The current UK parcels market is unsustainable and insecure and needs to go through a majorphase of consolidation, according to the head of one national parcels player.
Dave Smith, managing director of City Link, told reporters this week that the UK parcels marketas a whole was loss-making and needed to be restructured in line with other parcels markets inEurope and North America, with the number of players in addition to the postal operator and theintegrators needing to roughly halve, from its current level of 10 or 11 operators.
“The industry as it is now is unsustainable,” he said. “I think we will see some consolidationin the UK and I think in the next five years we will see the same thing in the UK as we have in theUS and the rest of Europe, of the post plus four or five carriers, in addition to theintegrators.
“I think the game has to change because if it does not, companies are not going to be able toprovide the kind of service that e-retailers need,” Smith added. “One thing I think we will alsosee is that one of the big e-retailers will probably buy a parcels firm and bring it in-house inorder to guarantee its service levels, for example a company like Amazon. And if someone likeAmazon did that, would Tesco or M&S do something similar or come together as a combination ofcompanies?”
Smith insisted that the security of supply was currently vulnerable, despite or even because ofthe overcapacity in the market.
“The vulnerability is that we are all making a loss,” he told CEP-Research. “Why would we putthe investment into securing our service levels over the peak pre-Christmas period if we are goingto lose money?” he asked.
Smith said that there was a need for more realistic pricing in the future, and believed theindustry was showing signs of finally realising this, with most of the main players introducingprice increases this year.
“I think people have realised that it went too far,” he said. City Link’s recent price rises areunderstood to be around 5%, although Smith said he did not anticipate raising prices by this kindof level on an annual basis.
