3PL networks due for makeover

DHL     TNT    FEDEX    UPS    DATAMONITOR

Global - Structural changes that have taken place in the express industry mean 3PLs need to reorganise their networks to survive, says a new report.

DHL, TNT, FedEx and UPS have not been spared the effects of lower volumes, with all four recording lower profits in the last quarter.

Since the last set of poor results was announced by FedEx last month, in its Q2 results presentation yesterday TNT announced a double digit decline in revenues in its express division despite volume decline bottoming out in the last few months. Similarly DHL Express' revenues fell by 28.6% in Q2; even after discounting the effect of its exit from the US domestic market, organic revenues fell by more than 15%. UPS saw a similar decline in revenues, as lower volumes and a lower yield per item (as a result of lower fuel surcharges), customers sending lighter packages, currency effects and a negative product-mix as customers opt for cheaper alternatives, all impacted both its US domestic and international businesses.

In spite of this, both DHL and UPS have gained significant ground on their competitors in the supply chain service and freight markets, Datamontor observes. This is in spite this segment suffering more from the crisis than the small package/express market.

In this time, DHL won large contracts in the life science, fashion, industrial, high tech and automotive sectors, but saw overall revenues decline due to lower rates and fuel surcharges.

UPS on the other hand, saw freight volumes drop by just 2%, indicating a large gain in market share for the company. The company's opening of healthcare freight-handling facilities in Puerto Rico and the Netherlands underlines UPS' strategy to strengthen its position in further in the sector, Datamonitor says.

The company believes the structural changes that have taken place in the express industry in terms of geographic focus, distribution models and customer preferences will require the leading firms to reorganise their networks. This implies the shifting geographic focus to emerging markets like South America and the BRIC countries, and improving their road networks in order to cater for customers requiring alternative transport modes.

The rise of e-commerce has been another fundamental change in the distribution models used by express customers, which has prompted express firms to increase their home delivery distribution capabilities and exploit one of the few remaining growth engines of the express market, says Datamonitor logistics and express senior analyst Erik Van Baaren.

"The development of industry-specific solutions combined with a global integrated service is another way for express companies to counter the negative effects of the economic downturn which, despite showing signs of receding, does not appear to have entered a phase of recovery yet," says Van Baaren.

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