Hungarian customers demand more complex delivery solutions

Though competition has intensified, the delivery volume of international parcel services has increased in recent years, industry experts said last week. Customers, however, are requiring complex, more sophisticated services, and service providers are expected to move to meet these requirements. “Though the core business is still small parcel delivery, no international delivery company can survive on the exclusive provision of traditional courier service-type solutions,” said Zoltán Bándli, business development manager at UPS Hungary Kft. According to Bándli, customers want more – something along the lines of a one-stop service. “Currently, UPS moves and tracks three different things: goods, information and money,” he explained. “Customers can order services via the internet, but at the same time they can also track the movement of parcels. In addition to product delivery, services can include the acceptance of payment for the product by the receiver – a transaction that until now has taken place largely through bank transfers.” As for changing volumes, UPS experienced a strong volume growth after Hungary’s EU accession and the consequent disappearance of borders – though this is something that industry experts expected, noted Bándli. Some multinational firms established production, assembly and warehousing sites in Hungary after the country’s EU accession, but goods still have to be delivered to target markets, and this has resulted in the growth of total delivery volumes for international parcel delivery services, he added. Quantity, specific logistics needs, and other costs are crucial factors for reducing specific delivery fees. Synchronizing all these factors to better meet such requirements, UPS has introduced its UPS Trade Direct service for customers that want to deliver a high volume of goods. This means that parcels can be collected and treated as a single unit, significantly reducing fees, explained Bándli. New entrants on the delivery market have led to intensified competition, meanwhile. “Competition has increased on the market because of smaller, national and regional players that appeared after Hungary’s EU accession,” said Márton Járosi Jr., managing director of TNT Express Worldwide Hungary Kft. At the same time, he added that demand has grown for integrated services provided by large international service providers that are present in several areas of forwarding. In the wake of Hungary’s EU accession, Járosi said service processes became faster, and TNT has since seem a growing demand for its services from SMEs, adding that delivery volumes jumped significantly because of the many new production and warehousing sites in Hungary. “Delivery volume growth is not tied strictly to GDP growth, but is chiefly connected to structural changes within Hungarian industry,” Járosi noted. Other companies have also experienced significant growth in this sector. “DHL experienced increasing business even before Hungary’s EU accession, and business has yet to drop off since then,” said John Wyle, managing director of DHL Hungary Kft. Last year, DHL saw an 11% increase in air cargo, but its road business is also developing quickly. To exploit the potential, DHL launched it road-based delivery service, Europlus Express EU. The service was introduced some months ago, and Wyle said he expects 15%–20% annual growth after the preliminary phase.

Growing volumes

According to Járosi, the international parcel service market has grown in volume terms by an annual average of 10%–15% in EU countries. TNT saw 24% growth in Hungarian revenues in 2004 over 2003, and the company had another very good year in 2005, added Járosi, who said he expects more of the same in 2006. For his part, Wyle said he began noticing a big jump in delivery volumes coming in from China and the Far East in 2004, though the majority of deliveries, around 65%, were still carried out with EU countries. According to Wyle, the same tendency continued in 2005, though activities outside the EU became more important. “Volume to and from Romania and Bulgaria increased significantly last year,” said Wyle. According to Bándli, the main delivery targets are still the EU countries (especially Germany), though he, too, said there is notable growth in forwarding goods to Bulgaria and Romania – where Hungarian companies have recently carried out significant investments. He said he expects this trend to continue and grow in importance. As for customers, Bándli said more and more SMEs are using international parcel services, as multinational firms employing SMEs as subcontractors demand systems that are reliably punctual. Even so, he added, the main users of international parcel services remain multinational firms – especially manufacturers of electronic products and automotive components. TNT’s services are chiefly geared toward corporate customers that mostly send documents and product samples, said Járosi. Express freight of parcels of more than 30 kilograms is also quite frequent, he said, adding that companies are willing to pay higher prices for services – whether for shipment of high-value components or “just in time” – because delays in stock warehousing are even more costly. Another reason for the booming market in international parcel delivery is the fact that entertainment-based electronics products become obsolete so quickly, and therefore require prompt delivery, said Járosi.

Changing faces

Meanwhile, mergers and acquisitions are also taking place in the sector, with both UPS and DHL having made acquisitions worldwide to offer a wider range of services. When DHL’s owner Deutsche Post GmbH bought logistics provider Exel Plc, Wyle said the purchaser’s primary goal was to become the world’s number one logistics service provider, as well as to create a one-stop shop for all kinds of customers. He added, however, that divisions would not be affected and will not compete with each other, and asserted that the company wants to present a unified DHL image to the market. Wyle said Hungary remains a very attractive market, and expects the arrival of new entrants wishing to expand their market presence here. He also said he believes that stiffer competition will create more sophisticated customers, and therefore challenge providers to develop increasingly flexible solutions. One older participant, Hungarian postal services firm Magyar Posta Zrt, has also decided to get in on the act, establishing its logistics division in January 2004 to compete on the dynamically growing courier express parcel (CEP) market. The new Magyar Posta Logistics (MPL) brand was introduced in September 2005, according to MPL business unit leader Sándor Horváth, who claimed that MPL now leads the domestic CEP market. Operating as a separate business unit, MPL nonetheless uses Magyar Posta’s infrastructure. The estimated size of the CEP market in Hungary is Ft 40 billion–Ft 45 billion, of which MPL has a market share of approximately 24%. The MPL brand offers 22 different logistics services, and the stated aim of the enlarged product portfolio is to provide private and corporate customers with highly flexible solutions. Their most significant services are express mail service (EMS) of parcels up to 30 kilograms, and delivery of domestic parcels. MPL’s latest portfolio offering of complex logistics services extends from mere parcel delivery to include other value-added services – for example, warehousing, labeling, and handling of returned goods. The transportation arm of MPL (Posta Sped) caters mainly to players in the automotive industry, office equipment retailers and producers, and retailers requiring next-day delivery, while EMS remains popular among customers requiring same-day delivery. Another service, Posta Business Pack, is designed for those who send parcels in large quantities. According to Horváth, MPL mainly provides logistics services to Hungarian clients, though some multinationals are also on board. The company’s strategic goal for 2006 is to achieve a greater international presence, above all in the CEE region, he added. At the same time, he said MPL aims to develop logistics services that support e-business solutions.