UK Parcels Market Insight Report 2023
Summary
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 15 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 2017-2022. Our forecast (also in value and volume) runs from 2022-2027.
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 exceeded £15bn in 2020 and 2021 as a result of the surge in online retail created by the pandemic, before falling back slightly in 2022. Volumes in each of the last three years have been close to 4bn.
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. Our forecast expects B2C to represent over 60% of market value and over 70% of volume in 2027.
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, although lockers are not as widespread as elsewhere in Europe. Our research has identified almost 60,000 parcel shop and locker locations with the number growing at 30%+ per year. Carriers are rolling out electric van fleets as well as other delivery options likely to have greater environmental benefits, such as use of cargo bikes, special urban depot configurations and even mobile depots.
Post-pandemic, customer retention is once more 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
The industry is more profitable than it has ever been:
– Aggregate margins for those carriers for whom profitability data is available were over 8% – the highest level since we started tracking the market
– For the first time in at least 20 years, all major UK carriers were profitable in 2021.
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
– Evri, 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 (FedEx Cross Border)
– Royal Mail, which (re)gained share during the pandemic
Those who have lost market share include:
– FedEx, which has performed well in the B2B segment but suffered from lack of exposure to higher-growth B2C
– UPS, which has greater exposure to B2C and has continued to grow but at a lower rate than the market
In overall terms the market became less competitive during the last couple of years as Royal Mail and the other largest carriers (Amazon, DPD, Evri) gained share
Outlook
Even as the pandemic subsides, there is still considerable uncertainty around the outlook for the market, especially as 2022 financials were not available for all carriers at the time of writing.
The key question is the future trajectory of online retail, for which our forecast assumes slower growth than pre-COVID, in 2023 onwards.
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.
Introduction 2
About this report
Executive summary
About Apex Insight
Contents 7
List of charts and tables
Parcels market 10
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
Market size, growth and segmentation 28
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 2013
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 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 lack of price increases
Market drivers 36
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
Competitive landscape 53
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 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
Forecasts 84
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 2023
Market volume and price forecasts to 2023
Risks to the forecast
Appendix 98
List of Figures
Royal Mail parcel operations
Yodel depot
Consumer apps
Parcel shop
Amazon locker
Percentage of parcel shop customers buying something else by network
Hermes self-employed courier delivery
DHL cargo bikes
DPD all-electric urban depot
Zedify cargo bike depot
Quiqup courier platform
DHL in-boot delivery
Amazon drone delivery
Robots and driverless vehicles
UK parcels market size and growth 2012-18
Market segmentation
UK domestic home deliveries by service type
Parcels market – historical volumes by segment
Parcels market – historical average revenue per parcel
FedEx UK: revenue and parcel volume
FedEx UK: revenue per parcel
UK GDP in current prices (money GDP), inflation (GDP deflator) and real GDP
B2B parcels market and real GDP growth
UK retail sales
B2C parcel channels
UK online retail spending: value as % of all retailing
UK online retail spending: % growth
UK e-retail spending (IMRG): value as % of all retailing
UK Internet sales (ONS): value and as % of all retailing
Internet sales resulting / not resulting in an parcel delivery
Internet retail as % of total retail by country
Average spend per online shopper by country
UK e-retailers: domestic and international transaction value
Implied number of B2C transactions
Internet shopping returns rate by category of item
Implied number of UK home shopping movements
Leading UK parcels networks – latest revenue
Carrier size and growth
UK parcels market share trends
UK parcels market competitiveness: Herfindahl-Hirschman index
Long term revenue growth by carrier
Estimated parcel volumes by carrier
Average revenue per parcel by carrier
Operating models and segment focus
% of top UK online retailers which use each carrier
Revenue per depot by carrier
Revenue per employee by carrier
EBIT margins – overall sector and by carrier
EBIT margin by carrier
RoS vs RMS for UK carriers
MoneySavingExpert carrier scores / % regarding the carrier as ‘good’
Which? Magazine: ‘Would you recommend…?’
TrustPilot scores
Nominal UK GDP, inflation (CPI) and real GDP: historical and forecast
B2B parcels market and real GDP - historical and forecast
UK retail sales / % annual change
Internet retail sales which typically do / do not result in a parcel delivery – historical and forecast
UK e-retailers: domestic and international transaction value (£bn) - historical and forecast
Implied number of B2C transactions / millions per year - historical and forecast
Implied number of UK home shopping movements / millions per year - historical and forecast
UK parcels market size and growth: historical and forecast / £m - historical and forecast
UK parcels market size and growth: historical and forecast / m parcels - historical and forecast
