It may have escaped your attention but there are serious moves taking place in the delivery sector. Nearly 50% of delivery volume in the UK is changing hands. Yes, that’s right. From Royal Mail to Evri, Yodel and Tuffnells, new ownership has either happened or is about to happen. Tuffnells fell into administration back in June 2023. Along with Yodel, they were acquired by YDLGP/Shift earlier this year. DX Group was bought for £307m by HIG Capital at around the same time. Delivery giant Evri transferred to another PE house, Apollo Global Management, for £2.7bn in July. Furthermore, a Czech businessman looks set to buy Royal Mail for around £3.6bn, though he already owns a chunk of Parcelforce via IDS. So, let’s discuss delivery companies and driving the boom in acquisitions in this sector.
Delivery companies
It may come as a surprise to learn that most of the businesses are, or did, lose money. Tuffnells fell into administration. Yodel’s acquisition was rumoured to be a rescue and widely reported to have occurred prior to the administrators arriving. Royal Mail is recording bulging operating losses. Evri also lost around £77m last year. DX, Yodel and Evri appear to be investing in their depots and expanding their network – at great expense. Evri and Yodel both recently conducted a strategic review, with the former agreeing that sale was the best option and the latter, post-acquisition, remaining as an independent business. Evri is on a hiring drive as it looks to build on booming parcel volumes, which are believed to be above the pandemic surge. They also recorded a gain in market share at the end of 2023.
According to some sources, customer experience has some way to go in the sector. Although disputed by several of the major players, Citizen’s Advice found that satisfaction left a lot to be desired. No delivery company scored even 3 out of 5, with Yodel, DPD and Evri reporting the highest proportion of problems. Similarly, Ofcom reported their findings on delivery experience in December 2023 and found the lowest satisfaction with Evri with TNT (FedEx), Amazon Logistics and DHL the highest.
Despite this, the market is primed for growth and the volumes are significant. Royal Mail delivers approximately 1.3bn parcels, Amazon Logistics 870m, Evri 730m, DHL 460m, UPS 280m, DPD 260m, Yodel 190m, UK Mail 140m and TNT (FedEx) 130m. These huge players represent around 87% of the market of c.5bn parcels per annum. Acquisition and consolidation is happening at pace, as you can read more about below.
Online shopping and home delivery
The COVID-19 pandemic had a huge impact on online shopping and home delivery. With lockdowns and WFH, demand for delivery and courier services sky-rocketed. For example, the ‘parcel peak’ at the end of 2020 was +64% higher than in 2019. Yes, that’s right, a 64% increase in online retail sales year-on-year. Some say that old habits die hard. Others suggest that it takes about 66 days to form a habit. Therefore, much of this uplift became habit, setting a new, higher baseline for online retail sales. On an annualised basis to June 2024, we are now only -3.3% below the 12 months to June 2021. Unfortunately, where this is to the detriment of bricks and mortar retail, the delivery companies are well-positioned.
For the latest available period of data, which covers June 2024, online retail sales are +68.7% higher than the same period before the pandemic. They are also +1.9% above the same period last year. This comes despite a cost-of-living crisis, relatively high interest rates and a high tax burden. The downside for home delivery companies is twofold. Firstly, many invested in extra capacity including new depots, sorting centres, vehicles and staff. This extra capacity enabled them to capitalise on the opportunity but then followed a painful 2022, which was nearly -10% down in value on 2021. However, some estimates suggest that the volume dropped by about 1/3, leaving much stranded capacity. Secondly, forecasts suggest that we will not exceed pandemic volumes until around 2027/28, leaving delivery companies desperately needing cash. This is compounded by the need for modernisation, including in the ‘2C’ last mile, such as lockers and drop-off points.
Future delivery options
Forecasts vary but some suggest that small size parcels will grow by around 10% per annum. This puts pressure on delivery network infrastructure, requiring higher throughputs, standardised sizing and increased automation. After all, delivery charges tend to be lower for smaller parcels and the average online retail order value is just over £100. This may explain the recent acquisition of DX Group, which is well-placed to grow in small parcels. It may also explain the collapse of Tuffnells, the specialist in IDW (irregular dimensions and weight). DX Group and Shift acquired most of the Tuffnells depots. With 27% of retail sales now being online versus 19% before the pandemic, there remains room to grow in future years.
YDLGP, which now owns Yodel, Shift, the remainder of Tuffnells, Movinga (in Germany) and Courier Direct, appears well-positioned to bring technology and AI to parcel delivery. DPD previously acquired CitySprint and Absolutely. Similarly, Whistl and the Parcelhub brand, which delivers more than 100m SME parcels, possess the capability. As both an integrator, with parcel management solutions and a parcel delivery firm, they can perhaps make waves in the 2C arena with the right investment. We would be remiss at this point not to mention the powerhouse that is Amazon Logistics. Sure, there are many delivery partners to Amazon marketplace vendors, but they are a big player. It is also worth noting their push back into ‘big box’ with a ramp-up in warehouse acquisitions in the ‘golden logistics triangle’. For the uninitiated, these are Midlands locations where 90% of the British population can be reached within 4 hours.
Market insights and analysis
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