“Good services in good markets”
The UK is showing the way forward – and Rico Back knows about it. After running development work for GLS there he was in charge of the Royal Mail and its subsidiaries from 2016 to 2020. Even if the UK is currently experiencing a weaker phase, ardent CEP advocate Back sees good opportunities and prospects there. He told Christian Doepgen about the industry’s holy trinity recently – price, safety, quality.
Some experts have stated that 2023 represents a ‘turning point‘ for many segments of the logistics sector, Rico Back. Does this apply to CEP too?
Historically, parcel services only experienced growth of 3 – 5% a year until 2020. The boom during the outbreak of Covid-19 is now being followed by a significant slump, which is down to geopolitical risks, a steep rise in energy costs, and consumer restraint. Yes, it is indeed a watershed year for the segment. The battle for volumes is back, while price increases like 2022 are no longer possible.
Is this one of the reasons why we’re experiencing a wave of consolidations?
In times of high interest rates, money isn’t easy to find, even for private equity. I expect far fewer megadeals, but I can conceive strategic acquisitions of reasonably-valued companies in the industry. The return on investment will be decisive, so negotiations will take time. Purchase prices are back to normal levels.
What does the market look like to you in concrete terms?
The United Kingdom can serve as an example here. Growth rates have fallen to 1% for the first time since 2013, whilst online purchases have fallen by 7%. Amazon posted the worst figures in its history in the UK (+5.2%). The Royal Mail has lost 19% of its revenues, but more importantly, it has lost 5% of its market share, due to a lack of quality services. UK Mail, that is DHL Parcel UK, on the other hand, recorded 17% growth.
Volumes migrate rather quickly nowadays, if quality and reliability aren’t right. The demand for optimisation and transparency is high, in order to achieve success. Even in good markets it’s down to you to offer good services. Forecasts are difficult, but I’m convinced of sustainably positive developments in the long term. I think a recovery to 3 – 5% growth a year is realistic.
Do you expect current developments to lead to structural change in the fragmented CEP industry?
It depends on which markets you mean. A near-shoring trend is having a positive effect wherever customs formalities have been abolished, because global supply chains are easily susceptible to disruption. Cross-border volumes in Europe are growing much faster than volumes in national systems.
Every large CEP services provider needs pan-European access to be able to compensate for the national competitive pressure through comparatively more profitable exports. Near-shoring is one of the driving forces here.
Today’s slower volume growth prevents national systems from compensating for cost increases by raising prices, as they did in 2022. Capacity utilisation becomes decisive. The major players’s moment is returning – as is international cooperation’s momentum.
Would you start your own CEP service in today’s environment?
I’m right in the middle of it, so to speak. I remain involved in CEP services and try to help companies adapt to global and local trends. The central issues remain price, safety and quality.
Keeping your delivery promises is crucial. The necessary automation and digitalisation measures have to be as reliable as a Swiss watch.
The CEP market has weathered the pandemic well, but it has to focus on good services in these times of upheaval. My work in the industry for the investment and consultancy SKR is one of the most enjoyable tasks I can imagine.