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Courier Industry: At crossroads - Views on News from Equitymaster
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  • Aug 20, 2001

    Courier Industry: At crossroads

    The domestic courier industry is in for consolidation. The industry in estimated to be US $ 430 m with over 2,000 companies in the arena. Of these 2,000 companies only 25 companies are from the organised sector, accounting for 60% of the total revenues. While it is clear that there is saturation at the lower end of the market segment, bigger players are gearing up to grab a larger share of the burgeoning market pie.

    The key to success for these companies is to offer complete logistics management instead of vanilla delivery services. In a bid to prune costs, corporates are attempting to cut inventory to bare minimum levels. The concept of ‘Just in time’ inventories is gaining importance in the supply chain system. Logistics management is thus emerging as the fastest growing segment in the express industry. Corporates are increasingly outsourcing supply chain management to a specialised service provider, in turn requiring Logistics companies to make huge investments in technology and requisite infrastructure including multi modal transportation facilities and hubs.

    Leading courier companies in the industry now use a combination of transport networks comprising road, rail, sea and air for undertaking door-to-door delivery of documents and packages. The multi-faceted distribution system is supported by infrastructure comprising various offices across cities, hubs, warehouses, IT technology and human resources. Blue Dart for example has three dedicated aircrafts, hubs and online cargo tracking system in a bid to offer complete logistics solution to its customers.

    Another critical factor for success of courier companies is product mix management. While document business is high margin, there is a limitation to growth. Whereas in the non-document business, competition is relatively less with only large organised players in a position to offer reach and superior service through use of technology. Again domestic business is more profitable than international business, courier companies operate on cost plus basis with a foreign partner. Margins in the international business are thus not lucrative. Both the express majors viz. Blue Dart (38% market share) and Elbee (20% market share) are thus consciously concentrating on the domestic business.

    However, key risk factor for courier companies is the sensitivity of the sector to fuel prices, especially ATF. The cost of fuel typically constitutes about 12-18% of the total operating cost depending upon the network composition and rising fuel costs remain a key area of concern for the industry.

    Again the demand for logistics is intrinsically linked to the growth in the economy and incase of slowdown in economy they suffer from overcapacities. However, as the industry is still at a nascent stage, new avenues of growth are abundant for specialised companies.

    To summarize, consolidation in the industry is bound to happen for traditional players with only serious players surviving. Though the courier industry as a whole is expected to grow at a compounded rate of 15-20% in the next few years, companies with an edge on technology and service are expected to far outperform the industry growth rates. `



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