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Online Orders Boost UK Parcel Delivery Market To Almost £9 Billion
Thursday, 24 August 2017 at 08:25
Shoppers’ preference for ordering online has helped boost the size of the UK parcel market to almost £9bn, but fierce competition means carriers are receiving less for deliveries.
Revenues in the sector, dominated by the likes of Royal Mail, UPS, Hermes and DHL, increased 6 per cent in 2016, according to research by consultancy Apex Insight.
This was underpinned by the continued surge of items sent by businesses to consumers, now the single largest portion of the market, even as the historically larger business-to-business segment declines. “As home internet shopping inevitably matures, [parcels] growth will be slower in future but there’s still a good way to go,” said Frank Proud of Apex Insight.
UK logistics companies have been investing heavily in expanding delivery networks, vehicle fleet and technology in order to grab a greater slice of the parcels industry, which has expanded by about one-third to £8.9bn since 2011. DPD last year opened Europe’s largest parcel sorting hub, a £100m site in Leicestershire, while Royal Mail is introducing automated machines to sort and label packages.
Robust preparations enabled parcel carriers to cope better with the discount bonanza of Black Friday in November. This kicked off the peak delivery season with a record-breaking day of £1.1bn of internet sales, according to Experian-IMRG.
A higher proportion of orders were delivered on time compared with the previous year when many companies were caught out, data from technology platform MetaPack showed.
Other developments include lockers, shops where customers can pick up and drop off packages, and narrowed time slots for home deliveries and the rollout of same-day services by Argos and Amazon.
Yet the sum of these bulked-up parcel operations — coupled with Amazon’s decision to build its own delivery network — is an increasingly crowded marketplace.
Royal Mail has said there is around 20 per cent spare capacity in the parcels industry, while data from Ofcom, the postal regulator, implied a 1 per cent fall in prices in the last financial year. International groups have continued to gain share at the expense of UK-only players, Apex Insight also found.
These pressures have squeezed earnings at some companies. In November, the chief executive of UK Mail, a smaller operator, resigned after two profit warnings. Former rival City Link collapsed into administration on Christmas Eve in 2014.
Mark McVicar, analyst at Barclays, predicted a “rebalancing” of the parcel market. “The shipper and consumer . . . eventually will be prepared to pay a bit more for a good quality delivery.
Perhaps you will see some M&A activity or alliances between smaller and regional carriers and there are bound to be some that go to the wall,” he said.