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.