Courier Industry: At crossroads - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Courier Industry: At crossroads

Aug 20, 2001

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. `

Equitymaster requests your view! Post a comment on "Courier Industry: At crossroads ". Click here!


More Views on News

Sorry! There are no related views on news for this company/sector.

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

How to Hit Rs 100 Crore Wealth in Your Lifetime (Equitymaster Wealth)

Nov 15, 2021

This is how you can achieve the ambitious goal of a net worth of Rs 100 crore.

Don't Sell these Stocks if the Market Falls (Profit Hunter)

Nov 17, 2021

These are the 3 types of stocks that you should not sell in a market crash.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms