BBC Newsnight Jan 2015

 

In an interview for the BBC, Professor John Manners-Bell, Ti’s CEO, said that the market for parcels deliveries in the UK was not economically sustainable. In this summary of the interview with the BBC’s Technology Editor, David Grossman, he explains why.

 

The UK consumer has had it too good for too long. Free shipping options offered by internet retailers are totally unrealistic in the medium to long term. They are forcing the parcels industry into unsustainable practices and in some cases cutting corners on acceptable management behaviour. The use of sub-contractors is now endemic – although not in itself a bad thing. In some cases it suits many so-called ‘life style couriers’ who can drop off packages, perhaps after the school run. However the benefits for others who have to invest in a vehicle, uniform and branding as well as paying for the running costs are not clear. When companies are forced to cut costs to compete in an increasingly cut throat market, it is the sub-contractors which bear the pain.

The best companies will have strong, long term relationships with their sub-contractors. These days, though, drivers don’t need much in the way of specialist expertise such as route knowledge which is provided by sat nav. This innovation has commoditised driving and allowed migrant labour to compete which in turn has driven down labour costs. This allows parcels companies to pay the ‘50 pence a parcel’ rate and has created market conditions for what the unions refer to as a ‘race to the bottom’.

It is inevitable that the market will experience a major shake up in the next few years. There will have to be more consolidation – more companies will go out of business and there will be further mergers. Home delivery will come to be dominated by 3-4 companies which have the dense networks in place to make it cost effective. Others will focus on high value services where information technology is a USP. The rest will be squeezed, and struggle to find their role in the market.

At the same time Click and Collect will become an increasingly important option. After all, who does home delivery suit? Not necessarily the consumer if they have to wait in for a parcel especially if retailers start charging for the service. Nor does it suit most parcels carriers as the cost of delivery and redelivery is very high.

Multi-channel retailers like Click and Collect as it provides footfall – customers go to Waitrose, for example, to pick up John Lewis goods and do their shopping whilst they’re there. Ebay has a relationship with Argos which has the same effect. B2C delivery will become just one of multiple options. ‘B2X’ – to lockers, to rail stations, to garages and to shops in the high street will be the viable alternatives.

What does this mean for parcels carriers? Even more competition, as the B2C delivery will effectively be turned into a delivery to commercial premises. This will allow general haulage companies to enter the market, moving consolidated shipments to centrally located drop off points.

What is inevitable, however, is that the market will undergo a prolonged period of structural upheaval due to the instability created by unsustainable pricing policies.