Industry Profile: Parcel Deliveries
- A-Level, IB
- AQA, Edexcel, OCR, IB, Eduqas, WJEC
Last updated 18 Nov 2022
In this revision video we look at aspects of the fast-growing parcel delivery industry in the UK. Great application for your exams!
The parcel services industry in the UK has experienced rapid growth in recent years. It has become more contestable even though the market is dominated by a cluster of scaled-businesses. The industry is characterised by extensive price and non-price competition. The fast growth of the sector has created challenges, not least pressures on hiring skilled staff during and after a pandemic and also in limiting the wider environmental impact of their operations. There is pressure on courier firms to improve pay and conditions.
Some exam-related topics:
Reasons for fast-growth of parcel demand in the UK
Factors affecting price elasticity of supply of couriers
Factors affecting costs, revenues and profits in short & long run
Different business objectives including environmental aims
Role of out-sourcing in the delivery business, importance of scale
Non-price competition between parcel couriers
Sources of and importance of economies of scale
Environmental impact of the courier industry
Impact of government intervention on the industry
Labour market issues – supply shortages, pay and conditions
The parcel services industry in the UK is probably best described as a contestable oligopoly. It is contestable in the sense that smaller courier firms can and do enter the market – perhaps operating at a town or city level providing bespoke services. But it is an oligopoly in that the industry is dominated by a relatively small number of scaled businesses that operate with very high levels of productive efficiency. Is this the optimum market structure from a consumer welfare point of view?
The Royal Mail
The privatisation of Royal Mail took place in three parts – the majority of the company was disposed of in 2013, with 10% of shares allocated to an employee free offer and 60% sold to individuals and financial institutions. It was fully privatised in 2016 and – in the end – it raised £3.3 billion for the government – the money was used to reduce the National Debt. Royal Mail plc is now a listed company on the stock market.
Selected ownership details for parcel couriers:
Hermes – owned by Otto Group – the largest mail order delivery business in the world
DHL – a subsidiary of Deutsche Post
DPD - wholly owned by France's La Poste
Royal Mail plc – once state-owned, privatised in 2013-16
TNT Express - Owned By FedEx (USA)
UK Mail - Owned By Deutsche Post Group
Yodel - Privately owned by the billionaire Barclay Brothers
Interdependent behaviour between competing suppliers
One of the key features of an oligopoly is the high level of interdependence between competing service providers. This is clearly the case with parcel companies. Price comparison sites allow consumers to access information on prices charged for parcel deliveries. There is intense price and non-price competition including product differentiation. This is an industry where growing market share and making efficient use of delivery capacity is vital in driving revenues and operating profits.
Examples of product differentiation as a form of competition
Same day delivery, before 11am, before 1pm etc.
Enhanced tracking and security services including tamper-proof packaging
Insurance for misdirected courier delivery
Ability to select a specific date/time for delivery
Offering same price delivery to anywhere in the UK
Parcel locker networks for secure collection
Print at home labelling for those sending packages
Environmental aspects of fast growth of parcel industry:
Increased traffic congestion
Externalities from plastic and other packaging waste
Emissions from vehicles
The parcel industry is impacted by a number of government interventions:
Carbon trading scheme & a possible carbon tax
New plastic packaging tax (April 2022) £200 per tonne
Ban on sale of all new conventional petrol and diesel vans from 2030
Trend towards Ultra-Low Emission Zones (ULEZ) in cities
Labour Market Aspects
The parcel delivery industry creates thousands of jobs and the surge in online retail has increased the derived demand for drivers, warehouse workers and others. In part, this has amplified a national shortage of HGV drivers since many have left this sector to drive vans for couriers including Amazon Logistics. Many drivers are self-employed, some operating on zero-hour contracts and the majority paid an effective hourly wage at or around the minimum wage. Courier companies are monopsony employers and few delivery drivers are trade union members.