What are the key trends of note in the European parcel delivery market as we enter 2024?
To answer these very questions, we’ve reviewed various forecasts from national parcel carriers, as well as industry reports and insights.
Low economic growth and concerns over the macroeconomic environment
The most significant factor at play across the parcel delivery sector, unsurprisingly, is the state of Europe’s economy, which is having a negative impact on consumer demand.
According to TI’s recent report, titled ‘Global Express & Parcels mid-year Market Sizing 2023’, Europe’s parcels market is projected to shrink by 2% this year due to a substantial drop in economic growth.
The report states that Germany is expected to experience a slight economic contraction in H2 2023, while growth in the UK is forecast to fall to 0.5% this year.
According to the TI report, Europe’s economic decline is “due to tighter monetary policies, higher inflation and a much higher cost of living”.
The situation hasn’t gone unnoticed by Europe’s major parcel carriers, many of whom have referred to macroeconomic uncertainty as a limiting factor heading into 2024.
“Macroeconomic uncertainty remains and visibility on the short-term development of the e-commerce market is limited, also beyond 2023,” said PostNL, in its Q3 statement.
Similarly, a fragment in PostNord’s Q3 statement reads: “The world remains challenging, with high inflation affecting our costs and those of our customers, along with high interest costs that are burdening consumers.”
“Global trade has continued to normalise after the pandemic-related boom and the recovery of the global economy has so far failed to materialise, also against the backdrop of higher interest rates and geopolitical crises,” added Tobias Meyer, CEO of DHL Group, in his company’s Q3 report.
The continued battle against inflation
Another issue is of course the high degree of inflation, which has had a knock on effect on business operating costs.
Unfortunately, there are signs that the current malaise in the economy, as well as increased inflationary factors, will continue into 2024.
PostNL expects its labour-related costs to rise next year, while Post Italiane is negotiating an labour agreement that will likely increase its staffing costs. PostNord also admits it is having to apply price increases to compensate for rising costs. Moreover, Austria Post anticipates cost increases, and is seeking extra revenue growth in order to compensate.
Naturally, this all means that parcel carriers are going to have to optimise costs even more as we enter the turn of the year.
PostNL says it is focusing on cost control, and DHL Group CEO Tobias Meyer has also stated that DHL Group will have to “keep a close eye” on its costs.
The erosion of universal service obligations
A third trend that has gained momentum this year and appears set to continue into 2024, is the pressure on universal service obligations in many European countries.
The so-called universal service obligation differs from country to country, but typically requires a company to deliver letters on a daily basis – in some cases up to 6 days a week.
However, as letter delivery volumes collapse, many national postal carriers have called on their respective governing authorities to either relax or scrap these obligations.
A case in point is Denmark, where the universal service obligation is due to end on New Year’s Day 2024. PostNord Denmark, who have been delivering letters under the universal service obligation, has already announced that it will be ending the service after the end of a transitional period.
“The decision is driven by the global trend of digitalisation, leading to a 90% reduction in mail volumes in Denmark since the turn of the millennium,” says Grzegorz Krupa of Last Mile Experts.
Commenting on the changes a few weeks ago, Annemarie Gardshol, Group CEO and President of PostNord, said:
“The new law will result in our mail business as we know it today looking different in the future. PostNord’s presence in the Danish parcel market is not affected by the changes. We still see great potential in the parcel market as a result of more and more consumers choosing to make purchases online. We continue to invest and develop the business in this area for the benefit of our customers throughout the Nordic region.”
Elsewhere, national carriers are clamouring for similar changes.
In a financial statement published last month, Martin Seidenberg, Chief Executive Officer of IDS plc (parent company of the Royal Mail) commented:
“It’s simply not sustainable to maintain a network built for 20 billion letters when we’re now only delivering seven billion. The UK is not immune to the trends that we see across the world. Many other comparable countries have already reformed their Universal Service, and the UK is getting left behind. We welcome the fact that Ofcom will be reviewing options for the Universal Service, but the need for reform is urgent.”
Meanwhile, in Germany, it has been proposed that the universal service obligation be amended to allow letters to be sent on the third working day after posting. At present, letters are delivered 6 days a week, with the aim being to deliver 80% of letters by the next day.
“The issue is that [letter] volumes are falling and costs are rising. There’s also some evidence suggesting that consignees don’t even notice the difference. Therefore, there is a genuine question to ask as to whether we need letter delivery services 5, sometimes even 6 days a week,” says Marek Różycki of Last Mile Experts.
This point is emphasised in DHLDPD’s Q3 report, which stresses that “mail decline and cost inflation remain challenging” and that the “scope of cost and yield measures remains limited by current regulation”.
Growth in out-of-home deliveries in some western European countries
According to June’s 2023 Out-of-home delivery in Europe report, Poland had 2,880 parcel lockers in operation. The next highest total is in the UK, which had 15,460 lockers.
However, since then, there has been notable evidence of further growth in parcel locker networks in countries like the UK and France, which have had lower parcel locker capacity and density compared to Poland.
For example, Polish parcel locker giant InPost, which operates in the UK as well as France, the latter of which under the Mondial Relay brand, has been vocal about its growth abroad.
In early December, InPost announced it had reached the 6,000 parcel locker mark in the UK – a notable increase on the 5,000 lockers it had in March. The company claims that the majority of the British citizens living in core cities (with populations above 175,000) now have a Parcel Locker or InPost PUDO point within a 7-minute walk. Over in France, Mondial Relay hit the 4,000 mark earlier this year.
InPost also seems set on getting the word out about parcel lockers in these markets too – signing sponsorship agreements with Le Tour De France and Premier League football outfit Newcastle United.
In addition, PUDO networks are on the increase as parcel delivery companies seek to boost capacity, cut emissions, reduce costs, and offer cheaper alternatives to home delivery. Moreover, despite all talk about parcel lockers, there are strong arguments as to why PUDOs will remain an out-of-home staple for some time to come.
“With a PUDO you could argue that even 1 parcel a day or even a week, solves a problem for a customer, provides an access point for the carrier, and there’s even a tiny bit of income for the retailer. But you couldn’t sustain that for a locker. Lockers need a decent throughput to cover the CAPEX, and to justify taking up the space. So below a certain threshold they’ll always be a place for a PUDO equivalent service,” says Gary Winter, VP of Global Strategic Initiatives at Quadient, who have networks of both PUDOs and lockers.