and Parcel:
Market at a Crossroads
As CEP companies feel the heat of intensifying compe-
tition in Pakistan, Bangladesh, and Sri Lanka, competitive
advantage will go to those with great service, adaptive
pricing, and solid risk management strategies.
As CEP customers look for more cost-saving opportunities, smaller CEP providers, working
at lower yields, are able to provide such cost savings and capture market share as a result.
They are also simplifying their business models for select lanes. And, increasingly, all CEP
players, including the large integrators, are focusing on price to win more new customers
or simply retain their existing customers.
Figure 1
CEP market indicators
Core industries are driving CEP growth. Garment manufacturing drives the express parcel
industry in Pakistan, Bangladesh, and Sri Lanka, which means there is a strong correlation
between the growth of the textile industry and an increase in CEP shipments. We predict strong
growth in the textile industry over the next five years. Garment exports from Sri Lanka are
expected to grow at 10 percent over the next three to four years, explains a study participant
and industry expert in the Sri Lanka garment industry. An executive of a leading Bangladesh-
based garment manufacturer adds, If the infrastructure improvesespecially the availability
of power, better connectivity to ports, and less port congestionwe will be able to expand
our capacity and further reduce total production costs,
Further, after idling for the past few years, document shipping is expected to grow steadily.
The banking industry, which has been the mainstay of the express document business, saw
stagnation in shipments in the past two to three years. However, the document business from
banks is expected to grow in line with anticipated bank expansions. Given that usage is now
primarily for original documents, a shift to electronic media is not expected.
Overall, we expect the CEP industry to experience an impressive 8 to 10 percent annual growth
rate in the next three years (see figure 2 on page 4).
A shift is occurring toward heavier shipments. The industry has witnessed a steady increase
in weight per shipment in the past few years. Overall, weight per shipment in the export
express market grew at a compound annual growth rate (CAGR) of 8 to 10 percent from 2007
A.T. Kearney periodically releases determine the status and future region, industry experts, and
white papers and research studies direction of the CEP industry in customers. Our analysis focuses
on the global courier, express, and these countries, we performed on the scheduled express and
parcel industry, and the logistics secondary research and con- standard network business.
and transportation sectors. The ducted one-on-one interviews
findings discussed in this paper with major stakeholders,
focus exclusively on Pakistan, including executives of com-
Bangladesh, and Sri Lanka. To panies doing business in the
+8-10%
~130-138
103
2011 2014
to 2011, while growth for import express shipments was 5 to 8 percent during the same period.
This increase can be explained by the consolidation of garment samples from textile manufac-
turers as part of cost-saving measures. This trend is expected to continue as production costs
rise with upward revisions in labor wages, putting pressure on textile manufacturers to cut costs
further by consolidating shipments. This is also supported in some part by freight that has
express qualities moving toward express, especially in high-end apparel.
Service quality is becoming increasingly important. On-time pickup and delivery, speedy
customs clearance, in-transition traceability, parcel safety, and 24-hour accessibility are
important elements in overall service quality for shippers. In general, service quality is the single
most important criteria cited by shippers across the region for selecting a CEP service provider.
We want CEP players to go the extra mile on service, reliability, and flexibility, explains a banker
in Sri Lanka. Although customers are more price sensitive, especially parcel shippers, most are
willing to pay a premium to ensure a certain level of service.
Competition from local players is intensifying. Local players are vying for market share on
select lanes that do not require significant operational capabilities. This has led to increased
competition in the past few years. There is also an evolving trend of customers opting for
more than one CEP service provider. For example, textile companies in Sri Lanka generally
work with more than one express company, based on rates, network, and service quality for
different destinations.
Most parcel customers will consider an alternate express provider if it promises a similar quality of
service at a lower price. We expect the service quality of local players to improve, which will allow
them to challenge the large integrators for market share. As smaller players build global networks
through partnerships and alliances, the transit times will become similar on major routes.
Courier, Express, and Parcel: Market at a Crossroads 4
Most parcel customers will consider
an alternate express provider if promised
a similar quality of service at a lower price.
In-transit safety and guaranteed on-time delivery will be the only differentiators commanding a
premium price.
Macroeconomic risk is on the rise. The most important macroeconomic parameters for CEP
players are exchange rates and fuel prices. Rates charged by most of the large integrators are
denominated in the U.S. dollar or the euro; thus, currency movements have a significant impact
on what customers pay for shipments. A case in point is the steep drop in the value of the
Pakistani rupee (PKR) from 2007 to 2011 (see figure 3). As a result, express customers had to bear
the brunt of increased prices on international shipments. Express players were also forced to
absorb the extra costs because of their inability to pass on the full impact to customers. Given
the strong dependency on imports, the currencies of Pakistan, Bangladesh, and Sri Lanka are
not expected to strengthen, which will add to the pressure on yields. Hence, companies need
to thoroughly review their contract structures and explore the options of hedging risks through
international currency markets.
Fuel prices also play an important role in determining the yield. Most players charge a variable
fuel surcharge on top of base prices to account for fluctuating fuel prices. As fuel prices are
expected to remain volatile for the foreseeable future, managing fuel surcharges will be crucial
for CEP players bottom lines.
Figure 3
Exchange rate for the Pakistani rupee vs. the U.S. dollar
+3%
+15% 85
80
61
Are you equipped to handle heavier shipments? Are the network and operational capabilities
sufficient to serve these needs effectively?
Is your service quality competitive with the best in the industry? Are your focus areas aligned
with customer needs?
As a large player are you able to compete with smaller players on price?
What mechanisms are you using to protect your company from macro-economic risks?
Pakistan
Increasing competition will lead to the introduction of new, innovative products and services.
Increasing trade with Japan and East African nations will drive CEP players to invest in reinforcing
networks on these lanes. Price rationalization is expected to continue.
Bangladesh
Sri Lanka
Companies in Sri Lanka can expect to focus more on high-margin industries and customer
segments and put into practice more flexible pricing strategies. In addition, a significant opera-
tional expansion and restructuring is anticipated for the industry with the start of operations at the
airport in Mattala, Sri Lankas second international airport.
Authors
Anshuman Maheshwary,
principal, Gurgaon
anshuman.maheshwary@atkearney.com
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