DPD and Hermes step up parcel delivery competition

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Some of Royal Mail’s biggest competitors are building huge warehouses equipped with state of the art technology in a bid to grab a bigger slice of the growing online delivery market.
DPD, the express parcel carrier, is looking for a site in the Midlands for its fifth UK sorting hub, as it steps up an aggressive expansion drive.

The company expects total costs of the project to surpass the £100m spent developing one of Europe’s largest automated parcel facilities, which it opened in Leicestershire in September on a site the size of 19 football pitches.

“We are aiming to buy the land this year and go live in 2019. We want to be the largest player in next-day delivery [and] we plan that through organic growth rather than acquisitions,” said Dwain McDonald, chief executive of DPD.

The expansion illustrates the large investments pouring into infrastructure in the parcel industry as shoppers shift en masse to ecommerce. Hermes said in January that it would build a £31m parcel hub in Warwickshire, which, once operational next year, will expand standard delivery service processing capacity by nearly half.

Carriers are also enlarging vehicle fleets and recruiting drivers to cope with the UK’s growing consignment volumes.

“Investing in technology is important but even more so is footprint and network reach,” said Robin Byde at broker Cantor Fitzgerald. “The larger operators and those prepared to invest are pulling away from the rest of the pack.”

The growth of DPD, Hermes and others is increasing the pressure on Royal Mail’s parcels business — an area crucial to its future as the number of letters sent in Britain declines.

The 500-year-old postal operator still controls more than one-third of the £9bn parcels sector and is modernising its systems and technology.

But the high growth rates of its smaller rivals suggest they are gaining ground. Revenues at DPD, which is part of the French state-owned La Poste group and competes directly with Royal Mail’s Parcelforce service, rose from £417m in 2010 to £945m last year, said Mr McDonald. He expects turnover to top £1bn in 2016.

Adding to the competition, internet giant Amazon is developing its own logistics network to deliver goods.

Some analysts — and Royal Mail — have warned of overcapacity lowering the prices companies can charge. “For added-value services there’s still an opportunity to get a premium,” said Patrick Wall of MetaPack, an online delivery technology provider.