Description

About the UK Parcels Market Insight Report 2020

This report reviews the UK parcels market encompassing the business-to-business, business-to-consumer and consumer / small business consigned segments. Having been refined, extended and improved over the last 14 years, it is the leading survey of the UK parcels market, used by many carriers, and other parties with interests in the industry.

It quantifies 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 add and remove non-parcels activity, as appropriate. This model has been regularly updated and refined since it was first developed in 2004 with our forecast approach fine tuned in the light of experience.

The report provides historical market size figures in value and volume terms from 2011-2019. Our forecast (also in value and volume) runs from 2020-2024.

We also carry out an in-depth analysis of the relevant drivers of industry growth – in particular the macroeconomic environment, retail sales and home shopping – setting out historical trends and available forecasts.

The competitive landscape section compares the operating models, strategies and performance of all the national parcels networks. It also evaluates new entrants to the market, such as brokers, parcel shop and locker networks and cross-border B2C specialists.

The report is intended for parcels carriers themselves, users of their services, partners, investors, banks, analysts, consultants and other parties with interests in the sector.
The report is based on
– Financial analysis of the accounts of companies in the industry
– Discussions with our network of senior-level contacts in the market
– In-depth analysis of the macroeconomic environment and relevant market drivers
– Extensive desk research
– Our own experience of advising both carriers and investors in the 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.

Market growth and segmentation

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. We expect B2C to represent 65% of market value and 78% of volume by 2024.

Same day delivery may become an important segment but, currently, only the two retailers with their own delivery operations – Amazon and Argos – have significant same day volumes. Hence 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 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

Aggregate margins for those carriers for whom profitability data is available have been around 4% or higher for the last six years – significantly better than the previous six years.

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 over 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. DPD now has margins far higher than those of any other carrier while continuing to gain share
– 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

There is greater uncertainty around the outlook for the market than in other years given the ongoing COVID epidemic, different views on how much retail will revert to the high street once it is over and Brexit. However, we expect the following:
– After the rapid growth of 2020 the market will continue to grow but at a much slower pace as some, but not all, retail switches back to the high street post-COVID.
– Prices are likely to be firmer with increased demand having taken up virtually all available capacity
– 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.
– Innovations in the last mile are likely to continue. Lockers and cargo bikes are likely to be more widely used to reduce both pollution and urban congestion, and more electric vehicles are likely to be deployed. Given these factors, usage of fossil-fuelled vans for delivery may have now reached its peak.

Who was it written by?

The report was written by Frank Proud and Paul Chapman

Frank founded Apex Insight in 2012 and set up our Parcels and Delivery practice
His background is strategy consulting, with two firms, Bridgewater and Burlington, which were originally founded by ex-Bain teams. He has advised many clients across the logistics industry, from start-ups to global leaders.
Subsequently, he was a senior member of the Transaction Support team at EY, advising private equity firms and corporate acquirers on commercial due diligence and other acquisition-related issues.
He leads Apex Insight’s consulting work for investors and clients in the logistics industry.
He has an MA in Economics from Cambridge University.

Paul has extensive experience across a wide range of parcels, delivery and logistics markets
As well as having a leading role in Apex Insight’s research, he has worked on consulting assignments for clients and investors in the sector.
His previous experience includes being Logistics Research Manager at Datamonitor, co-founder of Analytiqa and a marketing / strategy role at Christian Salvesen.
He has a BA in Modern Languages with Business Studies from Swansea University

Clients purchasing the report are entitled to have an expert call with our analysts to discuss its findings and any questions that they may have on it or the market in general.