Courier, Express,

and Parcel:
Market at a Crossroads
As CEP companies feel the heat of intensifying compe-
tition in Pakistan, Bangladesh, and Sri Lanka, competitive
advantage will go to those with great service, adaptive
pricing, and solid risk management strategies.

Courier, Express, and Parcel: Market at a Crossroads 1

The courier, express, and parcel industry (CEP) in Pakistan, Bangladesh, and Sri Lanka had
a stellar performance in the past two years, posting impressive growth and experiencing
a complete recovery from the slowdown caused by the global financial crisis. Revenues rose
13 percent per year and volumes increased 3 percent per year (see figure 1). Now the market
is becoming increasingly competitive, with local CEP players competing with multinational
companies for market share. The industry is also undergoing structural changes as parcel
customers consolidate shipments to cut expenses, and document shipments stabilize
following a sharp decline in the past few years.

As CEP customers look for more cost-saving opportunities, smaller CEP providers, working
at lower yields, are able to provide such cost savings and capture market share as a result.
They are also simplifying their business models for select lanes. And, increasingly, all CEP
players, including the large integrators, are focusing on price to win more new customers
or simply retain their existing customers.

Five Trends Shaping the CEP Industry

When asked what defines the current state of the CEP industry in Pakistan, Bangladesh, and
Sri Lanka, executives are quick to answer: increasing price competition, with all players granting
high discounts. One executive points to rising competition from smaller, local players on specific
lanes in both import and export segments: Some of these players are developing capabilities
on European and U.S. lanes, which are major export lanes for the region. A head of sales for
a CEP company in Bangladesh adds, Many small players have developed significant inbound
capabilities on China, Hong Kong, and Singapore routes, which account for the majority of the
national imports.

Figure 1
CEP market indicators

Size Shipments % = CAGR

( million) (Million)
+3%
+13% 1%
103 3.5
3.4 3.3
+8%
80
69

2007 2009 2011 2007 2009 2011

Sources: Primary interviews, industry reports; A.T. Kearney analysis

Courier, Express, and Parcel: Market at a Crossroads 2

Within this context, we launched our study to determine the current state and future direction
of the CEP industry in Pakistan, Bangladesh, and Sri Lanka (see sidebar: About the Study). Based
on interviews with industry executives and research on the performance of CEP players in these
three countries, our analysis highlights some interesting developments. We found five main
trends shaping the industry:

Core industries are driving CEP growth. Garment manufacturing drives the express parcel
industry in Pakistan, Bangladesh, and Sri Lanka, which means there is a strong correlation
between the growth of the textile industry and an increase in CEP shipments. We predict strong
growth in the textile industry over the next five years. Garment exports from Sri Lanka are
expected to grow at 10 percent over the next three to four years, explains a study participant
and industry expert in the Sri Lanka garment industry. An executive of a leading Bangladesh-
based garment manufacturer adds, If the infrastructure improvesespecially the availability
of power, better connectivity to ports, and less port congestionwe will be able to expand
our capacity and further reduce total production costs,

Overall, the CEP industry will experience

an impressive 8 to 10 percent annual
growth rate in the next three years.
With governments committed to de-bottlenecking infrastructures, we expect significant
infrastructure improvements in the next five years, enabling more garment exports that will
support growth in parcel shipments.

Further, after idling for the past few years, document shipping is expected to grow steadily.
The banking industry, which has been the mainstay of the express document business, saw
stagnation in shipments in the past two to three years. However, the document business from
banks is expected to grow in line with anticipated bank expansions. Given that usage is now
primarily for original documents, a shift to electronic media is not expected.

Overall, we expect the CEP industry to experience an impressive 8 to 10 percent annual growth
rate in the next three years (see figure 2 on page 4).

A shift is occurring toward heavier shipments. The industry has witnessed a steady increase
in weight per shipment in the past few years. Overall, weight per shipment in the export
express market grew at a compound annual growth rate (CAGR) of 8 to 10 percent from 2007

About the Study

A.T. Kearney periodically releases
white papers and research studies
on the global courier, express, and
parcel industry, and the logistics
and transportation sectors. The
findings discussed in this paper
focus exclusively on Pakistan,
Bangladesh, and Sri Lanka. To
determine the status and future region, industry experts, and
direction of the CEP industry in customers. Our analysis focuses
these countries, we performed on the scheduled express and
secondary research and con- standard network business.
ducted one-on-one interviews
with major stakeholders,
including executives of com-
panies doing business in the

Courier, Express, and Parcel: Market at a Crossroads 3

Figure 2
CEP industry growth forecast

Market size % = CAGR

( million)

+8-10%
~130-138

103

2011 2014

Source: Primary interviews, industry reports; A.T. Kearney analysis

to 2011, while growth for import express shipments was 5 to 8 percent during the same period.
This increase can be explained by the consolidation of garment samples from textile manufac-
turers as part of cost-saving measures. This trend is expected to continue as production costs
rise with upward revisions in labor wages, putting pressure on textile manufacturers to cut costs
further by consolidating shipments. This is also supported in some part by freight that has
express qualities moving toward express, especially in high-end apparel.

Service quality is becoming increasingly important. On-time pickup and delivery, speedy
customs clearance, in-transition traceability, parcel safety, and 24-hour accessibility are
important elements in overall service quality for shippers. In general, service quality is the single
most important criteria cited by shippers across the region for selecting a CEP service provider.
We want CEP players to go the extra mile on service, reliability, and flexibility, explains a banker
in Sri Lanka. Although customers are more price sensitive, especially parcel shippers, most are
willing to pay a premium to ensure a certain level of service.

Competition from local players is intensifying. Local players are vying for market share on
select lanes that do not require significant operational capabilities. This has led to increased
competition in the past few years. There is also an evolving trend of customers opting for
more than one CEP service provider. For example, textile companies in Sri Lanka generally
work with more than one express company, based on rates, network, and service quality for
different destinations.

Most parcel customers will consider an alternate express provider if it promises a similar quality of
service at a lower price. We expect the service quality of local players to improve, which will allow
them to challenge the large integrators for market share. As smaller players build global networks
through partnerships and alliances, the transit times will become similar on major routes.
Courier, Express, and Parcel: Market at a Crossroads 4
Most parcel customers will consider
an alternate express provider if promised
a similar quality of service at a lower price.
In-transit safety and guaranteed on-time delivery will be the only differentiators commanding a
premium price.

Macroeconomic risk is on the rise. The most important macroeconomic parameters for CEP
players are exchange rates and fuel prices. Rates charged by most of the large integrators are
denominated in the U.S. dollar or the euro; thus, currency movements have a significant impact
on what customers pay for shipments. A case in point is the steep drop in the value of the
Pakistani rupee (PKR) from 2007 to 2011 (see figure 3). As a result, express customers had to bear
the brunt of increased prices on international shipments. Express players were also forced to
absorb the extra costs because of their inability to pass on the full impact to customers. Given
the strong dependency on imports, the currencies of Pakistan, Bangladesh, and Sri Lanka are
not expected to strengthen, which will add to the pressure on yields. Hence, companies need
to thoroughly review their contract structures and explore the options of hedging risks through
international currency markets.

Fuel prices also play an important role in determining the yield. Most players charge a variable
fuel surcharge on top of base prices to account for fluctuating fuel prices. As fuel prices are
expected to remain volatile for the foreseeable future, managing fuel surcharges will be crucial
for CEP players bottom lines.

Figure 3
Exchange rate for the Pakistani rupee vs. the U.S. dollar

Rupees per dollar % = CAGR

+3%

+15% 85
80

61

2007 2009 2011

Sources: Analyst reports; A.T. Kearney analysis

Courier, Express, and Parcel: Market at a Crossroads 5

Signposts for CEP Players
Based on these trends, express companies operating in Pakistan, Bangladesh, and Sri Lanka will
have to address several implications and answer important questions, such as:

Are you equipped to handle heavier shipments? Are the network and operational capabilities
sufficient to serve these needs effectively?

Are you positioned in the right industries in the country?

Is your service quality competitive with the best in the industry? Are your focus areas aligned
with customer needs?

As a large player are you able to compete with smaller players on price?

What mechanisms are you using to protect your company from macro-economic risks?

As fuel prices are expected

to remain volatile for the foreseeable
future, managing fuel surcharges
will be crucial.
Although the CEP industry is expected to continue on a high growth trajectory for the fore-
seeable future, the extent of this market escalation depends on growth and quality in the related
infrastructure for power, fuel, and ports. In addition, growth implications are different for each
country. Therefore, each country presents distinct opportunities.

Pakistan

Increasing competition will lead to the introduction of new, innovative products and services.
Increasing trade with Japan and East African nations will drive CEP players to invest in reinforcing
networks on these lanes. Price rationalization is expected to continue.

Bangladesh

Significant price rationalization is expected, given customers willingness to try low-cost

services. Competition will intensify in the retail and small- and medium-enterprise (SME)
segments. Africa and Australia lanes will witness steep growth in volumes with increasing
drug, apparel, and leather exports.

Sri Lanka

Companies in Sri Lanka can expect to focus more on high-margin industries and customer
segments and put into practice more flexible pricing strategies. In addition, a significant opera-
tional expansion and restructuring is anticipated for the industry with the start of operations at the
airport in Mattala, Sri Lankas second international airport.

Courier, Express, and Parcel: Market at a Crossroads 6

The Road Ahead
The regions courier, express, and parcel industry can expect remarkable growth in the coming
years. But navigating successfully will require understanding and preparing for the expected
and unexpected challenges. In a market where local players are projected to spur intense
competition, the focus must be on service quality and managing the inherent risks in exchange
rates and volatile fuel prices. In addition, players should be prepared for heavier shipments.
Overall, the path looks prosperous for an industry that has already shown remarkable recovery
and appears poised for growth.

Authors

Nikolai Dobberstein, partner, Mumbai Rohan Rijhwani, consultant, Gurgaon

nikolai.dobberstein@atkearney.com rohan.rijhwani@atkearney.com

Anshuman Maheshwary,
principal, Gurgaon
anshuman.maheshwary@atkearney.com

Courier, Express, and Parcel: Market at a Crossroads 7

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