UK parcels market nears 10bn in annual turnover

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Growth in internet shopping continues to drive rise in delivery sector

Shoppers flocking to the internet have helped to boost the value of the UK parcel market to nearly £10bn, a sign of the increasing role that delivery companies are playing in the retail economy.


Turnover in the sector, which is dominated by Royal Mail, Hermes and Yodel, jumped 9.7 per cent in 2016 to £9.7bn, according to estimates by Apex Insight consultancy.

This was underpinned by the continued surge of goods sent to consumers, now the single largest portion of the market, while the historically larger business-to-business segment also grew.

With more people returning online purchases and selling items through virtual platforms such as eBay, packages dispatched by consumers rose as well.

“Most of the growth is coming on the B2C [business-to-consumer] side from internet retail,” said Frank Proud of Apex Insight. “It’s likely to keep on going for a good many years yet.”

Internet transactions now account for around 15 per cent of Britain’s retail sales, excluding vehicle fuel. Some £133bn was spent online with UK retailers in 2016, up £18bn on the year before, according to research by IMRG and Capgemini.

This boom in ecommerce has led to a reworking of the delivery system for parcels. Logistics companies have made significant investments in warehouses, automated sorting equipment and technology to speed up the process and lower costs.

But the upshot is fierce competition among parcel carriers. Amazon has added to the pressure by building its own network to deliver products it sells. Apex Insight estimates this made up £460m of business last year: more than 10 per cent of the B2C segment and double the amount in 2015.

Reflecting the impact of additional capacity, the communications regulator Ofcom found the average price paid to deliver a domestic parcel fell in the 2015-16 financial year.

Alex Paterson, analyst at Investec, said indications showed that trend easing: “Our sense is that prices have moved up slightly — maybe 1 to 2 per cent on a like-for-like basis — so it’s a sign that competition is definitely there but it’s rational.”

How the dynamic plays out will be critical for Royal Mail. With the number of letters sent by Britons in steady decline, the former state-owned postal service is relying on revenues from parcels for growth.

Yet as consumer expectations of easy, convenient and cheap service spur innovations, some smaller operators have been gaining market share, according to Apex Insight. Winners include Hermes, a low-cost carrier, and DPD, an express company that is part of French state-owned La Poste.

However, some of Royal Mail’s competitors have faced criticism following reports of couriers, engaged on a self-employed basis, earning below the legal minimum wage.