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Finally, Shippers Have the Upper Hand!
While delivery volume has slowed since the dramatic increases
seen during COVID-19, consumers continue to expect high-quality
courier services with increased customer contact and control.
Though higher than pre-pandemic levels, volume has slowed since
2021 with a fall in online demand, consumers expect a greater
degree of communication and choice over delivery speed.
Amazon logistics’ expansion, alongside an increased presence
from Evri and a sharp rise in small or independent couriers, has
seen a reduction in Royal Mail’s market share.
In addition to the market’s main players, competition within
the industry is steadily increasing. However, a slightly slower
employee growth rate indicates that subcontracted and self-employed
delivery drivers are also emerging as a viable courier option.
Key Industry Developments:
- Excess capacity caused by a major shift off
the peak shipping levels experienced post Pandemic is driving
increased competition in the industry - Increased driver availability: a rise in
self-employed and subcontracted drivers is providing companies with
more flexible delivery options, but an overreliance on this labour
may be causing costs to increase - Improved automation and AI are driving more
efficient shipping through improved mode/freight class selection,
making it easier for shippers to optimize with multiple
suppliers - Couriers are facing rising costs amid a recent
increase in the minimum wage and trade union disputes - Increased consumer expectations are placing
greater pressure on faster on-time services and improved
tracking.
Key Events Driving The Industry Dynamics:
- Royal Mail strike action ended in July 2023 after a vote to
accept a 10% pay rise over three years and a one-off payment of
£500. Further increases in the National Minimum Wage place
additional pressure on the wage bill. - Excess capacity and increased costs are encouraging companies
to cut back through cost-reduction schemes. FedEx will remove 2,000
back-office jobs across Europe, resulting in €175 million in
savings per year from FY2027. - However, Evri has announced 9,000 new jobs, increasing their
workforce of self-employed couriers to 28,000. This follows their
recent agreement to be sold to Apollo Global Management in a deal
worth £2.7bn. - Larger companies are driving efficiency improvements in
last-mile delivery in an attempt to keep up with consumer
expectations. UPS invested £138 million in the latest
processing technology and AI in its East Midland centre. Royal
Mail’s ‘Super Hubs’ which are able to sort 800,000
parcels a day and have helped achieve 76% automation. - Though consumer demand reduced post-pandemic, a significant
increase in online second-hand retail may help the industry recover
some parcel volume. A compound annual revenue growth rate of 3.5%
is forecast from 2024-25.
Opportunities For Parcel Shippers:
Ankura estimates the window for shippers to capitalize on
current market opportunities will close in 6-18 months. Shippers
should act soon to:
- Take advantage of the current competitive intensity by
re-bidding contracts and potentially introducing
alternative vendors to UPS and FedEx for some portion of last-mile
deliveries - Develop a deep understanding of pricing complexity to
enter “fact-based” negotiations with full
knowledge of how not just rates, but minimum charges and surcharges
impact total costs - Evaluate opportunities to leverage capabilities of
alternative last-mile carriers to create additional
competitive tension and reduce costs for certain customer
segments - Re-align fulfilment strategy– adjust network
shipping nodes, review package sizes, and optimize mode selection
to cost-effectively meet consumer expectations
Ankura Performance Improvement
Fundamentals:
Ankura’s Performance Improvement Team has a proven track
record of executing strategic plans to achieve sustainable
performance improvement and targeted operating results aimed at
maximizing Earnings Before Interest, Taxes, Depreciation, and
Amortization (EBITDA), cash flow, and ultimately shareholder
value.
Our expertise extends to optimizing distribution and logistics.
We work alongside clients to reduce costs and improve efficiency by
streamlining inbound and outbound logistics. Our team’s
hands-on experience ensures cost-effective solutions for
transportation modes, shipping rates, and on-time delivery.
Ankura leverages its vast internal resources to assemble the
perfect team for each client’s unique challenges, guaranteeing
optimal outcomes for complex problems.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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