Where parcels go next – The UK Express Market

The value of the UK express market will increase by 3% to reach £2.6bn (Euro4.3bn) in 2001, slightly lower than a projected 4% growth rate to 788m packages. The disparity is due to continued price competition and higher value deliveries in the international sector,
says MSI in a new market report.
On domestic deliveries, average revenue per parcel has declined throughout the last 10 years, and will fall by a further 3% this year. The international sector has consistently outgrown the domestic market through the review period and will grow by 10% to
60.3m packages in 2001. The value increase will be 8% to £lbn (Euro1.7bn). International deliveries are expected to account for 8% of the total market by volume, but 39% by value.
International traffic will continue to outpace domestic over the next five years, MSI says, but price pressure will remain, both at home and abroad, despite volume and value growth.
UK manufacturing output declined by 0.7% in the first quarter, thanks to less buoyant markets for hi-tech equipment, as well as an intensification of the long-established downward trend in textiles and clothing output.
GDP is forecast to grow by 2.3% in 2002 and by 2.5% in 2003. The US slowdown will
reduce UK export growth, although trade sources were still telling MSI’s researchers that
the Euro-zone, which accounts for 50% of the UK's total export and international investment income, would be relatively protected from adverse conditions in the US.
The report reveals that paper-based systems of communication continue to be the principal method of business interaction with customers, clients and employees. Although there have been shifts towards the use of electronic document services, they have not had a significant impact on the express delivery market, because documents either have to be in their original format or are too large for electronic transportation.

The increase in home shopping and e-commerce, however, has led to an increase in the use of express delivery services. Delivery partners have had to create bespoke services to meet the requirements of end users, by providing reliable, time-specific deliveries.
The UK volume market for next-day delivery services increased by 26% between 1997 and 2001. Next-day delivery services now account for 55% of the market by volume and 64% by value.
Demand for 48-hour and 72-hour services has, correspondingly, declined, although the report observes that price competition on next-day services has led some customers to pay for services they do not necessarily need.
As prices have fallen and customer expectations increased, services which were previously
considered to add value, such as meeting time-specific requirements or improved tracking
ability, are now seen as standard. Private customers, for example, will increasingly
demand time-specific delivery services, which include delivery between 5pm and 9pm on week-
day evenings, in addition to early morning deliveries at the weekend. Yet this might be in a less costly time frame – the volume of consignments sent for 2-3 day delivery is expected to
increase by 16% between 2002 and 2006.

MSI identifies the following as critical success factors:

• reliability
• price
• innovation
• investment
• level of service
• communication with customers
• training.

The express delivery industry in the UK is highly concentrated, with the leading three companies likely to account for 49% of the value of the market in 2001 and the leading 16 companies, 97%.
Yet, further consolidation is predicted as the benefits of nationwide and international distribution networks reflect in companies’ price competitiveness.
A tough pricing environment has meant that a number of companies have struggled to remain competitive within the UK express delivery market. However, trade sources report that it is more likely that express delivery companies will enter into alliances rather than disappear.
Smaller companies will stay active in niches of the UK express delivery market, however, focusing on segments such as particular geographical areas or different types of industry.

Extracted from Express Delivery Services: UK,
published by MSI Marketing Research for Industry,
tel: 0800195 6756 or +44 1244681166