The clash of the couriers: A privatised Parcelforce will enter a cut-throat market, writes Roger Trapp

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The Independent Online
Forget the dominant image of couriers as grimy individuals speeding along city streets on bicycles or motorcycles. Small groups of specialist carriers notwithstanding, the industry is as global as any and the expenditure on the latest communications and computerised tracking systems staggering.

United Parcels Service, based in the US, claims to be the world leader and says it has spent billions of dollars in recent years on the latest equipment. Others, such as DHL in Brussels and the Australian-owned TNT, are spending similar amounts.

At the same time, though, recession in many markets is putting a brake on the prices they can charge for an improving service. The result is a squeeze on margins that has already produced casualties.

Two years ago, Federal Express of the US - written up in management books as an impressive example of today's new breed of company - cut back on many of its operations in Europe.

And last month Elan International in Birmingham (part of DHL until a management buyout in August 1991) found the competition too intense and went into liquidation with the loss of 700 jobs.

Though often delayed, the impending privatisations of the Post Office's parcels division, Parcelforce, and British Rail's equivalent, Red Star, are contributing to the cut-throat atmosphere. Leading operators accuse each other of slashing prices in an attempt to gain a dominant position ahead of the change in the market.

Particularly outspoken is Bill Kelly, director and general manager of Home Express, part of the Littlewoods organisation. 'Many carriers are offering low prices, irrespective of their own overheads, simply to win customers.'

This creates an unrealistic pricing structure for the industry and could lead to a devaluation of the market, he said in a report on the market recently published by his company.

There are certainly few signs of vast amounts of money being made. Mr Kelly is credited with returning Home Express to profit less than two years after it was reacquired from Federal Express, which had bought it in 1988.

But UPS - like Home Express, privately held and therefore subject to less scrutiny than public companies - is understood to have suffered losses for several years, particularly in Europe, though an upturn is expected this year.

The thinking is that the first company to make key technological investments and win customers will be the victor. For, at a time when many other business sectors are shrinking, the parcels and courier industry is growing fast.

Research published by Home Express and carried out by Mintel, the market research company, shows that the UK parcel delivery market was worth pounds 1.35bn last year.

Deliveries to Europe and the rest of the world took this up to pounds 1.9bn - a rise of nearly 120 per cent since 1985. This year the market is expected to grow by at least pounds 75m. By 1997 a market that sees about 1.5 million parcels delivered every day is expected to have grown by a quarter, to produce an annual total of 675 million deliveries.

The Post Office's Parcelforce is the dominant UK delivery service, with an estimated third of the market by value. Even so, it made a pounds 13m loss in 1992. It is followed by Securicor Omega Express with 15 per cent, and the UK arm of TNT with 10 per cent. In global terms, UPS may lead the way - delivering 11 million packages a day - but in the UK its Carryfast service is in the second rank, alongside the likes of Parceline/Interlink (part of Australia's Mayne Nickless group) and Home Express.

British Rail's Red Star and United Carriers are slightly behind them, but ahead of Lynx Express, the NFC division that was formed through the merger of National Carriers and Roadline.

Parcelforce's dominance is in the two-day, non-urgent market, which is highly fragmented because of the relative ease of access. But it is expected to expand into the more lucrative next-day service - where it accounts for only 2 per cent and the key players are large international groups such as UPS and Federal Express.

With UPS, for instance, claiming that its integrated service enables it to give 48 'product offerings', the competition is intense - even in a growing market.

In this race to find niches, Red Star - which hopes to be sold off later this year - is planning to escape less profitable areas and concentrate on the same-day or early next day delivery of such items as emergency packages and spare parts. The 'unique selling proposition' will remain BR's high-speed InterCity service.

As is suggested by the origins of groups such as Home Express and White Arrow Express in the catalogue business, a lot of the growth is down to the increasing popularity of home shopping. Mintel says the value of this has risen by nearly a fifth since 1987, from pounds 4.32bn to pounds 5.15bn, and it is expected to increase by at least 3 per cent this year. Moreover, nearly 85 per cent of Britain's 23 million households order goods for home delivery.

Then again, business-to-business is also a key market, one that has prompted Home Express to launch business and international services in recent months.

But this is a complex market. While some companies, such as Britain's Amtrak and United Carriers, are sticking to road and rail, the large international players are making increasing use of air.

UPS claims to have the world's 10th-largest aircraft fleet, while DHL has established 'hub' operations at airports that make it sound like a British Airways or TWA.

But even air covers a multitude of services. As DHL says, the days when air express carriers were just for sending urgent documents overseas have long gone. This kind of service is now an essential link for the 'just in time' deliveries that allow manufacturers to keep stock levels to a minimum while obtaining supplies from around the world.

Hence, the DHL advertising copy line 'Flying anything from a disk drive to a diesel engine anywhere in the world' is no idle boast - it claims to transport components for a range of car manufacturers, including BMW, Ford and Fiat. UPS has established a logistics centre at Eindhoven in the Netherlands, from which it will distribute around Europe goods shipped across the Atlantic and from Japan in containers.

Buoyed by a survey of 1,500 senior executives that showed half were reviewing their distribution strategies, UPS is optimistic about the opportunities, especially in Europe. But Mike Rawlins, sales and marketing director for the UK, is convinced that information technology holds the key to making the most of these opportunities.

'The easy bit is the transportation,' he says. What makes the difference is not so much price as providing a service that 'adds value to picking up packages', he argues.

But that calls for heavy investment, like the 600 people that UPS, with a turnover of dollars 17bn, is devoting to find ways in which technology can improve service.

Consequently, the international market leaders have acquired or developed technological aids, based on barcodes, computers and cellular and satellite communications, to help them plan the best routes, keep track of consignments and alert customers to any problems.

The cost means that the barriers to entry are high. The industry has already seen consolidation, and few believe the process is over. As Mr Rawlins points out: 'There's always a place for the small niche operator. But if you're wanting low cost that means a global company.'

(Photograph omitted)