Express growth remains strong in 2021

The express business has had a good run during the past three years, at least from a volume perspective as 2021 shipment growth has been strong for DHL, FedEx, UPS, and SF Express in all their main markets. And 2020 saw strong growth in domestic and international markets while 2019 was strong only in domestic markets. For the rest of this year and beyond, all the major express companies are bullish with regard to the outlook, even if many are struggling with year-round peak operations, network inefficiencies and labor cost increases.

Figures 1, 2 and 3 below provide an overview of volume and yield growth in 2019, 2020 and year-to-date 2021. We focus only on the air express business, which in the United States accounts for about 30% of the total express business, and in China much less. In fact, SF express has seen the air share of its traffic decline to 10% for the first half of 2021, from 11% in 2020, and 18% in 2019, as its ground-based business has outgrown the air express business. Figure 1 - 2019 Express Shipment and Yield Development

Figure 2 - 2020 Express Shipment and Yield Development

Figure 3 - 2021 Express Shipment and Yield Development

Some takeaways: U.S. domestic volume growth has been strong during the last three years, during which its air express market grew by about 7% in 2019 and 12% in 2020. We expect 2021 growth to be around the same order of magnitude. FedEx is forecasting 10% growth per annum until 2026. We expect to prepare our own forecast during the next month but it is safe to say that business-to-consumer (B2C) e-commerce is going to drive higher rates than the 3.4% per annum growth observed between 2013 and 2019. U.S. domestic yields have generally suffered as the B2C share increased. In 2019, we estimated that 48% of express traffic was B2C, and this increased to 65% in 2020. Most of this moves in ground networks, but e-commerce expedited delivery commitments are pushing more B2C into air networks as well. However, the trend in yield decline appears to have been reversed in 2021. As we prepare our forthcoming express market outlook, which we intend to publish in the next month, we will assess whether this is a sustainable trend or not. Chinese growth has been off the scale and in excess of 30% per year for the five years to 2019, and again grew 31% in 2020, according to statistics compiled by the China State Post Bureau, which has a rather loose definition of what constitutes express. We tend to view the development of the Chinese express market through the lens of SF Express, which moved about 8.1 billion shipments in 2020 — 30% more than UPS. SF Express achieved shipment growth of 26%, 68% and 41% in 2019, 2020 and YTD Aug 2021, respectively. Chinese domestic yields have suffered. SF per package yields were down in all three years as the economy share of its business increased. In 2015, 7% of SF revenue came from its economy product; in 2020, that number was 29%. On the international side, 2019 was a rather average year, although better than average compared to the overall air cargo business. In 2020 and 2021, however, international express has performed well in volume terms. Thanks to increasing B2C traffic, international yields declined both in 2019 and 2020, but have also turned a corner in 2021, in part because of a return of business-to-business traffic but also because of continued supply chain disruptions that is creating more short term growth opportunities for companies with network coverage and capacity. We do expect international express growth to moderate; our last forecast prepared toward the end of 2020 predicted growth of around 5% per year for the next five years. We will revisit that in the next month and see if the crystal ball tells us something else.

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