Undoubtedly the biggest thing to hit the Express sector has been internet retailing. This has transformed what was a slightly staid market with low single-digit percentage growth in developed markets into a ‘go-go’ sector with explosive expansion on a global scale. Whether all of the Express sector is capable of coping with the effects of internet retailing is a different matter, however the demand is there.
A painful example of the former is UPS’s struggle to cope with the boom in internet-retailing volumes at Christmas. In what is a classic logistics problem it has bounced from a crisis in 2013 where it exceeded its capacity resulting in systemically poor customer delivery, to a situation in the Christmas of 2014 where it was forced to buy-in additional workers and transport assets at higher cost in order to fulfil customer orders. Admittedly this problem is not unique to UPS, with many smaller national players also suffering capacity issues at peak times, and is likely to get worse. The January ‘returns period’ is of growing importance and the advent of ‘Black Friday’ in other, non-US, markets is resulting in a replication of capacity problems during other parts of the year.
DHL Express has probably been more agile than its rivals, possibly because it has been forced to re-invent itself after its catastrophic expedition into the domestic US market. The Bonn based company appears to have learnt the discipline of focussing on profitable markets and the courage to withdraw from unprofitable ones. This has resulted in a network focused on premium inter-continental movements including the development of an air Express network through the Yangtse valley, designed to exploit both the existing traffic coming-out of China but also the potential for retail traffic into the region. That said DHL Express still remains less profitable than UPS as the latter’s US business remains lucrative despite its problems.
In contrast FedEx was shaken by the recession of 2007-2012. This led to a focus on profitability which appears to have made the company adopt a more cautious perspective on potential growth in global air freight that borders on the pessimistic. Its purchase of TNT might represent the first signs that that is changing.
Yet the background to the growth of internet driven volumes is the globalisation of the Express business. This has been latent since China emerged as a significant market. Although the Chinese domestic market is closed to non-Chinese and is fairly chaotic, inter-continental air-services into the country are now very large and continue to grow strongly. All three of the big providers have invested aggressively in Chinese air-hubs although none have a particularly strong ground presence. All are striving to create global networks with a presence in Europe, North America and Asia Pacific/ China. The smaller players who cannot construct such networks will be vulnerable to being shut-out of the most lucrative trades.
There is a tension in the Express market. On the one hand the big three are creating vast infrastructure that spans the world, on the other the sector as a whole is struggling to cope with new demands. Can express companies serve e-commerce customers with their existing express services? The trend in the most mature markets appears to be a switch from favouring residential deliveries to consumers now requesting that goods are sent to retail outlets. This trends may suddenly throw the e-commerce logistics market in another direction, something that might be problematic for many smaller and medium providers.
The market is potentially vast but the risks driven by change are substantial. Mail providers and internet retailers are all potential threats to express companies large and small, however their biggest problem is coping with the uncertainty of the structure of the market.