Underlying parcel prices in the UK are expected to increase further next year, althoughinnovations such as carrier-management and carrier-comparison platforms and delivery-consolidation
points can still keep a lid on costs, customers and delivery experts told CEP-Research thisweek.Responding to a question from CEP-Research at ‘The Future of UK Postal Services’ conference inLondon, Andrew Starkey, head of e-logistics at online retail association IMRG, commented: “Mypersonal view is that we are capacity-restrained in the market, we have a regulatory environmentthat encourages Royal Mail to push prices up, and nothing to hold them down, because when you arecapacity restrained, retailers have relatively little choice in where they can go.”
He observed that by around September of this year, all of the main UK parcel carriers hadstopped taking on additional parcel-volume contracts for the pre- Christmas peak period.
“So the short answer is that the prices will go up,” said Starkey. “I don’t think Royal Mail hasan incentive to not keep pushing prices up, and I think the carrier market will take theopportunity to harden prices accordingly. And in fairness, when you look at the returns from someof the carriers, it is only two or three of them that are actually making money. And so there mightbe a little rebalancing required.”
The IMRG logistics expert said ‘click and collect’ solutions could potentially create additionalcapacity that may then have an effect on pricing. He estimates that click and collect volumesacross all sectors and all retailers were currently running at about 7% to 10% of total volumes,translating into around 60 million orders. “So if retailers can keep those in-house and consolidatea number of parcels into delivery to one spot, you can drive the price down, and I think that iswhere you will see capacity growth and price pushed downwards,” observed Starkey.
Mark Lewis, CEO of parcel collection-point specialist Collect+, said there appeared to be “morepressure on pricing upwards rather than downwards”, adding: “If you actually look at the industry,as a whole it does not make fantastic returns and has allowed itself to be under quite considerablepricing pressure that arguably has not resulted in the kind of investment needed to deliver greatservices and innovation. So something probably needs to be a little bit recalibrated.”
Referring to recent research by Collect+ indicating that customers were 17% more likely to use aretailer again in the future if they had a positive delivery experience on the previous occasion,he added: “I think the other dimension is that if you get delivery right, the important thing isnot the price of the delivery in the retail, it is the impact on that end customer.
“It might cost you 10p (€0.08) more, but if that results in 17% more loyalty, that is worth anawful lot more. So there is a dynamic that is not just about the price of the deliveries, it’sabout what that does to the end user and their satisfaction, and their future trade, that isreally, really important.”
But he warned of the “dangerous dynamic” developing in the market, as people get increasinglyused to the concept of free delivery. “There is no such thing as free delivery; it costs someonesomething, somewhere. How sustainable that will be I think is one of the big questions,” observedLewis.
James Greenbury, CEO of carrier-comparison website Parcel2Go, observed: “I think the picture onpricing is quite complicated, and I echo Mark’s point about the lack of profitability in theindustry. But it is interesting that for a capacity-constrained industry how good the service isthis Christmas.” Acknowledging that this is only the first week of December, he said he couldn’tremember a pre-Christmas period where carrier performance levels had been so good, despite the lowprices charged by carriers.
“Certainly all of our operational KPIs right across the board from our carriers, and we havevery good benchmarking across all of them, has never been this high, and today we are offering adoor-to-door service from Hermes for £2.75,” observed Greenbury. “Every year at Parcel2Go we havesat down and said that average price has got to go up next year; it can’t go any lower. And everyyear our average price has gone down,” Greenbury said. “That’s partly because of the competitivedynamic of the market and is partly because of brilliant innovation by Collect+ that has taken hugechunks of cost out.”
He described this as “exactly the opposite dynamic from what we’ve seen in Royal Mail”, adding: “ These networks do have high fixed cost elements and if they are growing quickly – whichcertainly the e-commerce market is doing – the costs can be amortised across much highervolume and the unit price can come down.”
Jim Roebuck, logistics director for retail group Shop Direct, commented: “There is alsoinnovation in the marketplace around carrier-management systems. Before, it was about relationshipswith a few carriers and getting an average price. Now this dynamic comes where you can actually‘slice and dice’; you can book according to a formula into size, weight and service and get theoptimum price for individual streams. And you can do it in a very easy, very ‘plug and play’ way,whereas before it was very difficult to do. And I think there are other areas of innovationcoming.”
Roebuck told CEP-Research that he expected to save around £2 million in delivery costs next yearthrough a carrier-management solution, out of a spend of around £130 million a year. “But you canonly really do that once,” he added. Meanwhile, he believed underlying parcel-delivery prices wouldcontinue to rise. “I think the market is going to bottom out soon, and you’re going to get asituation where you’re going to get incremental cost increases,” he said.
Chris Haighton, head of retail logistics at Shop Direct, observed that there was still a lot ofdelivery capacity available at the lighter end of the market, particularly offered by Royal Mail,but this was not been taken up. “Why is it not being taken up?” Haighton asked. “Picking up Mark’spoint about the total cost of service, it is not just about the headline price. I have moved out ofpackets even though they are cheaper than a courier delivery, because packets are untracked and Ilose more in goods lost in transit than I save on the headline price of an untracked delivery.”
