Accenture Adding Value to Parcel Delivery

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Adding Value toParcel Delivery

September 29, 2015



Copyright © 2015 Accenture. All Rights Reserved. 2

Research Approach

A comprehensive analysis of CEP (Courier, Express & Parcel) industry

Includes B2B and B2C segments, domestic versus international shipping as well as overnight

and non-day, and time definite products segments under 150 pounds or 70 kilograms

Assesses historic performance, identifies future trends and determines shareholder value drivers

Examines current and new players in this market, including global integrators, postal organizations,regional players, shared economy and crowdsourcing actors, as well as retailers moving downstream

Sources include: public information, paid and proprietary primary and secondary research, internaland external subject matter expert interviews and extensive market and financial analysis




Definition of CEP (Courier, Express and Parcel)

Market Definition

Time sensitivity: Usually consignmentsdelivered by a specified day and evenby a specified time

Size of consignment: Maximum weightusually considered to be about 31.5kg

(70lbs); Few exceptions.

Mostly Door to Door

Space represented by pure express playerssuch as UPS, FedEx and TNT Express; aswell as express and parcel arms of postalcompanies such as Geo Post (La Poste)and Purolator (Canada Post)Scope of Market = Courier, Express and Parcels

Source: TNT, Accenture Research

Same day &in-night

Time certain

Next day

Day certain

Dayuncertain

Document Parcel Freight LTL, FTL

>1kg 31.5kg 1000kg

Postal

Air/Road express

Priority Express

Deferred andOther Express

Air charter

Freight Forwarder

GroupageLTL

FTL

Express freight



4Copyright © 2015 Accenture. All Rights Reserved.

Power shifting to the consumer

Internet driving growth, transforming the supply chain

Growing demand and increased volatility

Product mix means lower yields per package

Investments to grow capacity, yet declining ROIC

Sharing economy set to disrupt the last mile further

ParcelDelivery

B2C outgrowing and cannibalizing B2B

Parcel Delivery—Key Findings Summary

Most delivery organization know what to do, but need to do it better, faster, cheaper

The world is flat: rise of the micro multi-national

New technology will change the game

Home delivery becomes the new premium

Last mile is where the battle is taking place

Costs are rising faster than revenue

High fixed cost means less flexibility when it is key




Rise of the digital consumer

Digitally enabled consumers driving most of the eCommerce demandsee bargaining power shifting toward them

Source: Accenture analysis

We have crossed barriers in choice, transparency, and service expectations

Advent of:

D e v i c e s

Data

Social networks

Greater choice

Low switching costs

Faster reviews

So they seek:

Retailers and Deliverers with:

More competition

Easier aggregation ofservices

Better visibility insupply chain

So they provide:

Consumers with:Empowers:

Presents:

Buying Paying

Receiving Returning

Lower prices

Greater convenience

Seamless experience

in




Evolution of parcel delivery value chain

The parcel delivery value chain has expanded in scope.Roles at each stage have evolved toward a stronger service orientation.


Past—Deliver Present—Digital, Transparent, Fast and Flexible Delivery

Need to develop new resources and capabilities to deliver on service expectations at each step of the value chain

Pick up

Delivery

Transportation

• Less visibility intodemand for services

• Limited influence ondemand

• Low C2C and B2C• Less transparency• Easier timelines

• Limited competition• Recipients with low

bargaining power • Low service

expectations

Warehousing


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Last mile delivery models

The last mile, which holds key to the consumer experience, haswitnessed an emergence of multiple delivery models


Consumer convenience and cost reduction have been primary objectives guiding the change

D) Lifestyle/Crowd-shippers

Warehouses

Retail stores Parcel lockers/Access points

A) Postal mail-run

B) Courier delivery 2

C) Courier delivery to lockers

Lifestyle/Crowd-shippers’ delivery to homes similar to courier

Crowd-shippers delivery to lockers



Courier-Express-Parcel (CEP) market size and growth

The challenge of increasing service needs is exacerbated by thegrowing delivery demand calling for scale up of infrastructure

Source: Accenture research, Transport Intelligence

USD billion, %, 2008-2020F

Global market sizeUSD billion

Customer segments

Fixed cost heavy model: The growth has significant investment implications to meet demand

Domestic

International

B2B

B2C

Routes

Geographies

Slower than B2C with close to GDP growthbut significant share and higher margincontribution

Close to eCommerce growth rates andgrowing in significance

Faster growth (~5.4%, 2013-2017) thandomestic primarily due to growing cross-border eCommerce

Continues to be >75% of overall marketwith ~5.0% growth (2013-2017)

APAC N. America Europe Rest Middle East S. America AfricaW. EuropeMarket

30% 5.3% 4.1% 2.5% 1.9%19%38%2020 share

9% 8% 7% 5% 10%5%15%2013-20 CAGR

+4%

2020F

343.1

237.9

2008

194.8

+5%

2013

33% 5.7% 3.5% 2.5% 1.5%23%32%2013 share

C2CEmerging segment from growth in auctionsites and the circular economy



Courier-Express-Parcel (CEP) market size and growth

eCommerce is driving growth in domestic and international markets

Notes:

Size of the bubble represents market size. Previous point—2013, Leading point—2017F. Total market expected to move from US$ 237.9 billion to US$346.0 billion.Source: 1 Transport Intelligence, 2 https://badgeville.com, 3 “World Urbanization Prospects” UN Report, 4,5 www.digitalbuzzblog.com, 6 eMarketer, 7 Ernst & Young

USD billion, %, 2010-2013 and 2013-2017F

Fixed cost heavy model: The growth has significant investment implications to meet demand

0%

5%

10%

15%

20%

0% 5% 10% 15% 20%

346.0

237.9109.4

77.4

131.9

75.4

81.6

67.4

Domestic growth (2010-2013 and 2013-2017 CAGR)

I n

t e r n a t i o n a l ( 2 0 1 0 - 2 0 1 3 &

2 0 1 4 - 2 0 1 7 C A G R )

Global

Europe N. America

APAC

Domestic vs. international growth—Historical and Future1

46%

Smartphone penetration in mobile phones by 2017449%

Internet penetration in population by 20175

55% Urban population out of total by 20173

Of worldwide spending by millennials by 2020270%

27% International eCommerce out of total by 20176

12% Middle class growth rate in APAC 2009-20207

Drivers of growth

https://badgeville.com/

http://www.digitalbuzzblog.com/

http://www.digitalbuzzblog.com/

https://badgeville.com/



CEP market size and growth—B2B vs. B2C

B2C will continue to grow in significance across geographies,driving growth and presenting challenges

Notes:1 Size of the bubble represents total market size in 2020. Total market expected to move from US$237.9 billion to US$343.1 billion.Source: Accenture research, Transport Intelligence, Accenture analysis

USD billion, %, 2013-2020F

B2C focused delivery networks call for different focus areas vs. B2B

0%

5%

10%

15%

0% 5% 10% 15%

North America

Western Europe

Asia Pacific

Global

B2B (2013-2020 CAGR)

B 2 C l ( 2 0 1 3 - 2 0 2 0 C A G R )

B2B vs. B2C growth1

Challenges:

Drivers of growth

Volatility Last mile Yields Returns

46%

Smartphone penetration in mobile phones by 2017449%

Internet penetration in population by 20175

55% Urban population out of total by 20173

12% Middle class growth rate in APAC 2009-20207









Mergers and acquisitions

Many firms have pursued the inorganic route to build scale andacquire new capabilities to widen the scope of their business

Notes:1 Firms included are DPDHL, Austrian Post, Canadian Post, La Poste, PostNord, SingPost, Australia Post, UPS, Fedex, Bpost, Swiss Post and Itella.Source: Financial reports, Accenture analysis

Number of deals by year 1

2009-2014Number of deals by business (Last five years)2009-2014

Acquisition strategy would be key in acquiring the right assets and maximizing effectiveness and efficiency

Real Estate 6

Mail 6

Financial Services 9

IT Services and Software 14

Marketing and Sales 17

Parcels and Express 38

Logistics and Transportation 89

2014

14

2013

34

2012

42

2011

45

2010

22

2009

20

Trend is continuing in 2015 with

the FedEx €4.4bn bid for TNT



Total funding in sharing economy start-ups

Sharing economy start-ups are witnessing an upsurge in venturecapital interest across industries

Source: Sharing Economy Landscape 2015, Tracxn research

60 96283

357

116

958

2014201120102009 20132012

800

645

273

51

16

11

4

0

Private Spaces

Business Equipment

Logistics

Transport

Personal Goods

Storage

Stay

Food

Top funded companies

Airbnb($776.4M), Wimdu($90.0M)

Lyft ($333M), RelayRides($53.2M),Boatbound($5.3M)

Chegg ($252M; IPO at $1.1B).Bag Borrow or Steal($20.0M)

LiquidSpace($26.2M),PivotDesk($6.7M), Storefront($8.9M)

Getable($3.2M), Yard Club($1.6M)

EatWith ($9.2M), Suppershare

Friendshippr($1.2M), WeDeliver($0.8M)

Roost($160k), StowThat($50k)

Top investors

Sequioa, TPG Growth

Trinity Ventures, Shasta Ventures,Google Ventures, August Capital

N/A

Shasta Ventures, Roth Capital Partners,Lucas Venture Group, Spark Capital

N/A

GreyLock

N/A

N/A



List of promising start-ups by business segment

New entrants are drawn to a growing but underserved industry andare enabled by technology

Source: www.jonathanwichmann.com

Creating new challenges and opportunities for legacy companies

Transportation SystemsFuturistic shipping models

Matternet, Google drones, Amazon drones

Freight RatesTransparent shipping costs

Freightos, Tanspoteca,iContainers, Freight Filter,Xeneta, Shippo, ShipHawk,

ContainersContainer packing innovation

Staxxon, Holland ContainerInnovations

Crowd ShippingFlexi-cost last mile shipping

PiggyBee, Friendshippr, RoadieBarnacle, Nimber, Zipments For You,Bringrs, UberCARGO

End-to-end ShippingUber of shipping in C2C space

Shipster, Shyp, Shipbob,Schlep, MinFragt.dk

3PL and Other ServicesEnabling shippers

Shipwire, Cloud Fulfillment, Scurri,Metapack, 71lbs, Axida

Local DeliveryLow-cost urban delivery models

Swapbox, Boxc, Postmates,DoorDash, Zipments, Deliv, Sidecar,Uber, ParcelBright, Parcel

StorageCrowd-sourcing storage space enablingflexi-delivery

Lockitron, MakeSpace, Boxbee, Cubbyhole,Parcel Pending, ShareMyStorage, Roost

TruckingTracking and management

Cargomatic, TruckTrack, KeepTruckin,Youtruckme.com, Keychain Logistics,uShip

Last Mile

http://www.jonathanwichmann.com/




Start-ups—Last mile

The new entrants in last mile are mostly asset-light and utilize thepower of crowdsourcing to achieve outcomes at lower costs

Source: www.jonathanwichmann.com, Accenture analysis

Operationally flexible models generate cost advantage for new entrants but scalability remains to be evaluated

Crowdshipping enabling asset-light, low fixed-cost models tosolve the last mile delivery.

Potential partners for parcel

delivery companies that do notwish to grow investments in lastmile.

CrowdShipping

LocalDeliveries

Localized, urban delivery modelsoffering delivery solutions atlower prices than legacyplayers and enabling offlineretailers to add delivery

services.

They are competitors andpotential partners.

Storage

Storage solutions mostly basedon crowdsourcing spaces. Offertemporary storage for laterdelivery and collection.

Present opportunities tomanage flexible deliveries while

minimizing travel costs.





Parcel Delivery— Conclusions – 9 Value Drivers

3

Underserved& Growing

Power shifting to consumers

1

Consumers’ Wishlist

2

4

To deliver onconsumers’ wish-list

Go BeyondTraditional

Brand andSegment

Focus on

theRecipients

GrowInternational

Disaggregatethe Value

Chain

Variablize

Costs

IncreaseEfficiencyand

Productivity

Mergers andAcquisitions

To build sustainableoperating model

6

To succeed in executingmarket strategies

5

DeployStrategicPricing

To support marketstrategies




Brand andsegment

Grow international

Go beyondtraditional

Focus onthe recipient

Deploy strategicpricing

Executive TakeawayParcel Value Drivers (1 of 2)

Rationale/Why? Description Benefit/Value Description

• Segment growth• Rise of delivery

options• Expansion of services• Blurring of player lines

• Segmentation• Vertical specialization

• Brand positioning• Product portfolio

management

• Greater market share• Lower price sensitivity

• Higher revenue• Higher margin

• UPS SCS• Austrian Post and

Fiebra brands• La Poste

• Rise of micromultinational

• Lower barriers to X-border

• Access to Internet• Growing middle class

• Cross-borderpartnerships

• E2E visibility• Customs integration• Global trade tools

• Revenue growth• Higher yield per

package• Higher margins• Diversification of risk

• FedEx (Brazil, Mexico,TNT)

• Austrian Post (EEC)• Japan Post / Toll

Priority

• Transportation acommodity

• Growth of eCommerce• Supply chain

disruption• Declining yields

• Value added services• eLogistics and

warehousing• Returns management

• Delivery options

• Additional revenue• Customer stickiness• Long-term contracts• Diversification of risk

• UPS SCS• SingPost• FedEx/Genco

• Rise of digitalconsumer • Mobile lifestyle• Competition for last

mile• Auto-replenishment

• Relationshipw/recipient• Two-way

communication• New products/services• Monetize preferences

• Better customerexperience• Market share retention• Lower cost to serve• Incremental revenue

• UPS MyChoice• Australia Post• La Poste

• Declining yield perpackage

• Poor pricing practices• Costs to revenue

increasing• New products/services

• Subscriptions services• Analytics• Competitive pricing• Surge/cost-based

pricing

• Higher margins• Incremental cost

coverage• Greater revenue• Greater market share

• Amazon Prime• FedEx and UPS

pricing (residential andfuel surcharges

• Uber peak pricing• Airline pricing




Mergers andacquisitions

• Stagnant B2B growth• Declining package

yield• Excess capacity• Need for

specialization

• Market assessment• Target identification• Post-merger

integration• Synergies realization

• Revenue growth• Speed to market• New capabilities

or geos• Cost synergies

• Austrian Post• DHL• FedEx• Sing Post

Disaggregatethe value chain

• Declining assetutilization

• Shared economygrowth

• Last mile competition

• Value creation• Capacity expansion• Asset utilization• Build ecosystem

• Higher ROA• Faster speed

to market• Higher revenue• Higher margin

• SingPost Books• GXG @ USPS• Uber Last Mile

Variabilize

costs

• Growing peaksand valleys

• Declining asset

utilization• High downside ifrevenue declines

• Outsourcing• Lease vs own• Labor strategies

• Asset divestment

• Lower/avoidedCAPEX

• Cash generation

• Higher margins• Speed to market

• Innovapost• Lasership• Deliv

Executive TakeawayParcel Value Drivers (2 of 2)

Increase efficiencyand productivity

Rationale/Why? Description Benefit/Value Description

• The firms needto build capabilitiesto succeedat implementingmarket strategies

• Big data• Analytics• Technology• Leading practices

• Higher margin• Greater supplychain agility

• Cost avoidance• Greater

revenue/share

• Purolator • bPost• FedEx Express



C i ht © 2015 A t All Ri ht R d 21

Contact Details

For more information, please contact:

Tim Bateman

Global Parcel Lead

[email protected]

+44 7774 299 350

Brody Buhler

Global Managing Director

Post & Parcel Lead

[email protected]

+1 703 405 1253

Andre Pharand

Global Post & Parcel Management

Consulting Lead

[email protected]

+1 917 755 5551

Documents

Accenture Adding Value to Parcel Delivery