European ''emerging markets'' come into focus

Against the background of moderate growth and increasing consolidation in mature Western European markets such as Germany, Britain and France, “emerging markets” such as Spain, Poland, Russia and Turkey are increasingly coming into focus for international express and parcel operators. In contrast to the moderate single-digit growth rates in core European markets, the continent’s smaller markets are growing at high single-digit or double-digit rates and offer attractive areas for expansion. More acquisitions can be expected in these markets during 2007.

Germany, France and Britain jointly account for over half of the total European express and parcel market, according to CEP-Research data. The “Big Three” are the home markets or major regions for carriers such as DHL, TNT, GeoPost/DPD, GLS and UPS. But the market growth rates have slowed significantly in recent years, mostly due to low economic growth, and operational costs are rising. The inevitable result is tougher competition between the market leaders and a clear trend towards market consolidation.

Moderate growth in major markets

The recently-published “CEP Market Fact Sheet Germany” from CEP-Research, for example, predicted that the German courier, express and parcels (CEP) market is likely to grow only moderately in the 4% – 5% range over the next few years. The main growth factors will be B2C home deliveries and international express and parcel shipments. Similarly, the French domestic express and parcels market is growing only moderately with e-commerce as the main growth driver, according to a recent report from the French postal regulator ARCEP. Domestic express grew by 4.7% in 2005 while the domestic parcels sector increased revenues by 2.6% that year. In Britain, the market is forecast to grow at only 3% over the next few years, leading to greater consolidation in the industry. Within the space of the last three months, FedEx has acquired domestic express firm ANC, B2B express parcels firm City-Link has announced the takeover of Target Express, and B2C specialist Amtrak has gone into financial administration and been taken over by a financial turnaround company.

Spain overtakes Italy

It is therefore no surprise that Europe’s leading express and parcel companies are looking to other markets to generate new business and profitable sales. One such market is Spain which has now overtaken Italy to become Europe’s fourth-largest express and parcels market. A report by the DBK research group last autumn forecast that the Spanish CEP market would see growth of over 8% in 2006 following rates of 7% in 2005 and 9% in 2004. In response, international operators such as DHL and TNT are investing in the country to step up competition with locally-owned market leaders such as Seur, MRW and Azkar.

Double-digit growth in Poland and Russia

The Polish express and parcels market has grown dynamically in recent years, and is expected to continue growing at double-digit rates over the next few years, according to a new “CEP Market Fact Sheet Poland” from CEP-Research that is due to be published shortly. Western firms such as DHL, UPS, TNT, DPD and GLS have already established strong market positions, mostly thanks to acquisitions, and are continuing to invest in infrastructure and products. The remaining Polish-owned companies face the challenge of investing sufficiently to be able to enhance their own services and offer a competitive product portfolio.

Russia is gradually starting to realise its tremendous potential after several years of strong, stable economic growth, although risks remain in doing business in the country. Although the express and parcels market remains relatively small in comparison to the country’s size, it is growing at high double-digit rates. The fragmented nature of the market with a large number of small local operators offers plenty of scope for international operators to enter the market. DHL, for example, has announced a $250 million investment programme for its express and logistics activities in the country, focusing on infrastructure expansion and an enhanced product portfolio. Both DHL and TNT said last year that they are growing at rates of 20-30% in Russia, while GeoPost subsidiary Armadillo has expanded its network considerably over the last year.

Multinationals eye Turkish firms

Turkey is also gradually developing into an interesting “emerging market” in Europe. The country has successfully generated stable economic growth over the last few years and benefited from increasing trade with Europe. The express and parcels market has considerable potential, especially in the more industrialised western half of the country, in view of the population of over 80 million consumers. Market growth is estimated at about 20% per year. At present, the CEP multinationals focus on international express to and from Turkey, while the domestic market is dominated by locally-owned companies. But recent reports that DHL is in talks to acquire a Turkish company demonstrate that the domestic market is also increasingly attractive to foreign players.