Adding Value to Parcel Delivery September 29, 2015 Research Approach

A comprehensive analysis of CEP (Courier, Express & Parcel) industry

Assesses historic performance, identifies future trends and determines shareholder value drivers

Includes B2B and B2C segments, domestic versus international shipping as well as overnight and non-day, and time definite products segments under 150 pounds or 70 kilograms

Examines current and new players in this market, including global integrators, postal organizations, regional players, shared economy and crowdsourcing actors, as well as retailers moving downstream

Sources include: public information, paid and proprietary primary and secondary research, internal and external subject matter expert interviews and extensive market and financial analysis

Time sensitivity: Usually consignments Same day & in-night Air/Road express Air charter delivered by a specified day and even by a specified time

Time certain Priority Express Express freight Size of consignment: Maximum weight Next day usually considered to be about 31.5kg (70lbs); Few exceptions. Deferred and Day certain Other Express Freight Forwarder

Day Groupage Postal FTL uncertain LTL Mostly Door to Door

Document Parcel Freight LTL, FTL Space represented by pure express players >1kg 31.5kg 1000kg such as UPS, FedEx and TNT Express; as well as express and parcel arms of postal Source: TNT, Accenture Research companies such as Geo Post (La Poste) Scope of Market = Courier, Express and Parcels and Purolator (Canada Post)

Power shifting to the consumer

Internet driving growth, transforming the supply chain

B2C outgrowing and cannibalizing B2B

The world is flat: rise of the micro multi-national Parcel Delivery Growing demand and increased volatility Product mix means lower yields per package

Investments to grow capacity, yet declining ROIC

Costs are rising faster than revenue

High fixed cost means less flexibility when it is key

Last mile is where the battle is taking place

Sharing economy set to disrupt the last mile further

New technology will change the game

Home delivery becomes the new premium

Most delivery organization know what to do, but need to do it better, faster, cheaper

Consumers with: Empowers: So they seek:

Greater choice Advent of:

Faster reviews Lower prices Data Low switching costs Greater convenience

Seamless experience

Retailers and Deliverers with: in Devices More competition Buying Paying Social networks Receiving Returning Easier aggregation of services

Better visibility in supply chain Presents: So they provide:

We have crossed barriers in choice, transparency, and service expectations

Source: Accenture analysis Copyright © 2015 Accenture. All Rights Reserved. 5 The parcel delivery value chain has expanded in scope. Roles at each stage have evolved toward a stronger service orientation. Evolution of parcel delivery value chain

Past—Deliver Present—Digital, Transparent, Fast and Flexible Delivery

Pick up • Less visibility into demand for services • Limited influence on demand Warehousing

• Low C2C and B2C • Less transparency • Easier timelines

• Limited competition Transportation • Recipients with low bargaining power • Low service expectations

Delivery

Need to develop new resources and capabilities to deliver on service expectations at each step of the value chain

Source: Accenture analysis Copyright © 2015 Accenture. All Rights Reserved. 6 The last mile, which holds key to the consumer experience, has witnessed an emergence of multiple delivery models Last mile delivery models

A) Postal mail-run

Warehouses

B) Courier delivery 2 D) Lifestyle/ Lifestyle/Crowd-shippers’ delivery to homes similar to courier Crowd-shippers

C) Courier delivery to lockers

Crowd-shippers delivery to lockers Retail stores Parcel lockers/ Access points Consumer convenience and cost reduction have been primary objectives guiding the change

Source: Accenture analysis Copyright © 2015 Accenture. All Rights Reserved. 7 The challenge of increasing service needs is exacerbated by the growing delivery demand calling for scale up of infrastructure Courier-Express-Parcel (CEP) market size and growth USD billion, %, 2008-2020F Routes Global market size USD billion Faster growth (~5.4%, 2013-2017) than International domestic primarily due to growing cross- border eCommerce +5% 343.1 Domestic Continues to be >75% of overall market +4% with ~5.0% growth (2013-2017) 237.9 194.8 Customer segments Slower than B2C with close to GDP growth B2B but significant share and higher margin contribution

Close to eCommerce growth rates and 2008 2013 2020F B2C growing in significance

Emerging segment from growth in auction C2C sites and the circular economy Geographies

Market APAC N. America W. Europe Europe Rest Middle East S. America Africa

2013 share 32% 33% 23% 5.7% 3.5% 2.5% 1.5%

2020 share 38% 30% 19% 5.3% 4.1% 2.5% 1.9%

2013-20 CAGR 15% 9% 5% 8% 7% 5% 10%

Fixed cost heavy model: The growth has significant investment implications to meet demand

Source: Accenture research, Transport Intelligence Copyright © 2015 Accenture. All Rights Reserved. 8 eCommerce is driving growth in domestic and international markets Courier-Express-Parcel (CEP) market size and growth USD billion, %, 2010-2013 and 2013-2017F Domestic vs. international growth—Historical and Future1 Drivers of growth

20% 131.9 70% Of worldwide spending by millennials by 20202 75.4

346.0 15% Urban population out of total by 20173

2017 CAGR) 2017 55% -

237.9 Smartphone penetration in mobile phones by 20174

10% 109.4 49% 2013 & 2014 & 2013

- 81.6 77.4 46% Internet penetration in population by 20175 5% 67.4 Europe N. America 27% International eCommerce out of total by 20176

APAC Global International (2010 International 0% 7 0% 5% 10% 15% 20% 12% Middle class growth rate in APAC 2009-2020 Domestic growth (2010-2013 and 2013-2017 CAGR)

Fixed cost heavy model: The growth has significant investment implications to meet demand Notes: Size of the bubble represents market size. Previous point—2013, Leading point—2017F. Total market expected to move from US$ 237.9 billion to US$346.0 billion. Source: 1 Transport Intelligence, 2 https://badgeville.com, 3 “World Urbanization Prospects” UN Report, 4,5 www.digitalbuzzblog.com, 6 eMarketer, 7 Ernst & Young Copyright © 2015 Accenture. All Rights Reserved. 9 B2C will continue to grow in significance across geographies, driving growth and presenting challenges CEP market size and growth—B2B vs. B2C USD billion, %, 2013-2020F B2B vs. B2C growth1 Drivers of growth

15% Asia Pacific 55% Urban population out of total by 20173

49% Smartphone penetration in mobile phones by 20174 10% Global

46% Internet penetration in population by 20175

2020 CAGR) 2020 - North America Middle class growth rate in APAC 2009-20207

5% Western Europe 12% B2Cl (2013 B2Cl

Challenges:

0% Volatility Last mile Yields Returns 0% 5% 10% 15% B2B (2013-2020 CAGR)

B2C focused delivery networks call for different focus areas vs. B2B Notes: 1 Size of the bubble represents total market size in 2020. Total market expected to move from US$237.9 billion to US$343.1 billion. Source: Accenture research, Transport Intelligence, Accenture analysis Copyright © 2015 Accenture. All Rights Reserved. 10 Although B2C is expected to grow in share, B2B will remain a sizeable opportunity CEP market share—B2B vs. B2C USD billion, %, 2013-2020F

Price Product Scope for Segment Size Growth Density Profitability sensitivity dominance differentiation

B2C Lower Higher Lower Higher Deferred Lower High B2B Higher Lower Higher Lower Express Higher High Firms need to find optimal balance in portfolios and investment focus in both B2B and B2C

B2C implications—Volatility Dec 2013: “UPS admits it was Dec 2014: “UPS slammed by a unprepared for the late surge different holiday season mess-up in online holiday shopping”1 …adding too much extra firepower”1

FedEx average and maximum daily shipping UPS average and maximum daily shipping volume (million)2 volume (million)2 25 35

20 30

15 25

10 20

5 15

0 10 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 Maximum shipments in a day Average shipments in a day Maximum shipments in a day Average shipments in a day

UK Cyber Monday—20143 China Singles Day—20134 166 39% More parcels than previous Monday Shipments across China million

More cross-border shipments than Greater than average daily shipping 86% previous year 10x volume

Agility in value chain would be important to contain costs without compromising service standards

Source: 1 News reports; 2 Financial reports and News reports; 3 Metapack; 4 Financial Times Copyright © 2015 Accenture. All Rights Reserved. 12 Investments are being made by delivery firms and retailers to expand capacity and modernize network in the parcel delivery business Capital expenditure on parcels 2014 Major investment stories—Parcel delivery Major investment stories—Retailers

DPD has invested £10.2 million in six depots to DPD Ali Baba is investing US$1.5 bn expand its capacity to handle B2C parcels Ali Baba over three to five years to expand the logistics network in China (2014) DPDHL investing EUR 750 million in a multi-year DHL Parcel Concept program designed to modernize and expand its parcel network (2013) Ali Baba’s Institutional investors are co- co- investing US$3 billion over the Investors same period along with Ali Baba. FedEx Ground investing US$1.2 billion this year in 70 Fedex expansion projects in addition to the US$2.5 billion spent over the past five years to add capacity (2014)

Australia Post doubling capacity at Sydney and Aus Post Melbourne parcel facilities as a part of its AUD 2 billion investment in the Australia Post Network (2012) Amazon has spent US$13.9 Amazon billion since 2010 on UPS plans to invest US$2 billion over the next five warehousing and fulfilment to years to develop its international infrastructure in support its business including 13 UPS Europe, Asia and the Americas, (4.5% to 5% of annual parcel depots in the United revenue) …targeting growth markets and Kingdom. improvements in the profitability of eCommerce deliveries. (2014)

Firms are scaling up to meet future demand and becoming more fixed cost heavy

Source: News reports, Accenture analysis. Copyright © 2015 Accenture. All Rights Reserved. 13 Many firms have pursued the inorganic route to build scale and acquire new capabilities to widen the scope of their business

Mergers and acquisitions Trend is continuing in 2015 with the FedEx €4.4bn bid for TNT

Number of deals by year1 Number of deals by business (Last five years) 2009-2014 2009-2014 45 42 Logistics and Transportation 89

34 Parcels and Express 38

Marketing and Sales 17

22 20 IT Services and Software 14

14 Financial Services 9

Mail 6

Real Estate 6

2009 2010 2011 2012 2013 2014

Acquisition strategy would be key in acquiring the right assets and maximizing effectiveness and efficiency Notes: 1 Firms included are DPDHL, Austrian Post, Canadian Post, La Poste, PostNord, SingPost, Australia Post, UPS, Fedex, Bpost, Swiss Post and Itella. Source: Financial reports, Accenture analysis Copyright © 2015 Accenture. All Rights Reserved. 14 Sharing economy start-ups are witnessing an upsurge in venture capital interest across industries Total funding in sharing economy start-ups 958

357 283 60 96 116

2009 2010 2011 2012 2013 2014

Top funded companies Top investors

Stay 800 Airbnb($776.4M), Wimdu($90.0M) Sequioa, TPG Growth

Transport 645 Lyft ($333M), RelayRides($53.2M), Trinity Ventures, Shasta Ventures, Boatbound($5.3M) Google Ventures, August Capital Personal Goods 273 Chegg ($252M; IPO at $1.1B). N/A Bag Borrow or Steal($20.0M) Private Spaces 51 LiquidSpace($26.2M), Shasta Ventures, Roth Capital Partners, PivotDesk($6.7M), Storefront($8.9M) Lucas Venture Group, Spark Capital Business Equipment 16 Getable($3.2M), Yard Club($1.6M) N/A

Food 11 EatWith ($9.2M), Suppershare GreyLock

Logistics 4 Friendshippr($1.2M), WeDeliver($0.8M) N/A

Storage 0 Roost($160k), StowThat($50k) N/A

Source: Sharing Economy Landscape 2015, Tracxn research Copyright © 2015 Accenture. All Rights Reserved. 15 New entrants are drawn to a growing but underserved industry and are enabled by technology List of promising start-ups by business segment

Transportation Systems Crowd Shipping Containers Futuristic shipping models Flexi-cost last mile shipping Container packing innovation

PiggyBee, Friendshippr, Roadie Staxxon, Holland Container Matternet, Google drones, Barnacle, Nimber, Zipments For You, Innovations Amazon drones Bringrs, UberCARGO

Freight Rates Local Delivery 3PL and Other Services Transparent shipping costs Low-cost urban delivery models Enabling shippers

Swapbox, Boxc, Postmates, Freightos, Tanspoteca, DoorDash, Zipments, Deliv, Sidecar, iContainers, Freight Filter, Shipwire, Cloud Fulfillment, Scurri, Uber, ParcelBright, Parcel Xeneta, Shippo, ShipHawk, Metapack, 71lbs, Axida

End-to-end Shipping Storage Trucking Uber of shipping in C2C space Crowd-sourcing storage space enabling Tracking and management flexi-delivery Cargomatic, TruckTrack, KeepTruckin, Youtruckme.com, Keychain Logistics, Shipster, Shyp, Shipbob, Lockitron, MakeSpace, Boxbee, Cubbyhole, uShip Schlep, MinFragt.dk Parcel Pending, ShareMyStorage, Roost

Last Mile

Creating new challenges and opportunities for legacy companies

Source: www.jonathanwichmann.com Copyright © 2015 Accenture. All Rights Reserved. 16 The new entrants in last mile are mostly asset-light and utilize the power of crowdsourcing to achieve outcomes at lower costs Start-ups—Last mile

Storage solutions mostly based on crowdsourcing spaces. Offer temporary storage for later Local Crowd delivery and collection. Shipping Deliveries Present opportunities to manage flexible deliveries while minimizing travel costs.

Crowdshipping enabling asset- Localized, urban delivery models light, low fixed-cost models to offering delivery solutions at solve the last mile delivery. lower prices than legacy players and enabling offline Potential partners for parcel retailers to add delivery delivery companies that do not Storage services. wish to grow investments in last mile. They are competitors and potential partners.

Operationally flexible models generate cost advantage for new entrants but scalability remains to be evaluated

Power shifting to consumers 1 To support market To deliver on strategies Focus on consumers’ wish-list Increase 4 the 3 Efficiency Recipients and Productivity

Go Beyond Traditional

Variablize Costs

Underserved & Growing Grow International Disaggregate the Value Chain

Brand and Segment

Mergers and 6 5 Acquisitions To build sustainable Deploy To succeed in executing operating model Strategic market strategies Pricing 2 Consumers’ Wishlist Copyright © 2015 Accenture. All Rights Reserved. 18 Executive Takeaway Parcel Value Drivers (1 of 2)

Rationale/Why? Description Benefit/Value Description • Rise of digital • Relationship • Better customer • UPS MyChoice consumer w/recipient experience • Australia Post Focus on • Mobile lifestyle • Two-way • Market share retention • La Poste the recipient • Competition for last communication • Lower cost to serve mile • New products/services • Incremental revenue • Auto-replenishment • Monetize preferences • Transportation a • Value added services • Additional revenue • UPS SCS commodity • eLogistics and • Customer stickiness • SingPost Go beyond • Growth of eCommerce warehousing • Long-term contracts • FedEx/Genco traditional • Supply chain • Returns management • Diversification of risk disruption • Delivery options • Declining yields • Rise of micro • Cross-border • Revenue growth • FedEx (Brazil, Mexico, multinational partnerships • Higher yield per TNT) Grow international • Lower barriers to X- • E2E visibility package • Austrian Post (EEC) border • Customs integration • Higher margins • Japan Post / Toll • Access to Internet • Global trade tools • Diversification of risk Priority • Growing middle class • Segment growth • Segmentation • Greater market share • UPS SCS • Rise of delivery • Vertical specialization • Lower price sensitivity • Austrian Post and Brand and options • Brand positioning • Higher revenue Fiebra brands segment • Expansion of services • Product portfolio • Higher margin • La Poste • Blurring of player lines management

• Declining yield per • Subscriptions services • Higher margins • Amazon Prime package • Analytics • Incremental cost • FedEx and UPS Deploy strategic • Poor pricing practices • Competitive pricing coverage pricing (residential and pricing • Costs to revenue • Surge/cost-based • Greater revenue fuel surcharges increasing pricing • Greater market share • Uber peak pricing • New products/services • Airline pricing

Rationale/Why? Description Benefit/Value Description • The firms need • Big data • Higher margin • Purolator to build capabilities • Analytics • Greater supply • bPost Increase efficiency to succeed • Technology chain agility • FedEx Express and productivity at implementing • Leading practices • Cost avoidance market strategies • Greater revenue/share • Growing peaks • Outsourcing • Lower/avoided • Innovapost and valleys • Lease vs own CAPEX • Lasership Variabilize • Declining asset • Labor strategies • Cash generation • Deliv costs utilization • Asset divestment • Higher margins • High downside if • Speed to market revenue declines • Declining asset • Value creation • Higher ROA • SingPost Books utilization • Capacity expansion • Faster speed • GXG @ USPS Disaggregate • Shared economy • Asset utilization to market • Uber Last Mile the value chain growth • Build ecosystem • Higher revenue • Last mile competition • Higher margin

• Stagnant B2B growth • Market assessment • Revenue growth • Austrian Post • Declining package • Target identification • Speed to market • DHL Mergers and yield • Post-merger • New capabilities • FedEx acquisitions • Excess capacity integration or geos • Sing Post • Need for • Synergies realization • Cost synergies specialization

Tim Bateman Brody Buhler Andre Pharand Global Parcel Lead Global Managing Director Global Post & Parcel Management Post & Parcel Lead Consulting Lead

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