COVID boost to e-commerce leads to fast growth in domestic express and parcels market

e-commerce has proved to be far from just a ‘nice-to-have’ addition to a traditional bricks-and-mortar strategy. The pandemic has made it an almost business-critical requirement across swathes of the retail sector.

Growing consistently strongly over the last decade, e-commerce has now reached a critical point. It has arrived at the stage at which even with bricks-and-mortar stores closed down, it can keep the retail sector motoring, albeit perhaps only in second or third gear. The domestic express and parcels sector has been crucial in enabling e-commerce to provide this lifeline throughout the course of the COVID-19 pandemic so far.

The accelerated shift towards e-commerce due to lockdowns and restrictions on the use of usual retail stores has led to a surge in volumes for parcel service providers. It has even been strong enough to offset the decline in B2B parcels as entire industries shut down, employees were sent home and the global economy collapsed. Ti research has concluded that the global domestic express and parcels market grew by 9.8% year-on-year in real terms in H1.

With outbreaks and reactions to it being different across the world, there are stark regional and country-level differences. For instance, China’s growth has been relatively modest by its own historic standards. The picture was complicated as it battled with the early outbreak of the pandemic. According to the Chinese National Statistics Bureau, online sales of physical goods grew just 5.9% year-on-year in the first quarter of 2020. However, growth accelerated strongly into Q2 as Chinese consumers (already avid e-shoppers by global standards), used e-commerce to make purchases amid continuing restrictions on everyday life. This was reflected in the results of parcel companies ZTO and Best Express. First quarter volumes were up just 4.9% at ZTO and down 1.9% in Best. However, Q2 saw ZTO increase volumes 47.9%, whilst Best saw volumes grow by 19.3%.

Meanwhile, India’s measures aimed at slowing COVID led to highly restrictive measures implemented on the e-commerce sector. Online retailers were prohibited from selling non-essential goods through most of March and April. Combined with a fall in B2B growth due to the economic downturn, this led to negative H1 growth in the domestic express and parcels market.

Conversely, growth in the US was very strong. Here, e-commerce penetration in total retail was already high at around 15% pre-COVID and the switch from bricks-and-mortar to online has been relatively easy to make for consumers. e-commerce reached around 25% of total retail sales during the height of the pandemic. This was shown by the performance at UPS, where B2C volumes were up an astonishing 65.2% in Q2. At UPS and also at rival FedEx, B2C increased to around 70% of total volumes at this time. Worryingly for the bottom line, B2B parcels appear to have slid heavily, although both companies said they were beginning to see year-on-year growth in this segment in the middle of Q2.

Like in the US, UK e-commerce is mature and accounted for close to 30% of all retail sales during the height of lockdown according to the ONS. With a high existing mix of B2C volumes relative to B2B, and store closures imposed for a longer period of time when compared against its neighbours, parcel growth rates have been very strong. However, across the continent, the picture has been mixed. With Europe struggling to control the outbreak in its early phases, the economic downturn has been particularly severe by global standards. This has led to greater harm in the B2B segment of the market, dragging overall market growth rates lower.

The second half of the year is likely to see global growth slow somewhat. e-commerce penetration is expected to remain elevated relative to long-run trends, but year-on-year growth in e-commerce sales will not come close to the rates seen whilst the tightest lockdowns orders were in force. Conversely, a bounce back for the economy should see B2B parcels pick up again. The recovery in this higher-margin element of the market will be good news to those that have struggled to cope with the costs of B2C deliveries, or those without that delivery capability. However, the results from H1 show an efficient B2C operation is an ever-more vital element of a parcel provider’s strategy.

Source: Transport Intelligence, September 8, 2020

Author: Andy Ralls

New market sizing data for the Global Express & Small Parcels market will be published on GSCi in late September. For more information, please contact Michael Clover, Ti’s Head of Commercial Development, at [email protected]