Topic Videos

Industry Profile | Parcel Deliveries

Level:
A-Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 14 Aug 2022

In this revision video we look at aspects of the fast-growing parcel delivery industry in the UK. Great application for your exams!

2022 Exams - Industry Profiles - Parcel Deliveries Industry

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 UKFactors affecting price elasticity of supply of couriersFactors affecting costs, revenues and profits in short & long runDifferent business objectives including environmental aimsRole of out-sourcing in the delivery business, importance of scaleNon-price competition between parcel couriersSources of and importance of economies of scaleEnvironmental impact of the courier industryImpact of government intervention on the industryLabour 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.

Ownership

Selected ownership details for parcel couriers:Hermes – owned by Otto Group – the largest mail order delivery business in the worldDHL – a subsidiary of Deutsche PostDPD - wholly owned by France's La PosteRoyal Mail plc – once state-owned, privatised in 2013-16TNT Express - Owned By FedEx (USA)UK Mail - Owned By Deutsche Post GroupYodel - 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 competitionSame day delivery, before 11am, before 1pm etc.Enhanced tracking and security services including tamper-proof packagingInsurance for misdirected courier deliveryAbility to select a specific date/time for deliveryOffering same price delivery to anywhere in the UKParcel locker networks for secure collectionPrint at home labelling for those sending packages

Environmental aspects of fast growth of parcel industry:Increased traffic congestionExternalities from plastic and other packaging wasteEmissions from vehicles

The parcel industry is impacted by a number of government interventions:Carbon trading scheme & a possible carbon taxNew plastic packaging tax (April 2022) £200 per tonneBan on sale of all new conventional petrol and diesel vans from 2030Trend towards Ultra-Low Emission Zones (ULEZ) in cities

Labour Market AspectsThe 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.

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