How competitive is the UK parcels delivery market?


The UK parcels delivery market is generally considered to be competitive but, when measured by objective standards, how competitive is it?

We have tracked the level of the Herfindahl-Hirschman index – a scale that runs from 0-10,000 where perfect competition is rated at zero and a monopoly is 10,000 – for the market over the last decade or so (see chart above). This index is not used officially in the UK or Europe, but is the standard measure used by US authorities in evaluating the impact of mergers on market competitiveness.

The UK parcels delivery market sits at around 1617 on the scale, meaning it is ‘moderately concentrated’. The main reason for its score being higher than the ‘competitive market’ band is the high share of Royal Mail Group (including Parcelforce), which had 32% in 2017.

The shape of the historical index line primarily reflects Royal Mail’s share. There was a rise in the index (decrease in competitiveness) leading up to 2013 as the Royal Mail’s share reached its peak of 38%. This was followed by a fall (increase in competitiveness) from 2013-2016 as Royal Mail’s share slipped back. The trend stalled in 2017 when a further fall in Royal Mail share, leading to lower concentration, was offset by the increase in concentration from the two recent large mergers (FedEx/TNT and DHL/UK Mail)

This, and other issues in the market are explored in our recent report on the industry: UK Parcels Market Insight Report, 2018.