last decade.
• Certain categories of online purchase do not lead to a parcel movement
• The UK is a worldwide leader in internet shopping
• International sales by UK e-retailers are growing more quickly than domestic sales
• Average internet shopping transaction values have stopped falling
• Rates of returns – which are not captured by e-commerce statistics – are (slowly) rising

6. Competitive landscape

• UK parcels operators can be divided into several categories
• The leading international groups have continued to gain share at the expense of UK-only players
• There have been several long-term share movements over the last decade
• The UK parcels market is now on the border between moderately concentrated’ and competitive market’
• The fastest growing companies have been the newer players, followed by DPD (and DPD Local), and Hermes
• TNT and DX have seen falling revenue over the last 12 years while the growth of DHL, UK Mail and Yodel has been modest
• Estimated volumes by carrier
• Differences in average revenue per parcel reflect carrier focus
• Features of carrier business models underpin both segment focus and profitability
• Revenue per depot by carrier
• Revenue per employee by carrier
• Tuffnells, Hermes and Amazon Logistics have business models which reflect the requirements of their respective niches
• Having increased from 2011-16, margins have fallen back in the last couple of years
• The overall industry picture masks some significant variations in profitability
• Several of the more profitable companies have also been amongst the fastest-growing
• Those with losses have specific factors explaining their performance
• Carrier rankings suggest some winners – but care is needed in interpreting

7. Forecasts

• Our market forecast considers the three main segments (B2B, B2C and C2X) separately
• GDP is expected to grow steadily and inflation to increase
• Our forecast is based on the B2B parcels segment maintaining its recent historical relationship with GDP growth
• We expect to see growth in retail sales continue at a similar rate
• Forecasts for growth of click-and-collect
• Growth in international internet retail sales is expected to continue to be faster than domestic sales
• We expect to see further growth in home delivery but at a slowing rate
• Market value forecast to
• Market volume and price forecasts to
• Risks to the forecast

8. Appendix

Companies Mentioned

• Amazon
• DHL
• DPD
• DX
• FedEx
• Hermes
• Quiqup
• Royal Mail
• TNT
• Tuffnells
• UK Mail
• Yodel
• Zedify

For more information about this report visit https://www.researchandmarkets.com/r/eihst1

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