Although demand will continue to rise, price growth will decelerate slightly because 2014’s dramatic postage rate hike will be phased out and replaced with inflation-adjusted rate increases.
Los Angeles, CA (PRWEB) August 18, 2014
Letter and parcel delivery services have a buyer power score of 2.9 out of 5. The vast market share of major carriers limits the level of competition in this market, curbing buyer power. “During periods of increased demand, such as the past three years, new entrants to the market have boosted competition only marginally due to their miniscule market share,” according to IBISWorld business research analyst, Hayden Shipp. Major carriers control most of this market's shipping capacity, and as such, wield considerable influence over prices.
As a result, market prices for letter and parcel delivery services have grown significantly during the past three years despite relative stability in carriers' wage and fuel costs. This relationship is notable because wages and fuel are the main components of carriers' cost structures. Carriers' package volumes have risen during the past three years due to growth in the number of businesses, per capita disposable income and trade volume. Booming e-commerce has magnified the impact of these demand drivers, as this market's carriers are responsible for shipping nearly all goods purchased online to their end users. The market's major freight integrators (i.e. United Parcel Service, FedEx and DHL), whose combined market share is second only to that of the USPS, have continually raised rates for package shipping alongside rising demand. The USPS has also contributed to recent price growth. In 2014, the agency boosted postage rate increases well beyond the rate of inflation, normally the limit for such increases, in an effort to recoup recessionary losses.
Buyers' ability to reduce costs through long-term shipping contracts is limited in this market. “Despite recent growth, carriers' average profit margins remain low, limiting the steepness of contract discounts,” says Shipp. Additionally, long-term contracts do not necessarily shield buyers from rate increases, and they raise otherwise negligible switching costs. Therefore, the best strategy for most buyers is to use multiple carriers; doing so allows buyers to continually leverage shipping options. For regional and local shipping, buyers can often receive more personalized delivery service and improved responsiveness from a small carrier.
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IBISWorld Procurement Report Key Topics
This report is intended to assist buyers of letter and parcel delivery services. Suppliers, also called carriers or couriers in this report, transport mail and small packages domestically and from the United States to worldwide destinations. This report includes the US Postal Service (USPS) as well as couriers that operate internationally, nationally, regionally and locally. This report excludes general freight and logistics services for bulk items and heavy shipments (i.e. typically more than 150 pounds).
Recent Price Trend
Product Life Cycle
Total Cost of Ownership
Supply Chain & Vendors
Supply Chain Dynamics
Supply Chain Risk
Market Share Concentration
Buying Lead Time
Key RFP Elements
Buyer Power Factors
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