Forwarders move into express products as integrators take on freight

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Freight forwarders are increasingly offering expedited products in a bid to stave off competition from the express sector. As the integrators move into the larger parcel and general freight business, forwarders are keen to be able to offer their customers a full range of products.

“Companies like UPS and TNT have taken the small package market but they are coming more and more into the freight market,” said Martin Rutter, head of DSV XPress in the UK. “From our perspective we have to cover ourselves, or lose market share.”

DSV launched its UK express and courier service last week, following launches in Denmark, the Netherlands and Sweden, while it has had a service in Germany for 20 years.

Another mid-sized forwarder confirmed that it too was in the process of setting up an expedited product.

The express market, despite the failure of TNT’s merger with UPS, following the European Commission’s belief that the deal would have reduced competition, seems to be particularly active. But forwarders, while increasing sales competition, will also rely on the integrators’ networks.

“We have economies of scale, so we can put business through the big networks and get discounts, which we can pass on to our customers,” said one forwarder, looking to roll-out a global courier service. “We can’t set up that sort of network ourselves, as we’d need a huge investment. They have all been around a long time and share the market. We can’t beat that.”

John Pye, head of SBS Worldwide’s courier division, which is more than 10 years old, added: “Freight and logistics companies are opening up express departments because they can use the integrators. We also offer our own services  – it can be better to use an overnight truck to go from London to Paris, rather than sending it to East Midlands Airport to fly to Charles de Gaulle, then delivering it into Paris. We look at the volumes we have, and the cost, and pick and choose the right service. There are also a lot of wholesalers offering country specific services. A fragmented market is good – it means you are not limited to just integrators.”

SBS business development director Gary Hubbard explained: “There is no need to replicate the global distribution networks of the integrators, and we can leverage these while they leverage a smaller account base with larger volumes – it’s a win win.”

The European Commission, in its Green paper on an integrated parcel delivery market published at the end of last year, noted that the rise in e-commerce should lead to a greater number of logistics players in the sector, giving economies of scale that would allow smaller e-tailers to compete with the existing market leaders.

“Other logistics players such as third party logistics providers, play an increasing role to fill in the gap between the e-commerce and delivery operators, in terms of innovation, flexibility, stock management, transport and return of parcels,” it stated. “The solutions that they offer are not yet widely known, in particular among SMEs. With more visibility they could play an increasing role in facilitating logistics operations. By consolidating different sources of low volume, they could also be in a position to obtain more favourable terms/deals for delivery that could then be passed on.”

Meanwhile the market is waiting to hear the fate of TNT following its failed merger bid. Speculation that another deal in the sector is waiting in the wings has yet to be confirmed.

But observers think TNT can soldier on. “I think they will stay around for some time yet,” said Mr Rutter.

TNT is now implementing a restructuring plan that will see it focus on its European market, while shaving €150m in costs off the business by the end of this year. UPS recently lowered its profit forecast for 2013, following a fourth quarter net loss of $1.75bn, owing to a $3bn pension charge.