Parcel traffic ambitions overcome European borders

Britain’s vote for the “Brexit” may have dealt a blow to the European Union, but the vision of an integrated European parcel network is very much alive, thanks to the Deutsche Post DHL Group (DP-DHL). The German postal, express and logistics giant is acquiring a strong presence in the British market with the takeover of UK Mail, the second-largest mail provider in the United Kingdom.

UK Mail started out as a courier and express parcel operator and added letters to its portfolio in 2009 after the British mail market was deregulated. It now operates a network of more than 50 depots and some 2,400 delivery vehicles, and handles about 230,000 parcels and 12 million mail items a day. Between them, UK Mail and Whistl, a former unit of PostNL NV, account for about 45 percent of letter volumes in the British market. In line with government regulations, they can collect and sort letter mail but must feed this traffic to national postal operator Royal Mail, which still makes almost all final deliveries under a state requirement. UK Mail has roughly a 5 percent share of the British parcel market.

DP-DHL is buying the company for US$206.3 million – a bargain, according to Horst Manner-Romberg, principal of parcel logistics research and consulting firm M-R-U. For one thing, the drop of the British currency in the wake of the Brexit vote has diminished UK Mail’s price tag for the German mail giant. Moreover, UK Mail’s share price suffered in the aftermath of the establishment of a new, automated sorting hub last year, resulting in two profit warnings. Those problems have been sorted out, which means DP-DHL will not have to invest in new technology, Manner-Romberg said. He added that UK Mail has successfully managed shifts of focus from letter to parcel and from B2B to B2C flows.

For its fiscal 2016, ended March 31, UK Mail took in $583.3 million in revenues, down 0.8 percent from the previous year. Parcel revenues advanced 1.4 percent to just over $300 million, while revenues from the mail business sank 3.1 percent.

Its traffic is overwhelmingly domestic, with little international volume, according to Manner-Romberg. “That does not really matter to Deutsche Post,” he said. “For them it is the presence in the market that matters. They are acquiring an established platform in the British market. They can build up international services on it later.” DP-DHL has lacked a presence in Britain since DHL sold its domestic express business there in 2010, he added.

Jürgen Gerdes, a board member at DP-DHL, who heads the company’s letter and parcel business, said that, “With this acquisition, we will further extend our network and have a strong foothold in Europe’s three largest e-commerce markets – the U.K., Germany and France – which account for more than 60 percent of online retail in the continent.”

DP-DHL clearly has international e-commerce flows in its sights. “The ongoing expansion of our parcel network in Europe is driven by increasing demand within our e-commerce customer base for cross-border deliveries,” Gerdes commented.

The goal for DP-DHL is a pan-European parcel network spanning 20 countries, which he called “the United Parcel States of Europe” in an interview in August. With the acquisition of UK Mail, the footprint will cover 19 of these.

DP-DHL’s parcel arm has its own networks in eight European countries and uses partners in most others. Earlier this year it acquired a minority stake in French Relais Colis, which specializes in e-commerce logistics.

It remains to be seen how airborne parcel flows in and out of the U.K. will be connected with UK Mail’s network. The push into Britain comes at a time when DP-DHL’s rivals are strengthening their positions in Europe. FedEx has commenced the integration process with TNT, and UPS revealed in the spring that it would be investing $2 billion in its European network and infrastructure through 2019.

Meanwhile, Royal Mail has moved to expand into the United States. The British postal firm, which was privatized in 2013, announced in early October that its General Logistics Systems unit was acquiring Golden State Overnight Delivery Service, based in Pleasanton, Calif., for $90 million.

From the looks of it, expansion in the parcel and mail sector appears to be going both trans-Atlantic as well as pan-European.