Tag: USA

Although the recent credit crunch and resulting economic uncertainty are affecting the growth potential of the European express industry, the main effects will be on the use of different modes of transport and profitability rather than on overall levels of parcel volumes.

Indeed, supply chain rationalization, internationalization and business-to-consumer (B2C) e-commerce are continuing to drive industry growth.

The US sub-prime mortgage fiasco’s impact on the financial sector and wider global economy, combined with a sharply increasing oil price, is having a direct impact on the express industry, with several express companies announcing lower profits and issuing cost cutting measures. However, the credit crunch has hit individual markets and companies differently, leaving those relying on the US and intercontinental routes the most exposed, says Datamonitor logistics & express senior analyst Erik Van Baaren. “In general, its effects are felt to widely varying degrees depending on companies’ exposure to the most affected verticals, country markets and trade lanes.”

However, although the value of the European express and parcels market is forecast to grow at a lower rate than in previous years, it is still expected to record an average annual growth rate of 3.5 pct in the next five years, above GDP growth. The strong demand for international and home delivery services is still contributing to the European express industry’s development, despite rising fuel costs and the global economic slowdown dampening its potential.

A trend that set in before the credit crunch, and was caused by rising fuel surcharges, has been that of a modal shift from air to road express services, as well as, to some extent, a shift to non-express freight such as rail or sea freight. The result of this shift has manifested itself mainly in decreased profitability, as increased transportation costs have not been offset by price increases. In Europe, volumes remained strong in the first half of this year and although a decline was observed in June, operators are still expecting only marginally lower volume growth in the coming years, Mr. Van Baaren says. “The next quarter will be critical and will reveal whether the lower growth in recent months was incidental or more structural.”

Retailers’ e-commerce investments, the rising use of broadband, favorable demographics and faster websites are extending the scope of products that are available online, which in turn is stimulating demand for home deliveries even as consumers’ disposable income comes under pressure. The rationalization of supply chains and the relocation of manufacturing and distribution activities are the other main growth drivers still fueling the express and parcels market, with Eastern Europe and the Far East acting as the catalysts for this development.

The outlook for the next five years remains uncertain as the full impact of the financial crisis has not yet become entirely visible. The outlook for the European parcels and express market remains cautiously optimistic, while emerging markets (Brazil, Russia, India and China (BRIC), Middle East and Eastern Europe) are still recording strong growth levels. The significance of the financial services vertical to the express industry has already been diluted in recent years by lower document volumes as a result of electronic substitution, Mr. Van Baaren says. “The economic crisis is likely to further restrict the importance of financial services for the express industry, negatively impacting those countries and companies which rely on it.