German express and parcels market heads for consolidation

The German express and parcels industry is set for further consolidation in the next few years against a background of low growth in the mature domestic market and stronger growth for cross-border volumes. Meanwhile, trends such as rising B2C volumes driven by e-commerce and new technologies such as RFID will play even more important roles in the future. Those were the key messages from senior industry managers in a panel discussion at the recent “European CEP Congress” in Bonn.

Donald Pilz, managing director of TNT Express Germany, predicted: “I believe that consolidation will continue in the parcel market. At the end, the top three will have 70-80% of the market.” European postal liberalisation would have a major impact on the express and parcels market since more post offices would be privatised and their structures changed. In terms of international expansion, TNT was investing heavily in Asia and there were some gaps in Eastern Europe, Pilz said. But he added: “There are markets around the world where we think it does not make sense to cover them with our own organisation, for example, the USA.” In terms of products, Pilz predicted that the B2B sector would move more towards “time-sensitive” services.

Peter Kruse, head of DHL Express Europe, said that while the German domestic express and parcels market was only growing at about 3-4%, cross-border parcels were growing at 10%, and Central and Eastern Europe had strong growth. “I expect further changes in our industry, for example, through the EU enlargement to Romania and Bulgaria.” Kruse said DHL still saw international expansion opportunities in regions such as Eastern Europe or South America, and reiterated the strategic importance of being in the US market. Kruse added there might also be a product gap between express and standard parcels for international traffic flows.

Arnold Schroven, joint managing director of DPD, said that the German B2B parcels market remained highly competitive and there were signs of a “price war”, with some corporate rates of €2 per standard parcel on the market. The DPD Guarantee product, now covering 11 European countries, was proving a success with 5,000 Guarantee parcels daily, Schroven said. Most were consignments priced below integrator rates that had previously carried through express networks, he noted. Schroven forecast European market growth of 3-5% for B2B parcels and higher growth rates for B2C parcels due to e-commerce. Internationally, DPD had alliances for some intercontinental markets such as for Mexico, but its focus was on Europe and international flows to and from the continent were covered through the alliance with FedEx, he added. Despite the size of the European market leaders, they still only had 50% of the key markets, and there were many opportunities in Eastern Europe and other parts of the continent, he commented.

Hanjo Schneider, managing director of Hermes Logistik Group, highlighted the firm’s dramatic growth in the B2C and C2C sectors as proof that German customers were ready to switch to new firms. He also stressed that reliable 48-hour delivery was sufficient for consumer products, and there was no need for next-day B2C deliveries. On Hermes’ plans for European expansion, Schneider said the British parcels carrier Parcelnet and France’s Mondial, also subsidiaries of Germany’s Otto group, would be integrated into the Hermes group. “They give us a good opportunity to build the first European B2C network,” he stated. Hermes would start to sell European parcel deliveries through its network of 11,000 Parcel Shops in September. Schneider also said that Hermes and TNT Express were set to launch their strategic cooperation in Germany that was announced last December. TNT would start to transport domestic volumes on Hermes’ linehaul trucks from the end of April, while TNT’s main German hub at Wiesbaden would be integrated into the Hermes network on June 1.

Meanwhile, industry executives were sceptical about the prospects for Red Parcel Post, the privately-financed parcels carrier that aims to enter the German market in 2007 with operations build around a hi-tech strategy, including use of RFID tags. “It’s already a year since their announcement and it’s not clear whether this competitor will come. But we will face up to them,” said DPD’s Schroven. “Their cost structure will depend on which customer segment they serve.” Nevertheless, managers agreed that RFID tags would probably be incorporated into parcels in the future due to their added-value and flexibility.