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.

– The larger players such as UPS have contracted internet search companies to provide UPS online utilities directly on the Internet services’ World Wide Web sites. These utilities can track UPS packages, locate UPS package drop-off centres and download UPS OnLine Tracking software from the search and navigation companies’ sites. 6.8 Industry Volatility – The industry can be described as portraying a medium level of volatility. Over the last six years movements in real industry turnover has fluctuated from 0.9 per cent during the 1991-92 year and 5.9 per cent in 1997-98. 7 Performance 7.1 Historical PerformanceThe courier and parcel sectors constitute an industry diverse in nature, both in the markets serviced and in the multitude of services provided. In courier services there has emerged vigorous growth in a competitive environment. Courier services provide an extensive communications and distribution network and are a vital element in the infrastructure of the Australian economy. Between 1985-86 and 1989-90 real industry turnover and value added grew at an estimated average rate of 4.0 per cent per annum. Nearly all the growth during the period was from the business sector with strong growth during buoyant economic activity in 1987-88 and 1988-89. Australia Post dominates the provision of parcel services to individuals with an estimated 90 per cent of the market. Households are familiar with the service available through Australia Post and how to access those services. The parcels sent by households tend not to be time-sensitive. So households are not willing to pay the premium for fast delivery charged by courier services which are primarily catering to the business market. A small proportion of household parcels would be sent by other carriers including couriers, bus and rail. The importance of rail has been declining as rail authorities are reducing or closing down their small freight services. A matter of concern has been the status of reserved services to Australia Post and the monopoly power that is associated with it. The establishment of document exchanges in the 1980s was a move by generators of intra-city mail to bring some level of contestability to Australia Post’s monopoly status. The Australian Document Exchange Pty Ltd (AUSDOC) provides a service to its members which competes directly with that provided by Australia Post. It receives documents from one member for collection by another member at the same exchange or delivers them to another exchange for collection there. In this way document exchanges use courier services instead of Australia Post traditional services. In response to this competition, Australia Post set up BoxLink, which provides an exchange service between private postboxes similar to a document exchange. Due to the ease of entry into the courier services market, during the late 1980s there were a number of new entrants into the market. The type of operator depends on the density of the population and market they are trying to service. Entry into the industry is acknowledged to be easy and frequent and often takes the form of employees taking their knowledge and expertise into the market and carving-out their own niche market. Overall, over the period 1985-86 to 1989-90 real industry turnover increased at a rate of 4.0 per cent per annum and value added increased by a similar rate. 7.2 Current Performance The table provides a time series of movements in real industry turnover and value added. Over the last five years, industry turnover was estimated to have grown on the average by 3.7 per cent per annum, not withstanding a decline during the 1990-91 recession. Value added over the same period increased on the average by 3.6 per cent per annum. In aggregate, real industry turnover declined by 1.3 per cent during the 1990-91 recession and value added by 2.6 per cent. However, on a segment basis the same day and urgent segment declined by nearly 6.0 per cent. During this period, there was a shake-out in the number of courier companies and the casualties tended to be small companies that acted as sub- contractors. Volumes declined during this period and prices decreased substantially therefore affecting levels of profitability. The larger companies such as Mayne Nickless, TNT and to a certain extent Australia Post rode the recession quite well due to their ability to cross-subsidise their courier activity with other more profitable activities. The finance and business services sector recovered more slowly from the recession than other sectors of the economy that use courier services. This led to real industry turnover increasing by only 0.9 per cent in 1991-92. However, the recovery from the manufacturing sector was much faster and this led to a number of small operators returning to the market to service the manufacturing sector. This led to industry value added to grow by 2.3 per cent. However, prices were still flat and buyers of courier services wielded a high level of bargaining power. Consequently, industry profitability was believed to have been stagnant during 1991-92. Table 10 Industry Turnover And Value Added, $ Million In 1996- 97 Prices. Year Turnover % Change Value Added % Change 1984-85 1685.6 504.0 1985-86 1758.9 4.4 524.2 4.0 1986-87 1798.3 2.2 535.9 2.2 1987-88 1903.2 5.8 565.3 5.5 1988-89 1990.1 4.6 591.1 4.6 1989-90 2052.4 3.1 613.6 3.8 1990-91 2026.8 -1.3 598.4 -2.6 1991-92 2045.4 0.9 611.5 2.3 1992-93 2108.1 3.1 630.4 3.1 1993-94 2196.3 4.2 656.7 4.2 1994-95 2320.0 5.6 696.0 6.0 1995-96 2401.1 3.5 723.9 4.0 1996-97 2449.1 2.0 734.7 1.5 1997-98 2593.6 5.9 747.9 1.8 Source: IBIS Estimates Real industry turnover grew more strongly in 1992-93 as economic activity increased and users of courier services generated higher volumes. Industry turnover was estimated to have increased by 3.1 per cent in 1992-93. Those operators that had survived the recession and borne down on costs were in a better position financially than others. These operators had developed close linkages with their customers and suppliers. The increased activity also witnessed higher level of investment into technology and development of systems by medium to large operators. Customer service became the prime focus of courier service operators during this period. Building on the investment in 1992-93, courier service operators successfully negotiated a number of price increases in 1993-94 in return for higher levels of customer service. As a consequence real industry turnover increased by 4.2 per cent in 1993-94. Industry profitability also increased during this period with a number of operators reporting profit levels as experienced in 1988-89. Enterprise bargaining was a feature during 1993-94, with the industry reporting some 40 per cent of employees being covered by enterprise bargaining agreements. Real industry turnover was believed to have increased by 5.6 per cent during 1994-95 and value added was estimated to have increased by 6.0 per cent. During this time employment levels also increased by 3.3 per cent as demand from user industries grew strongly. Real industry turnover is believed to have increased by 3.5 per cent and value added by 4.0 per cent. The increase in turnover was brought about by sustained growth in the economy especially from the Finance and Business Services Sector. Industry employment grew by 2.0 per cent but wages and salaries as a share of turnover remained stagnant owing to some increases in productivity. Total vehicle operating costs were estimated to have increased by 4.16 per cent in 1995-96. This total increase was brought about by increases in costs in the following catagories: Driver and Administration; Fuel, Oil and Tyres; Maintenance, Capital, Registration and Insurance. Real industry turnover is believed to have increased by 2.0 per cent in 1996-97 owing to moderate growth in the economy. Prices were subdued during this period and as a consequence industry profitability was flat. Real industry turnover is believed to heva increased by 5.9 per cent during 1997-98. This was due to an increased usage of courier services from all sectors of the economy. Outsourcing of courier services by State and Territory Governments throughout Australia also contributed to the increase in turnover. Industry profitability improved during this period as volumes increased faster than costs. The ability to hold cost down by the industry has been the main feature in the growth of outsourcing of courier services. However thare are industries which still, for strategic reasons operate in-house courier services, am example is the pathology industry. One of the contentious issues governing the courier industry is its labour costs and the relationship between sub- contractors and the principals. Contract carriers operate principally as sub-contractors. They are paid according to the amount of work they do, rather than an hourly wage. They also own, and are responsible for, maintaining their own vehicles. Some characteristics of the principal contractor/contract carrier relationship are similar to those of employer and employee. Contract carriers are allowed to take jobs from only one principal contractor. They are not allowed to operate two radios in their vehicle. This means that the workload of the contract carrier may be dependent on that of the particular principal contractor to whom he/she is tied. Until recently, in New South Wales, unless the contract courier is registered as a company, the principal contractor was required to pay workers’ compensation and the superannuation guarantee levy on behalf of the contract carrier. Such payments are more usually made on behalf of an employee. A ruling in September 1996 by the New South Wales Court of Appeal held that about 80 bicycle, car, van and motorcycle couriers engaged by Sydney’s Crisis Couriers were independent contractors and not entitled to payments under the Superannuation Guarantee (Administration Act). In all States except New South Wales the rates paid to contract carriers are negotiated. Pay rates are set out in the “Transport Industry Courier and Taxi Truck Contract Determination”. This Contract Determination was negotiated between the organisation representing principal contractors and the Transport Workers Union in accordance with NSW industrial relations legislation. By setting rates of pay for contract carriers, the Contract Determination treats contract carriers in NSW more like employees than sub-contractors. In fixing remuneration for the driver and hence delivery costs for the contractor, the system effectively sets an inflexible price for the service. This eliminates any market pressure which would test the price set by agreement between the two contracting parties which supply the service. In doing so, the Contract Determination effectively prevents the more efficient sub-contractors in the industry from increasing their market share by competing on price and reduces new entrants, who do compete on price, to the role of fringe operators. The Contract Determination system as a whole appears to reduce the pressure on the industry to operate in the most cost-effective manner and denies the customer the benefit of potentially lower prices. 8 Industry Participants Table 11 Major Players Name of ultimate parent Country of ultimate parent Name of immediate parent co: Mayne Nickless Country of immediate parent: Australia Name of company: Courier Systems Company type: Public Listed IBIS Company number: 62 Key Activities of Company: Logistics & Health Care Turnover earned by company from this industry only: $453 million Turnover on which market share is based (1996-97): $2449.1 million Market share (based on activities in this industry only): 18.5% Table 12 Major Players Name of ultimate parent: Koninklijke Country of ultimate parent: Netherlands Name of immediate parent co: KPN (Australia) Ltd Country of immediate parent: Australia Name of company: Comet/Kwikasair Company type: Public Unlisted IBIS Company number: 23 Key Activities of Company: Transport, Logistics, Express Post. Turnover earned by company from this industry only: $134 million Turnover on which market share is based (1996-97): $2449.1 million Market share (based on activities in this industry only): 5.5% Table 13 Major Players Name of ultimate parent Country of ultimate parent Name of immediate parent co: Australia Post Country of immediate parent: Australia Name of company: Australia Post Parcels Company type: Federal Government Enterprise IBIS Company number: 41 Key Activities of Company: Communications Turnover earned by company from this industry only: $105 million Turnover on which market share is based (1996-97): $2449.1 million Market share (based on activities in this industry only): 4.3% Table 14 Major Players Name of ultimate parent: DHL International Ltd Country of ultimate parent: Bermuda Name of immediate parent co: DHL Worldwide Express BV. Country of immediate parent: Netherlands Name of company: DHL International (Aust) Pty Ltd Company type: Proprietary IBIS Company number: 3103 Key Activities of Company: Express Couriers Turnover earned by company from this industry only: $70 million Turnover on which market share is based (1996-97): $2449.1 million Market share (based on activities in this industry only): 2.9% Table 15 Major Players Name of ultimate parent Country of ultimate parent Name of immediate parent co: United Parcels Service Country of immediate parent: USA Name of company: UPS Australia Company type: Public Unlisted IBIS Company number Key Activities of Company: Express Courier Turnover earned by company from this industry only: $50 million Turnover on which market share is based (1996-97): $2449.1 million Market share (based on activities in this industry only): 2.0% 8.1 Player Performance Financial performances of major players is either not available because of private stature, or embedded in consolidated results where public companies are concerned. However, discussions with industry participants reveal the following picture: Mayne Nickless is a dominant player in the market through IPEC Specialised, Security Express, Jetsroad Parceline and Mayne Nickless Courier Systems. Mayne Nickless Courier Systems operate through a number of courier companies in each State. Transport Services Australia’s (part of Mayne Nickless) earnings before interest and tax reached $22.8 million in 1993-94 from a revenue base of $880.1 million. In 1994-95, Transport Services generated $1796.7 million in revenue and posted earnings before interests and tax of nearly $76 million. In 1995-96, its Time Critical Express Service generated $1188 million in sales and contributed 443.4 million to consolidated profits. TNT was represented by Comet and Kwikasair in the market but in a diminishing role as TNT refocused its business. In 1993-94, Comet’s operations were merged with Kwikasair in Queensland, South Australia and Western Australia. In 1993-94, Comet entered into a partnership with the commuter airline Hazelton Airlines so as to provide country New South Wales with a high level of time-sensitive freight service. In 1995-96 TNT’s Time-Sensitive Freight generated revenue of $1796 million world-wide and contributed $102 million to consolidated profits. Australia Post provides its parcel and courier services, trading respectively as Parcel Post, Messenger Post and Australian Air express Pty Ltd. Apart from the services provided by Australian Air Express, Australia Post has also established a commercial alliance with DHL for international express services. Couriers Please is based in Gold Coast, Queensland and operates in all capital cities except Perth. Its estimated turnover for 1995-96 was $22.6 million and its operations included 340 drivers and 80 support staff. Couriers Please was set up in Melbourne in 1982 and had a $1 million turnover in its first year. It offers a set-time package delivery, for example, within two hours in smaller cities, within four hours in larger cities, and sometimes, in Sydney, overnight. Ausdoc owns Dart Couriers and operates in Adelaide, Sydney, Brisbane and Melbourne. In February 1996, Ausdoc purchased Travcour from Mayne Nickless for an undisclosed sum. Travcour provides courier, visa, passport and related services to the travel industry. Ausdoc had been a target for Brambles in early 1997 but the asking price was not attractive to Brambles. Since then, Ausdoc has in its own right expanded by conditionally purchasing New Zealand’s largest courier and express freight carrier, Express Freight Services Group (EFSG) for $115 million. The acquisition will be financed with equity and debt, including $40 million raised through share placements and rights issues in Australia. Other major independent players in New South Wales include Allied Express (estimated number of vehicles: 350); a franchised operator, Sanford Couriers (300 vehicles); Mail Call (250 vehicles); CLC Couriers (200 vehicles); and ABC Couriers. The Victorian market is also represented by Quebec and Elite (estimated number of vehicles: 120); Gregory’s (120 vehicles); Shanon Brothers who own Civic, First and Advance (300 vehicles). The above players are estimated to have 10 per cent of Melbourne’s market. Data Express, which operates 40 to 50 motor bikes, are also significant. The Queensland market is dominated by Mayne Nickless and nine different courier companies owned by Mr Don Dodds. Other players include SS Couriers and Road Runner. The Adelaide market is supplied by 10 Speed Couriers; Pace Messengers owned by Mayne Nickless; Pritchards; Tail-Gate owned by the Equity Group and Sanford Couriers. In the Western Australian market, the Darowa Corporation is a major player. It is partly owned by Ausdoc. The Darowa Corporation operates in the courier market through Mercury Messengers, Bring Couriers, Mayday Messengers, Super Couriers and Foxline Taxi Trucks. The courier segment of Darowa Corporation contributed $160 000 to consolidated net profit of $1.4 million in 1993-94. In 1994-95 transport and related services generated $61.8 million in revenue and contributed $1.4 million to consolidated profits. Darowa’s position improved in 1995-96 when transport and related services generated profits of $2.17 million from sales revenue of $63.7 million. Fastway Couriers is the brainchild of Mr Bill McGowan and it operates in a franchise structure in four States of Australia. In 1993, Fastway had a turnover of $272,900 which grew to $40 million in 1997. Fastaway’s significant growth in turnover is attributed to its franchise structure and the deployment of non-unionised labour. The requirements for a Fastway franchise is $20,500 and a white, long wheel-base van. the master franchiser advises new franchisees how to set up their business, as well as providing advertising leaflets and administrative back-up. Fastway Couriers estimate most franchises generate revenues of around $1500 with some earning between $3000 and $3500 in revenue for 50-hour weeks. Successful franchises can be sold for up to $100,000. 9 Key Factors 9.1 Key SensitivitiesKey sensitivities affecting this industry are: – the performance of the manufacturing, finance and business services, wholesale and retail trade sectors, because collectively they form nearly 80 per cent of industry demand; – the level of government expenditure at any particular period, as governments at all levels are significant generators of demand for courier services; – the level of industry competition; – the costs of inputs (especially fuel prices and the relationship with sub-contractors) as these impact on operator profitability; and – the development of communication technology which is seen as a threat to some courier services such as deliveries of cheques. 9.2 Key Success Factors Key success factors affecting an operator in this industry are: – 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 the strong competition within the industry; – diversity of the client base is important because shippers are frequently in a strong position relative to operators; – a good knowledge of market segments and an ability to understand client needs so as to deliver superior customer service; – tight financial control over costs and revenue, especially debt collection and overheads in order to plan cash flows; and – the use of technology such as routing and scheduling, trace and track systems, and modem communication facilities. 10 Industry OutlookAs mentioned earlier, the main users of courier services are industries in the Manufacturing, Finance and Insurance, Property and Business Services, Wholesale Trade and Retail Trade sectors of the economy. Demand from the Finance and Business Services sectors of the economy is expected to moderate in 1998-99 as the economy experiences relatively weaker growth. However, demand from the Finance and Business Services sectors is then expected to slow in 1999-00 owing to unfavourable economic conditions. Demand from the Manufacturing, Wholesale and Retail sectors are expected to follow a similar trend as expected in the Finance and Business Services sectors. The effect of user industries on real industry turnover is expected to be as follows: real industry turnover is expected to increase by 0.5 per cent in 1999-00 after experiencing relatively moderate growth in the first year of the forecast period. Real industry turnover is then expected to strengthen in the next three years of the forecast period to 2002-03 as the economy improves. The table provides forecasts of industry turnover and value added. Prices are expected to remain stagnant during 1998-99 and is expected to affect industry profitability negatively. It would be prudent for operators to prepare strategies to introduce price discrimination after identifying different market segments through market research. During 1999-00, competition is expected to be fierce as growth in volumes slow. Those 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. Advancement in EDI will affect the messenger and small document 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 away from the Central Business District. For instance, it is estimated that there are over 700,000 SOHO (small office, home office) businesses in Australia that are being operated from the houses of their owners, and more than half the businesses employ only one or two people. The number of people in these businesses has been growing by nearly 10 per cent since the beginning of this decade. Competitive pressure is also expected to be exerted on the intra-city courier market by suppliers of close substitutes such as those provided by document exchanges, taxi drivers who do some courier work, and internal distribution systems operated by large organisations. Total vehicle operating costs are expected to increase by 2.85 per cent in 1998-99. This total cost increase is expected to be brought about by increases in costs of Driver and Administration, Fuel, Oil and Tyres, Maintenance, Capital, Registration and Insurance. The expected increases in fuel are almost entirely Federal and State tax/franchise fee increases. Table 16 Forecasts Of Industry Turnover And Value Added, $ Million In 1996-97 Prices. Year Turnover % Change Value Added % Change 1984-85 1685.6 504.0 1985-86 1758.9 4.4 524.2 4.0 1986-87 1798.3 2.2 535.9 2.2 1987-88 1903.2 5.8 565.3 5.5 1988-89 1990.1 4.6 591.1 4.6 1989-90 2052.4 3.1 613.6 3.8 1990-91 2026.8 -1.3 598.4 -2.6 1991-92 2045.4 0.9 611.5 2.3 1992-93 2108.1 3.1 630.4 3.1 1993-94 2196.3 4.2 656.7 4.2 1994-95 2320.0 5.6 696.0 6.0 1995-96 2401.1 3.5 723.9 4.0 1996-97 2449.1 2.0 734.7 1.5 1997-98 2593.6 5.9 747.9 1.8 Forecasts 1998-99 2658.4 2.5 762.9 2.0 1999-00 2671.7 0.5 762.9 0.0 2000-01 2778.6 4.0 793.4 4.0 2001-02 2903.6 4.5 825.1 4.0 2002-03 3043.0 4.8 860.6 4.3 Source: IBIS Estimates 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. 10.1 Conclusion The courier services industry is expected to grow at an average rate of 2.8 per cent per annum over the next five years while GDP is expected to grow at a rate of 2.7 per cent over the same period. The slightly expected stronger industry growth profile is due to the mix in the demand formation from different industry sectors. Copyright 1997/98 The Dialog Corporation plc*

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