Special Delivery

The country’s courier industry is growing, but is fierce competition eroding margins?

By Linette Chua

Consumers don’t have to look far to see how newcomers in the courier industry are creating a vibrant and dynamic playing field. In 1994, there were only 71 registered courier companies. Latest figures from the Department of Transportation and Communications (DOTC) show that the number of courier companies have grown to 210 in 2003.

This has largely been fueled by the increase in domestic, regional, and international business and economic activity, higher purchasing powers, and the government’s continued privatization and liberalization efforts in transportation and postal communications.

Noted economist Dr. Bernardo Villegas, who cites the courier service industry as one of the country’s sunrise industries, believes growth will be stronger in the coming years as globalization and regional trade further steps up in the Asian region.

Movers In The Market

The United Nations Central Product Classification (UNCPC) defines courier companies as those who engage in the pick-up, transport, and delivery services - whether for domestic or foreign destinations - of letters, parcels, and packages rendered by courier and using one or more modes of transport.

Under Philippine laws, airfreight forwarders and couriers are distinguished primarily by their mode of transport and the type and bulk of items they carry, according to Carmelo Arcilla, Deputy Executive Director of the Civil Aeronautics Board (CAB). Freight forwarders are defined as “indirect air carriers, which assembles, consolidates, transports, and distributes break-bulk items,” while couriers usually transport goods in smaller quantities and largely for personal consumption.

But, in most cases, courier is used interchangeably with freight forwarders, vessel (those who own planes and/or ships) or non-vessel operating common carriers, cargo express, and private exchange and messenger delivery service.

The Department of Transportation and Communications (DOTC) has authority over the courier or what they term as the private express and messenger delivery service.

Based on number of employees and number of branches nationwide, the top domestic courier companies are LBC Express Inc., JRS Business Corporation, DHL Philippines, Airfreight 2100 Inc., and Aboitiz Air Transport.
Since the courier industry is considered a public utility concern, the Philippine constitution requires that 60 percent of company ownership be in Filipino hands. Some exceptions, according to Arcilla, are Federal Express Corporation (FedEx) and United Parcel Service (UPS), which operate under the Air Services Agreement between the United States and the Philippines.

Fueling Growth

In the domestic market, the economic downturn in the late 1990s have forced companies to cut down on operational costs and outsource business activities. These activities included mail and cargo delivery, and oftentimes logistics, warehousing, and inventory management needs. This has sparked the entrepreneurial spirit of Filipinos and more and more small and medium-scale private courier companies were established.

The government’s continued liberalization of the aviation industry and the postal communications sector have also contributed largely to the industry growth. The government opened up the local postal communications sector by selling over 55 percent of its stocks to the private sector in 1997. This meant the removal of Philpost’s privilege of duty free importation and the amendment of its mandate to maintain services in all regions of the country. This has leveled the playing field for new entrants and private courier companies who may now operate competitively in the profitable and highly urbanized areas of the country.

The country’s strategic location has made the country a prime hub for intra-Asian trading. World market leaders UPS and FedEx have set up their Asia Pacific hubs in Clark, Pampanga, and Subic Bay, respectively. “Aside from being the best sorting point, infrastructure was excellent, the investment climate was healthy, the people were warm, we have a wide pool of talented people. In fact, Subic is home to one of FedEx’s largest investments in Asia,” Samuel David, Country Manager for Federal Express, points out. This was why in 1995, FedEx opened its first Asia Pacific Hub in Subic Bay and launched its comprehensive intra-Asian overnight service, connecting 18 major economic and financial centers in the region.

Consumers also favor private courier companies since services are more dependable and faster than those offered by the country’s own postal system. On the business side, increase in import-export, new trade relationships, and expansion of Asian markets, have created a strong demand for messenger delivery services.

Winning the Game

Services offered by the courier and freight forwarding companies – express mail and parcel delivery, bulk mail, local sea and airfreight forwarding, international forwarding, remittance, and even the capability to track and trace cargoes in transit – may vary in scope, but are pretty much the same across the board.

While courier is synonymous with speed and reliability, the many players have created an exciting and highly competitive marketplace. So how do courier companies differentiate themselves?

JRS Business Corporation hardly uses any advertising, except for radio commercials, preferring to pour the money into developing their systems and networks. “We are proud of our experience and our networks. In the courier industry, bottomline is still delivery. Our service will speak for ourselves,” says David Geronimo, the company’s Operations and General Manager. With 236 branches nationwide and a workforce of 1,070, JRS is the only domestic courier company to be granted a congressional franchise in 1961.

Juan Carlos G. Araneta, President of LBC Development Corporation, the holding company of LBC Express Inc., talks about the industry’s growth. “The market is evolving. There are many intricacies now that weren’t there before. We have to anticipate customers’ needs. In the past few years, we have been concentrating on building our branches and networking them, our logistics, training our personnel. It’s our service, our reputation that we bank on, that our clients bank on.” The company, which employs 1,425 personnel and has 399 branches nationwide is the largest domestic courier company. It has since expanded its services to include logistics management and warehousing, on top of its traditional domestic and international freight forwarding services.

David, meantime, says consumers are now more demanding of express transportation companies and adds that it is their deeply-ingrained people-service-profit philosophy that gives them the edge. “We take care of our people, give them the tools they need, and they in turn provide exemplary service to our customers.” This, coupled with an intensive air, ground, and IT networks of more than 138,000 employees, 42,969 drop-off locations, 643 aircrafts, and 43,000 vehicles worldwide, has pushed net income in 2003 to $830 million, up from $710 million in 2002.

European market leader TNT Worldwide Express (Philippines) Inc., on the other hand, is heavy in niche marketing. It concentrates on the business-to-business segment and targets global clients who are doing business in Europe, where they have strong competitive advantage. It also recently launched its Bayani Pak, offering express delivery to the big segment of Overseas Filipino Workers (OFWs) at a much lower price. The company also has a tie-up to distribute their express mails to the US and Europe. Jose Luis Romero Salas, Country Manager for TNT, says these strategies have resulted to a 28% growth in Euros for the last two years.

The Downside of the Boom

While the air cargo business is a booming industry, it is fraught with cutthroat competition and unfair business practices, Geronimo divulges. “Competition is not healthy. While the industry is booming, legitimate couriers are suffering, revenues are dipping.” Revenues, he adds, have only been increasing by an average of ten percent annually.

The biggest headache, he says, is the presence of illegal, fly-by-night courier companies and the problem of undercutting by small and even large courier companies. Undercutting happens when courier companies offer much lower rates than those regulated by the DOTC.

Under Republic Act 7354, the DOTC holds the exclusive power and authority to regulate the postal delivery service industry and those engaged in domestic postal business. This authority includes the authority to fix, adjust, or regulate the rates charged by the courier companies.

In its rules and regulations, DOTC clearly states, “The holder of an authority shall not charge such rate for the delivery of the mail parcels of clients lower than that of the regulated postal charges imposed on the Philippine Postal Corporation.”

Geronimo goes as far as saying the industry is doomed if the problem is not swiftly addressed. “Fly-by-night courier operators don’t have offices. They don’t have the manpower. That’s why they can bid the lowest price.” And these companies can go to as much as 50 percent lower than industry rates.

This happens mostly with corporate accounts since rates are not published, says Araneta, whose corporate accounts make up 20 percent of the company’s business.

Atty. Purita Centeno, chairman of the Postal Regulations Committee of the DOTC is aware that there are still many who get away with it. In the past three years, her office has penalized and closed down close to 30 illegal operators. These are couriers that are either operating without license, misrepresenting offices and assets, and who undercut courier rates. “Undercutting of courier rates is prevalent among small and new courier companies because they don’t have regular clients. This is penalized by the DOTC. We want to protect the public because every mail is a potential case; it can be lost, stolen, or mishandled. Hence, extra diligence is demanded from the courier companies.”

Local customs regulations and procedures are also obstacles to faster and efficient delivery service. Customs clearance policies are oftentimes vague and riddled with bureaucracy, causing unnecessary delays before cargo can pass through.

“We live and breathe speed but there are institutions around us that do not,” says Salas, who hopes customs services could be improved to allow the courier industry to operate faster and more efficiently.

High Hopes

Would the boom in the courier industry continue? Industry insiders and analysts are optimistic that the business is going to rake in huge profits in the next decade.

“Express side is closely related to the electronics industry so the rise and fall would have a huge effect on it, while mail and parcel deliveries are directly related to the economy as a whole. What you will send your relatives and friends will largely depend on how much you are earning,” Salas explains. Electronics make up the bulk of TNT’s express delivery business.

Fact is, air cargo traffic is strongly related to the world’s gross domestic product (GDP). Increase in economic activity would naturally mean more opportunities for the courier industry.

“The forwarding business is market-driven. The better the economy, the higher the transportation of goods,” explains Arcilla.

“The future is very bright because everyone’s got something to sell and if you want to sell, you need to move. But movement is not their forte. Thus, they have to outsource.” Araneta points out. “I give you an entire nation of opportunities. The beauty of it is so vast no local or international player can satisfy or dominate the demand. The market is so big. It just depends on how creative you can be,” says Araneta.