Italian parcel delivery is one of the fastest-growing markets in Europe with a compound annual growth rate (CAGR) of 8.5% over the last five years. Behind the steady expansion is an explosion of e-commerce, fostered by the global economy’s ongoing digital transformation and an additional push from the COVID-19 pandemic, which prompted consumers to purchase online to avoid in-store shopping. The next five years should see even faster growth, with projections for 11% year-over-year increases per annum.
At the same time, the exponential expansion in volume has brought its share of disruption and unprecedented challenges to traditional carriers as well as shippers. In particular, it has changed their relationship with end customers who now require a higher level of service because they rely on parcel delivery for a substantially bigger percentage of their needs. Being able to meet those demands has become a competitive edge for players looking to increase their share of the market.
E-commerce is the main driver of parcel market growth. Digitalization, globalization, the COVID-19 pandemic, and the growth of online customer segments all came together to fuel the dramatic expansion of e-commerce and, ultimately, the growth of the parcel market. During the COVID-19 pandemic, the volume of business-to-consumer (B2C) e-commerce saw a large jump of more than 25%, as customers started to become reliant on online shopping.
But the big COVID e-commerce surprise was the tremendous spike in so-called C2C, standing for consumer-to-consumer or customer-to-customer. It’s the ultimate circular economy in action where consumers sell used goods to each other on internet platforms. The retail segment boomed during the lockdown, as consumers faced economic uncertainty and more time on their hands to think about recycling things they no longer needed or wanted. New enterprises sprung up around the second-hand market, such as Vinted and Wallapop, and gained momentum across Europe. Their popularity is forcing eBay and other more traditional resale online platforms to up their game.
Customers take charge. None of this expansion would have been possible without the sophisticated parcel delivery and logistics systems that have been developed in recent years to support ever bigger e-commerce volumes. With this most recent spike, they have been put to the test. Customers began demanding higher levels of service. In a short amount of time, it became standard for customers in urban areas to expect and get same-day or next-day delivery, user-friendly package tracking, and the ability to change delivery locations in real time. Customers wanted what they wanted, when they wanted it, and where they wanted it.
E-commerce had to leverage parcel delivery services to meet customer needs and increase its perceived quality. That meant parcel delivery became a point of differentiation — those companies that could meet customer needs best and those that couldn’t. The heightened service made shopping for almost anything easier and more convenient, and customers who are now used to this time-saving approach to errands are unlikely to go back.
To match this expectation, here’s a checklist of what best-in-class European carriers should provide customers to align commercial and marketing practices: competitive prices, a tracking system, fast delivery, and high-quality customer care support. As a result, carriers must excel in peak management and last-mile operations to cope with increasing volume demand and volatility and optimize capacity, flexibility, and delivery speed. Some players, like Amazon, already entered the last-mile logistics market with both traditional and new delivery methods, such as lockers.
Sustainability and innovation can be driving forces for courier service process efficiency. As a response to recent trends, many leading logistics companies and small new specialized players in Europe are setting ambitious carbon dioxide reduction targets. The increasing attention to environmentally friendly transport by clients and investors is leading the parcel market to adopt green mobility solutions to reduce CO2 emissions.
In the last 13 years, land transportation has reduced CO2 emissions 20% by employing more hybrid and electric vehicles, biofuels, and fuel efficiency. But the ambition for most leading logistics companies is to be fully carbon free by 2040. That means adopting even more green mobility solutions, space optimization techniques, smart warehouses, and last-mile delivery strategies that achieve economies of scale and make a parcel market’s supply chain more efficient.
Ultimately, the development of e-commerce, shifts in customer preferences, and increasing focus on sustainability may be posing unprecedented challenges, but they are also creating potentially lucrative opportunities for carriers that keep up with this fast-changing world. But the competition will be intense from lean newcomers in the e-commerce sector. While traditional logistics service providers are not necessarily known for their lean operations and flexibility, they need to better capitalize on their not easily matched networks.
At the moment, the new and traditional players need each other, but it will soon become evident that this is an unstable equilibrium. Incumbents should diversify customer portfolios now to reduce their dependency on a few large e-commerce players while radically transforming their operations to better satisfy B2C requirements. Achieving a new flexibility level to cope with seasonal peaks and guarantee fast (i.e. same-day) and traceable delivery should be done in tandem with full-scale decarbonization.
It will be interesting to see which players take the first and smartest steps toward the future ahead.
Emanuele Raffaele and Luisa Liu also contributed to this article.