Courier Service In Australia Essay, Research Paper
Courier Services in Australia From IBIS, September, 1998 1 Definition This class consists of units mainly engaged in the express door-to-door pick up, transport, and delivery of letters and mail-type articles, usually packages and small parcels. The activity may involve the use of one or more modes of transport which may be privately or publicly owned. 1.1 Referrals To Other Industries Units mainly engaged in: – other ordinary private sector parcel delivery services are included in the appropriate classes in Division I Transport and Storage; and – ordinary (non-express) post office parcel delivery services are included in Class 7111 Postal Services. 1.2 Activities/Product Groups Table 1 Activities/Product Groups – Customised express pick up and delivery service – Messenger service 2 Summary 2.1 Industry ImportanceThis industry accounts for about 0.15% of GDP. This is medium relative to other industries in the Australian economy. 2.2 Industry Segmentation The key product segments in terms of value are: – Customised express pick up and delivery service – Messenger service Key markets are: – All levels of government – Manufacturing sector – Retail and wholesale sectors – Finance, property and business services sector Exports and imports are not applicable to this industry. The industry is concentrated in NSW (39.2% of locations), Victoria (25.9%), Queensland (16.2%), SA (5.8%), WA (9.0%), Tasmania (1.8%), ACT(1.5%) and Northern Territory (0.6%). Industry concentration is low. Table 2 Major Players Company Name Estimated Market Share Mayne Nickless (Courier Systems) 20.0% Comet/Kwikasair 5.9% Australia Post Parcels 3.0% UPS Australia 2.1% 2.3 Industry Performance Table 3 Industry Performance Industry turnover: % increase from Year $M previous year 1991-92 2045.4 0.9% 1992-93 2108.1 3.1% 1993-94 2196.3 4.2% 1994-95 2320.0 5.6% 1995-96 2401.1 3.5% 1996-97 2449.1 2.0% Over the last five years to 1996-97, industry turnover was estimated to have increased at an annual average of 3.7% per year, despite a decline during the recession in 1990-91. During the recession there was a shake-out in the number of courier companies and the casualties tended to be smaller operators that acted as sub-contractors. Volumes and prices decreased significantly during this period, thereby affecting levels of profitability. Real industry turnover grew more strongly in 1992-93 as economic act ivity increased and users of courier services generated higher volumes. Those operators who survived the recession and borne down on costs were in a better financial position than others. The year also saw increased investment into technology and development of systems and a bigger focus on customer service. Enterprise bargaining featured during 1993-94, with the industry reporting some 40% of employees being covered by enterprise bargaining agreements. The industries labour costs and the relationship between sub-contractors and principals continued to be a contentious issue within the industry. 2.4 Industry Outlook Table 4 Industry Outlook Industry turnover: % increase from Year $M previous year 1997-98 2593.6 5.9% 1998-99 2785.5 7.4% 1999-00 2799.4 0.5% 2000-01 2911.5 4.0% 2001-02 3042.4 4.5% IBIS estimates that this industry will grow at an annual average rate of 4.4% from 1996-97 to 2001-02. Demand from the end-user businesses such as the manufacturing, insurance, property and business services, wholesale trade and retail sectors of the economy, are expected to increase in 1997-98 as the economy experiences relatively stronger growth. However, demand is expected to fall in 1999-00 owing to unfavourable economic conditions generally. During 1999-00, competition is expected to be fierce as growth in volumes slow. Operators that have developed partnerships with their clients are expected to do better than others. Competition is also expected from advancement in communication technology such as Electronic Data Interchange (EDI), which will affect the messenger and small document market. Costs are expected to increase in the areas of driver and administration, fuel, oil and tyres, maintenance, capital, registration and insurance. However, prices are expected to start increasing in the second half of 1997-98 and this is expected to affect industry profitability positively. The share of demand generated by governments at all levels on courier services is expected to decline slightly in the next five years as the privatisation of government-businesses continue to take place. In the longer run, courier operators should be prudent in developing alliances with retailers who offer electronic home shopping services. Although this market is currently very small as a percentage of total retail sales, it is expected to increase strongly in the next ten years. 2.5 Key Sensitivities Key sensitivities affecting the performance of this industry: – The performance of the manufacturing, finance, business services, wholesale & retail trade sectors; – The level of government expenditure at any particular period – The costs of inputs (especially fuel prices and the relationship with sub-contractors.) – The development of communications technology 2.6 Key Success Factors Key success factors that determine profitability of individual producers: – The ability to offer clients a cost and/or service advantage in order to increase market share. – A large sales turnover because margins are small – Long-term contracts are highly desirable due to strong competition within the industry. – Diversity of the client base – A good knowledge of market segments and an ability to understand client needs 2.7 Industry Conditions Generally, barriers to entry are very low and only include: – The highly competitive nature of the business is a barrier to entry for profitable organisations – Constant shake-outs in the industry provides potential entrants with a sense of vulnerability. – Expansion of the business beyond 5 to 10 vehicles requires significant investment in technology and radio equipment. Some regulations apply to this industry and are as follows: – The Australian Postal Corporation Act gives Australia Post the exclusive right to carry ‘letters’ within Australia and overseas. However there is confusion about what types of written materials are reserved to Australia Post. Private operators are allowed to carry letters so long as they charge four times the standard postage rate. However, because of the large number of couriers, this is difficult to enforce. No forms of formal tariffs, protection or special taxes are applicable to this industry. 3 Key StatisticsAll figures are estimated and n.a.= not applicable. Unless otherwise stated, the non-farm gdp implicit price deflator was used to adjust all prices. Table 5 Current Prices 1995-96 1996-97 1997-98 Industry Turnover 2347.1 2449.1 2632.5 $million Industry Value Added 707.6 734.7 759.1 $million Employment 12750 12878 13007 units Number of Establishments 684 691 698 units Number of Enterprises 591 594 597 units Exports n.a. n.a. n.a. $million Imports n.a. n.a. n.a. $million Domestic Demand 2347.1 2449.1 2632.5 $million Total Wages 348.1 361.4 370.5 $million Source: IBIS Estimates Table 6 Constant Prices (1996-97) 1995-96 1996-97 1997-98 Industry Turnover 2401.1 2449.1 2593.6 $million Industry Value Added 723.9 734.7 747.9 $million Employment 12750 12878 13007 units Number of Establishments 684 691 698 units Number of Enterprises 591 594 597 units Exports n.a. n.a. n.a. $million Imports n.a. n.a. n.a. $million Domestic Demand 2401.1 2449.1 2593.6 $million Total Wages 356.1 361.4 365.0 $million Source: IBIS Estimates Table 7 Real Growth 1995-96 1996-97 1997-98 Industry Turnover 3.5% 2.0% 5.9% Industry Value Added 4.0% 1.5% 1.8% Employment 2.0% 1.0% 1.0% Number of Establishments 2.0% 1.0% 1.0% Number of Enterprises 1.0% 0.5% 0.5% Exports n.a. n.a. n.a. Imports n.a. n.a. n.a. Domestic Demand 3.5% 2.0% 5.9% Total Wages 3.0% 1.5% 1.0% Table 8 Ratio Table 1995-96 1996-97 1997-98 Imports as a share of domestic demand n.a. n.a. n.a. Exports as a share of turnover n.a. n.a. n.a. Average turnover per employee ($) 188350 190176 199400 Wages & Salaries as a share of turnover 14.8% 14.8% 14.1% Av. Wages & Salaries per employee ($) 27930 28060 28060 Av. Turnover per establishment ($m) 3.51 3.54 3.72 4 Market Characteristics 4.1 Market Size – Real industry turnover was estimated to have been $2593.6 million in 1997-98 and value added was estimated to have been $747.9 million. – Over the same period, there were an estimated 597 enterprises operating from 698 establishments and employing 13007 people. The employment estimates include part-time and casual workers. 4.2 Domestic And International Markets/Globalisation – Domestic demand was estimated to have been $2593.6 million in 1997-98. – International courier services have been developed inconjunction with postal authorities around the world. The postal authorities provide the network for lodgement or collection while the private operator provides the linehaul services. – There are many examples of private sector involvement in international mail. Australia Post has recognised the advantages of operating alongside specialist carriers such as DHL, an alliance under which the two cooperate in the delivery of express documents and parcels across the world. – Another example of a joint venture in the changing climate for international mail is GD Express Worldwide N.V., an association between TNT Express Worldwide and the postal administrations of Canada, France, Germany, the Netherlands, and Sweden. Businesses are demanding not only the ability to inter-connect with other postal administrations but also additional services such as track and trace. – The international activity consists of both domestic and foreign companies. Australia Post and TNT must compete with each other and against large overseas organisations such as Federal Express, United Parcel Service, and DHL. All these companies have established operations in Australia. – It is estimated that 11 per cent of the industry is in the hands of foreign owners and therefore the industry portrays a low level of globalisation. 4.3 Linkages – Major users of courier services are industries in the following ANZSIC Divisions: Finance and Insurance (K), Property and Business Services (L); Manufacturing (C); Government Administration & Defence (M); Wholesale Trade (F); and Retail Trade (G). – Major suppliers to the courier services industry are: Computer Maintenance Services (7833); Computer Consultancy Services (7834), Commercial Vehicle Wholesaling (4622), Tyre Retailing (5324), Automotive Fuel Retailing (5321) and Automotive Repair and Services nec (5323). 4.4 Demand Determinants – An analysis of demand formation by industry divisions revealed that Manufacturing, Finance and Insurance, Property and Business Services, Wholesale Trade and Retail Trade generated nearly 80 per cent of sales in the courier market. – The manufacturing sector depends on timely and reliable deliveries of raw materials or semi-finished products as input to further processing. It also requires finished products to be transported to warehouses or distribution centres. – The move by certain manufacturing to just-in-time inventory management has increased the activity in that consignments are getting smaller but more frequent. This has led to many couriers forming close relationships with manufacturers which have developed into long-term contracts. – Apart from government policies affecting trade barriers, the major determinants of manufacturing demand are movements in private final consumption expenditure and in gross private final consumption expenditure on equipment, which effects the growth in demand for manufactured products. – The key determinants of wholesale and retail trade demand are movements in real household disposable incomes, interest rates and prices. – The manufacturing and wholesale and retail trade sectors are highly price elastic due to its inability to pass on price increases without affecting market shares. Couriers serving these sectors tend to seek volume based business in order to survive. – The finance, property and business services sector is the largest purchaser of courier services. Typically the firms in this sector are located in the central business district of each capital city and are the largest users of messenger, document courier and express parcel services. – The demand from this sector is relatively less price elastic due to its ability to pass on higher courier prices. Typical users in this sector are legal and accounting enterprises, the banking and advertising industries. – Other business sectors such as leisure, secretarial and personal services tend to operate in-house vehicles. Typical examples include laundry and dry cleaning services to hotels and resorts, and delivery of flowers and other gifts. – Governments at all levels generated an estimated 20 per cent of demand for courier services in 1995-96. The key economic indicator is the Government Final Consumption Expenditure (GFCE) which is the expenditure by all levels of government and government instrumentalities on goods and services consumed within a given period. The key factors determining GFCE are demand for government services and the cost of providing these services; the available revenue; government policy on the desired size of government; government debt and debt repayment requirements; and political expediency. 4.5 Basis Of Competition – Internal competition is fierce due to low barriers to entry and this has resulted in downward pressure on courier prices. Competition is based on price, response time and information systems management. The key success factor for operators in this market in the latter half of the 1990s is the development of information systems. – External competition arises in the form of potential customers having the choice to run their own in-house courier services. The increasing demand for document exchange centres is an example of this. – Also communication technology will have a continuing impact in the form of paperless Electronic Data Interchange (EDI). Advancements in EDI such as cost-effective electronic mail will have a detrimental effect on the messenger and small document segment of this market. However, offsetting this trend is that communications improvements will allow businesses greater freedom of location. This may lead to an increased volume of parcel and small consignment traffic. The advent of electronic mail has reduced the use of facsimile services but according to industry sources, has little impact on the volume of urgent documents being couriered owing to the need for original copies with signatures to conduct business with. – Another source of external competition includes the utilisation of taxis to deliver urgent consignments. According to industry sources, taxis are estimated to occupy around 10 per cent of the total same day & urgent courier market. 4.6 Life Cycle – The courier services industry can be described as mature. 5 Industry Segmentation 5.1 Product/Service Segmentation – The domestic market for courier services can be segmented into intrastate and interstate. – The intrastate segment was estimated to be worth $1004 million and the interstate segment contributed $1445 million to industry turnover. – The intrastate segment can be further segmented into the same day and urgent segment which is estimated to be worth $602.4 million and the next day delivery segment which was estimated to be $401.6 million. – The interstate segment consists of the same day and overnight delivery ($322 million), next day delivery ($376 million) and day 2 and 3 delivery ($747 million). 5.2 Major Market Segments – Governments at all levels are significant purchases of courier services and it is estimated that governments generate an estimated 20 per cent of industry turnover. Households are insignificant users of courier services. – At an industry sector level, the Manufacturing, Retail and Wholesale, Finance, Property and Business Services are significant generators of revenue. 5.3 Industry Concentration – The industry is dominated by small businesses with nearly 75 per cent of management unit locations employing less than 10 people. The industry is bedevilled with participants with low opportunity costs. The ease of entry into the industry is also another factor contributing to the low concentration on an employment basis. – However, there are large operators which have developed networks over the years, and typically these are subsidiaries of the larger transport organisations such as TNT and Mayne Nickless. It is estimated that the top five players accounted for 33.2 per cent of industry turnover in 1995-96. 5.4 Geographic Spread – The supply side of the courier market mirrors the demand side. Manufacturing, wholesale trade, retail trade, finance and insurance services, and property and business services sectors of the economy are predominantly located in New South Wales, Victoria and Queensland. – The geographic spread of suppliers according to the ABS Business Register as at March 1994 is as follows: New South Wales (39.2 per cent); Victoria (25.9 per cent); Queensland (16.2 per cent); South Australia (5.8 per cent); Western Australia (9.0 per cent); Tasmania (1.8 per cent); Northern Territory (0.6 per cent); and Australian Capital Territory (1.5 per cent). 6 Industry Conditions 6.1 Barriers To Entry – The courier industry is characterised by its low barriers to entry. In theory, anyone with a vehicle and communication equipment such as a mobile phone can operate a business. Participants such as these do exist and service niches in the market. However, they suffer from a lack of bargaining power and are usually price-takers. – The high competitive nature of the business is a barrier to entry for profitable operations. The constant shake-outs of businesses also provides potential entrants with a sense of vulnerability. – The critical mass in this industry is around 5-10 vehicles. For participants to expand beyond this point, a significant investment in technology and radio equipment is necessary. – As most larger players employ sub-contractors on piece meal arrangements, training expenses can also be significant. 6.2 Industry Assistance – This industry is not directly affected by tariffs. 6.3 Taxation – As most larger players employ sub-contractors on piece meal arrangements, the independence of the relationship between contractors and couriers has been a taxation issue. – The Australian Tax Office would like to see those contractors with a sole dependence for work from a particular player be deemed as an employee. However, the industry has maintained that sub-contract work is essential if the level of service and price is to be maintained in the market place. 6.4 Regulation/Deregulation – The Australian Postal Corporation Act 1994 (the Act) gives Australia Post the exclusive right to carry “letters” within Australia and between Australia and places overseas. However, there is confusion about what types of written materials are reserved to Australia Post. – The Act is designed to prevent organisations such as couriers from competing with Australia Post’s letter service. Private operators are allowed to carry letters so long as they charge at least 4 times the standard postage rate. – This tends to confine couriers to the high security, high speed segment of the letter market and prevents then from competing directly with Australia Post for the collection and delivery of non-time-sensitive items. – However, because of the large number of courier organisations, and the difficulty in determining whether they are carrying letters or other material reserved to Australia Post, this requirement is difficult to enforce. 6.5 Cost Structure – Information of costs and profitability by companies is not publicly available. However, the Financial Management Research Centre provides a benchmarking service for small businesses. Table provides IBIS estimates of industry cost structure in 1993-94 based on FMRC estimates for 1991-92. Table 9 Courier Services Costs As A Percentage Of Income Item % of Income Fuel & Oil 12.23 Sub-Contractors 11.00 Repair, Maintenance & Tyres 7.23 Labour 6.90 Depreciation 5.66 Interest & Insurance 3.71 Lease 3.33 Registration 3.01 Other 11.02 Note: Excludes owners’ salaries & benefits. Source: FMRC and IBIS Estimates. – It shows fuel, oil and sub-contractors as major cost items followed by repairs, maintenance and tyres, and labour costs. – For an average operation, margins are in the vicinity of 10 per cent during a `normal year’. However, the courier market is sensitive to economic downturns and recessions. During downturns and recessions the industry faces dwindling volumes together with downward pressure on prices. 6.6 Capital/Labour Intensity – This industry can be described as labour intensive due to the nature of its operations. Couriers utilise a range of methods in delivering goods and services. These include runners, bicycles, motor bikes, cars and small vans. 6.7 Technology And Systems – Route-scheduling, rostering and vehicle locating software is already in use, especially by the medium to large companies. – The use of modems to customer sites is also becoming a norm which increases efficient utilisation of resources. – Tracking systems, which include bar-coding have been increasingly used as a competitive tool in providing high customer service levels. – Among the larger players, the introduction of quality systems have proven to be a winner. Many companies now make sure that there is a consistent, clearly stated service quality goal, a 100 per cent customer satisfaction, enunciated frequently and pursued doggedly in innumerable ways, large and small; provision of employee empowerment; promoting a people first environment that acknowledges employee satisfaction as the primary corporate objective and nurtures a culture from which customer satisfaction and profits spring; and to promote continuous quality improvement.