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Too many cooks spoiling express profits, says CityLink boss

[ March 7, 2012   //   ]

The UK express freight industry is overstuffed with competitors, with the result that the industry is making a net loss, the new City Link boss told a press conference on 7 March. Dave Smith, who took over as managing director of City Link last December, said: “If you add up the profits of the whole market, you find a loss-making industry.”

He added: “Outside the UK, in each of the major European markets, you find the national post office and 2-4 big carriers. In the UK you have the post office and 10-11 major carriers.” The number of competitors would have to be whittled down to nearer that average if the industry was to be profitable, he predicted. Putting it another way, outside the Christmas peak, one of the top three carriers could disappear entirely and there would still be enough carrier capacity to handle all available demand.

Also, he added, “he would not be surprised if a big on-line retailer decided to buy a carrier” and treat it as their in-house parcels deliver. While Amazon in the UK currently has enough volume to justify this, a consortium of retailer might also club together to do the same. With so many unprofitable parcels carriers, retailers were concerned about security of their suppliers and owning their own was one way of overcoming this.

DHL’s sale of its domestic UK business to Yodel and, on an international level, the interest shown by UPS in purchasing TNT was symptomatic of an industry that needed to consolidate, he said.

City Link, meanwhile, had its own profitability demons to face. Smith, who turned around the Royal Mail Parcelforce business, which at one stage was losing £200m a year on a turnover of £500m, predicted that City Link – part of the Rentokil Initial group – would progressively return to full profitability from the third quarter of 2012 as costs were addressed and efficiency improved. Smith predicted that it would grow to a profitable £500m business within the next three years.

One bright spot, Smith added, was City Link’s international business which, “while it could be bigger”, was “good and profitable” with potential for plenty of revenue growth. City Link had a strong European road-based business geared towards the heavier end of the market and it was a lead partner in the NEE consortium, which also includes Geodis. However, to penetrate further weight segements of the market and develop beyond Europe, City Link would happily contemplate a partnership with one of the leading international integrators, said Smith. Partnerships in the industry were nothing new, he added.

 

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