With rapid growth in volumes, price management has arguably been less of a concern for the express and parcels industry in recent years. However, intense competition has contributed to a race to the bottom in the Chinese domestic market, whilst in Germany and the US, the number of market participants also appears to have influenced yield changes over the past decade.
The international express sector is dominated by relatively few players, but yields appear stagnant in this sector too. The graph below shows yields for DHL’s premium TDI product (revenue per day/shipments per day). From 2013-2019, yields fell from €56.50 to €50.55, an effective decrease of 1.8% per annum. 2020 shows a sharp hike in prices, but CFO Melanie Kreis explains an emergency surcharge was implemented due to “the significant increase in costs in our aviation network, where we had to put on additional flights to compensate for the lack of commercial capacity in the belly space of passenger aircraft.” This suggests the change was something of a one-off.
Source: DHL Annual Reports
Despite falling yields, TDI revenue per day increased at a 2013-2019 compound annual growth rate (CAGR) of 5.7%. This was due to a TDI volume per day CAGR of 7.7%
The most significant change over this time period has been the rapid growth in cross-border B2C volumes. In 2013, B2C accounted for around 10% of DHL’s Express volumes, but by 2019, this had risen to over 35%. In 2020, it was over 45%. The company has also been successful in the bottom line, improving its EBIT margin from 9% in 2013 to 12% in 2019 and 14% in 2020.
The company points out in various presentations that the increase in B2C volumes has had numerous positive profitability impacts. It states higher shipments per day have driven better utilization of its network, including in its hub sort centres. Since B2C volumes are typically lower in weight, (70% of all cross-border e-commerce shipments are typically under 1kg), but have the same time-definite delivery requirements as B2B volumes, DHL can charge higher revenue/kg for these shipments, even if that means not increasing prices significantly. This lower weight/shipment also increases its airlift utilization. Furthermore, with ever greater numbers of volumes being transported, first mile pick-up pieces per stop are increasing. Although last mile delivery is typically more challenging than for B2B, with more stops and with residents often not at home, the company states the shift to B2C now has neutral profitability impact. This is due in part to an increased number of drop off locations and increased delivery density to the scale of residential volumes.
Although higher B2C volumes can lead to challenges, DHL appears to have had success at managing this in recent years. Effective stagnation in yield changes appears irrelevant when compared with some of the operational benefits that are associated with higher volumes.
Source: Transport Intelligence, September 14, 2021
Author: Andy Ralls