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Transport Canada Transports

Canadian Courier Market Size, Structure And Fleet Analysis Study

Prepared For Transport Canada Surface Transportation Policy

Prepared By Infobase Marketing Inc.

January, 2001


1. Introduction This document is an abridged version of a complete study that was prepared for Transport Canada to support their ongoing role in the development of policy with respect to various articles of Federal legislation and the gathering and dissemination of information regarding the Transportation sector in Canada. Specific objectives of the study included assessing; 1. 2. 3. 4.

How the size and structure of the market has changed over the past 2 years Key factors affecting growth and major market trends, with an emphasis on how the internet has affected the market How the courier industry research that has been conducted by Statistics Canada compares with private sector estimates Vehicle usage within the industry

This abridged version of the report varies from the full study in the following ways; 1.

2.

Information for both the overnight or later and sameday/messenger segments of the market have been combined to produce a “total market� overview (in reality, market size and key structural elements vary significantly between the two). The level of detail in which specific concepts are explored in this abridged version is much less as compared to the full report*.

*The only exception to the above is the fleet survey section; all data graphs have been included in this abridged version as well.

Despite the fact that this abridged report does not provide the same level of detail as the full study, it does still provide a wealth of valuable information for readers. Those seeking a more detailed analysis of the size and structure of the courier industry, other topics explored, or underlying data tables are encouraged to contact the author of the report, Gary Breininger of Infobase Marketing Inc. in Pickering, Ontario. Infobase Marketing can be reached at 905-831-7976, or via email at gbreininger@infobasemarketing.com.

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2. Total Courier Market Size – All Segments 2.1 Total Market Size In the year 2000, the size of the total Canadian courier market, which is defined as all letters, envelopes, paks (plastic pouches designed to accommodate large documents or small-sized goods), pouches (same as paks), boxes and cartons originating within Canada and being sent to a destination either within the country, or anywhere else in the World is estimated at $4.7 billion annually and 2.1 million packages per day. Annual Revenue (millions)

Daily Package Volume (000's)

$ 4 ,800

2,150

2,091

Daily Pkg Vol.

2,100 2,050

$4,658

$ 4 ,600

$4,311

$ 4 ,400

2,001

2,000

$ 4 ,200

1,950

$3,995

1,906

$ 4 ,000

1,900

$ 3 ,800

1,850 $ 3 ,600

1,800

1998

1998

1999

2000

1999

2000

Year

Year

Source: Infobase Marketing Courier Market Size Model

Total industry compound annual growth between 1998 and 2000 is estimated at 4.7% for volume and 8.0% for revenue. The strong performance of the Canadian economy on both an export and domestic basis is the primary reason for the robust growth the industry has experienced. The courier industry may be broken down into two major segments; a.

Overnight Or Later Delivery: Shipments that are delivered at least one day after the day they are picked up. This segment of the market includes shipments delivered within Canada, to the United States or other countries around the world.

b.

Sameday/Messenger: Shipments that are delivered the same day they are picked up. By definition, these tend to be primarily local and/or regional deliveries.

As the graph below indicates, overnight or later deliveries represent the majority of the market in 2000. 2000 Courier Industry Revenue By Segment

2000 Courier Industry Volume By Segment Sameday 21.3%

Sameday 14.8%

O/N Or Later 78.7%

O/N Or Later 85.2%

Source: Infobase Marketing Courier Market Size Model

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The primarily local/regional orientation of the sameday segment, and the lower revenues associated with these types of shorter distance deliveries explains why the share of revenue is less than the share of volume. 2.2. Shipment Destination Analysis Domestic, or intra-Canada shipments represent the majority of the market in 2000 in terms of both volume and revenue (94.6% and 83.8% for each respectively). 2000 Courier Industry Volume by Destination U.S. 4.4%

2000 Courier Industry Revenue by Destination

Int'l 1.0%

U.S. 11.1%

Int'l 5.1%

Dom. 94.6%

Dom. 83.8%

Source: Infobase Marketing Courier Market Size Model

The strong trading relationship between Canada and the United States is reflected in the high percentage of non-domestic activity that is represented by the U.S. (4.4% of volume and 11.1% of revenue). Market pricing in each of the major “lanes� (destination) in the courier market varies widely. While the average domestic revenue per package is $9.98, the average for shipments traveling to other countries (excluding the U.S.) is $58.09. This phenomenon explains why the share of revenue accounted for by International shipments is so much higher than share of volume. The share of market held by domestic movements has remained relatively unchanged over the past two years. 2.3. Shipment Type Analysis – Letters Vs. Packages Another defining characteristic of the courier industry is the type of physical shipment being sent. There are three common configurations of shipment types that are typically sent via courier; a. b.

c.

Letter: Refers to shipments sent in a cardboard shipping container supplied by a courier company (eg. PuroLetter), or plain manila type envelope supplied by an end user. Pak: Refers to shipments sent in a plastic pouch designed to accommodate large documents or small-sized goods that is either supplied by a courier company (eg. PuroPak), or plain white container supplied by an end user. Package: Refers to shipments sent in a box, or carton (these are usually supplied by end users).

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In 2000, packages are estimated to represent the large majority of total industry volume and revenue (76% and 80% for each respectively). 2000 Courier Industry Revenue by Shipment Type Ltrs 15.4%

2000 Courier Industry Volume by Shipment Type Ltrs 19.3%

Paks 4.8%

Pkgs. 75.9%

Paks 4.6%

Pkgs. 80.0% Source: Infobase Marketing Courier Market Size Model

While remaining relatively stable over the past two years, the share of letters as a percentage of total shipments has been on a downward trend. The growing use of email, and more recently, the legal acceptance of electronically endorsed documents are the primary factors driving this trend. 2.4. Origin/Destination Analysis Almost half (46%) of all shipments sent by next day or later delivery in Canada originate in Ontario.

Share of Market by Origin Region 3.9 3.8

Atlantic

Revenue Volume

21.1 Quebec

21.0 47.1 46.2

Ontario Prairies

14.1 14.6

B.C.

13.7 14.4 0

5

10

15

20

25

30

35

40

45

50

% of Total Source: Infobase Marketing Courier Market Size Model

As the preceding graph clearly illustrates, the share of the total courier industry represented by each major region closely approximates the share of overall economic activity each accounts for. While no empirical data is available, it is not believed that any major shifts in the share of market held by each region have occurred in the past two years.

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2.5. Market Share By Competitor The overnight or later segment of the courier market is comprised of three major “tiers� of competitors; a. b. c.

Tier 1: Refers to global integrators and/or companies that provide service across Canada with annual sales in excess of $25 million (total number of firms estimated at 158) Tier 2: Refers to regionally based companies and/or those with annual sales in excess of $5 million but less than $25 million (total number of firms estimated at 125) Tier 3: Refers to all other companies (total number of firms estimated at 1,900) Market Share Volume - 2000

Market Share Revenue - 2000

Others 36.6%

Others 32.0%

Tier 1 68.0%

Tier 1 63.4%

Source: Infobase Marketing Courier Market Size Model

Overall, the market is relatively fragmented, with tier 1 competitors representing between 60% and 70% of all activity (this overall statistic should be treated with caution, as the level of concentration is vastly different in the sameday/messenger versus overnight or later delivery segments of the market). In terms of individual tier 1 companies, Purolator Courier is the clear overall market leader in terms of both volume (22%) and revenue (21%) While Purolator is also the market leader in the domestic lane, FedEx holds the majority of business in the Canada to U.S. and Canada to Rest Of World lanes.

Market Share Analysis By Lane - 2000 Lane

Market Leader

Volume Share

Revenue Share

Canada Domestic Canada To U.S. Canada To Rest Of World

Purolator FedEx Express FedEx Express

29.3% 31.0% 40.1%

23.3% 36.6% 37.8%

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2.6. Growth Outlook Over the next three years, the courier industry is forecast to grow to $5.7 billion in annual revenue and 2.3 million packages per day (6.7% and 3.9% growth for revenue and volume on a compound annual basis). Daily Package Volume (000's)

2,400

$5,600

2,300

2,249

Annual Rev.

Daily Pkg Vol.

$5,726

$5,800

2,341

2,350 2,250 2,200

Annual Revenue (millions)

2,167

2,150 2,100

$5,357

$5,400 $5,200

$5,028

$5,000 $4,800

2,050 2001

2002

2003

$4,600

Year

2001

2002

2003

Year Source: Infobase Marketing Analysis; compilation of appendices A and B.

As has been the case in the past, the primary driver of industry growth will be overall economic performance. This explains in large part the reason the industry will grow at a slower rate over the next two years (the general consensus among all economic forecasters is that growth over the next two years will be slower than it has been in the past). There are three other primary reasons why industry growth is forecast to decrease over the next three years; a. b. c.

Growing use of email will reduce the need to send letters and documentation Recent decisions by many governments to accept electronically signed documents as legally binding will further reduce the need to send “original signed documents” In 2000, the introduction of fuel surcharges by courier companies “artificially” inflated total industry revenues; this is seen as being a one-time occurrence that will not be duplicated in the near future

Given the above, one might be surprised that the industry is forecast to grow at all. There will be two key offsetting factors that will counter the negative impact of the assumed reduction that will occur in the number of letters and documents being sent; a. b.

Although economic growth will be lower than in the past; growth will still occur. This will support a continued need for the delivery of “packages”, or box-type shipments The internet, and the growth in the “direct shipping” supply chain model it is largely based upon, will cause a modal shift towards the use of couriers over other traditional and larger shipment configuration service providers such as LTL and trucking firms (see section 4 for more information about the forecast impact of the internet on the courier industry)

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3. Major Market Trends Although there are many trends present within the Canadian courier industry (Infobase Marketing has identified over 20), the following are considered to be the top nine. 3.1. Continued Mergers/Acquisitions: Although the pace of activity in this area has slowed somewhat in the past year, the recent decision by Federal Express to finally “absorb” RPS (Roadway Package System) into their operations is significant. The primary rationale for this move was to be able to more effectively combat UPS in selling “total solutions” (air and ground) to customers. As customers everywhere continue to look for this type of service, more companies will rise to the challenge by combining resources (as opposed to building from scratch) with other firms, whether they be competitors or not. A more recent example involves VIA Rail Canada, and their launch of their VIAPAQ courier service in November of 2000. Focusing on inter-city emergency deliveries, a strategic partnership was established between VIA Rail and a major sameday/messenger organization to facilitate door-to-door pickup and delivery. 3.2. Growing Presence Of Postal Authorities: Driven by the continuing decline of traditional lettermail (Canada Post indicated their volumes in 1999 were down almost 17% versus the prior year), postal administrations around the globe are seeking to re-invent themselves in the new electronic age. Most are either offering higher-end, more reliable services (eg. USPS partnership with Airborne Express for intraU.S. service, and DHL for international delivery) and/or preparing for expansion into the broader realm of “logistics” (Dutch Post acquisition of Danzas). The situation in Canada is unique, as Canada Post owns the majority of Purolator Courier. The long-standing question of whether or not Canada Post is in fact crosssubsidizing their physical distribution services (including Purolator) with revenues obtained from their monopoly on first class lettermail will be raised to a new level with the recent filing by UPS to sue the Canadian government using Chapter 11 of NAFTA. UPS has in fact also filed a similar suit against the German post office. One plausible outcome of these activities is that postal administrations will in fact be allowed to enter into any businesses they desire, but their monopolies on the delivery of lettermail will be removed. 3.3. Emergence Of Non-Asset Based Delivery Providers (Via The Internet): Many services have developed over the past year whose primary purpose is to bring together shippers and transportation companies on the internet. Examples include www.goship.com, www.gocargo.com, and www.ilinkglobal.com. While each of these services do in fact perform physical pickup and delivery, many of the traditional “bricks and mortar” support services and infrastructure are avoided due to the internet (eg. no need for a field salesforce). The focus of the transportation “portal-based” sites themselves is usually on retail purchases and individual consumers. The inherent value consumers perceive in these services is their non-biased nature (the companies that operate these sites are rarely transportation-based). For courier companies, it will be increasingly important to ensure they are listed as an “option” in these types of services.

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3.4. Continued Development Of Global Markets: Increasing trade liberalization throughout the world, and continued economic development and growth among less-developed nations are creating a need for more and more international shipping. While the major integrators are rushing to be the first into these new market areas and/or increase their capabilities, this also creates an opportunity for domestic players. Specifically, several opportunities may exist to serve as an interline, or delivery agent, for major domestic players in markets abroad. Key areas of development globally will continue to be China, Central America and Africa. Many couriers are also responding by creating published inbound rate sheets that include brokerage fees, etc. (eg. DHL, UPS) Compound Annual Growth By Lane - Volume

Compound Annual Growth By Lane - Revenue Dom.

Dom.

7.7

8.2

Int'l

8 6

5.6

4.7

5.7

3.9

4 2 0

98-00

U.S.

U.S.

'01-03

% Growth

% Growth

10

12 10 8 6 4 2 0

11.1 10.7 8.8

7.7

Int'l

9.3

6.4

98-00

'01-03

Source: Infobase Marketing Courier Market Size Model Note: In reviewing the above growth rate, it should be noted that the reason for the sharp decline in volume growth in the U.S. and International lanes is the dramatic effect the internet is expected to have on letter and document shipment volumes (which make up a significant proportion of each) between 2000 and 2003. When letter and package figures are broken out separately, readers should note that growth figures for packages are expected to be more in line with historical figures (U.S. = approximately 10% growth, Rest Of World = approximately 12%).

3.5. New Service Development Focus On E-Business: The actual number of new “core” services introduced into the market in the past couple of years has been extremely low (eg. limited primarily to DHL Thermopak, DHL Sunday delivery, Loomis 9AM Express, etc.). This is principally due to the fact that the courier industry now has about as wide an array of speed of delivery options available as is feasible. About the only areas that remain that are associated with physically moving goods deals with reverse logistics and drop shipping (into the U.S. specifically). Attention is now clearly focused on information delivery and the internet, and the various ways and means that courier companies can leverage each. Most efforts in this area have been concentrated on secure document delivery (via encrypted email such as Canada Post’s PosteCS and UPS’ Document Exchange) and order fulfillment (once a purchase has been made). In the future, this trend will be characterized by courier companies “partnering” with manufacturers and retailers of all types and sizes to ensure their webbased supply chains are functioning as optimally as possible, which will mean both the physical delivery of goods, and various types of associated information for either initial carrier selection and/or shipping control as well.

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3.6. Increasing Market Prices: Overall, prices in the courier industry have been on an upswing over the past several years (average annual growth of 1%-2% in real terms, or after being adjusted for inflation), and are in fact expected to continue to do so into the foreseeable future.

Average (Net) Rate Increases By Carrier Type 3.5 3.0

3.0

Overnight

2.5

2.5

Sameday

2.0

1.5

1.5 1.0 0.5

0.0

0.0

Past

Present

3.7. Growing Labour Supply Challenge: While the challenge in finding qualified transport drivers has received much attention in the media, the challenge for courier companies also extends into other operational areas of the business as well (sorters, clerical, etc.). The main issue is the continued positive job market. Given a choice, most individuals would prefer not to work in the type of labour-intensive, relatively low-paying positions that characterize service businesses such as courier. Courier companies are however responding with innovative programs such as UPS’ “free college tuition” and Purolator’s extremely flexible working schedules. This trend will continue, but also force couriers to more aggressively integrate technology into their day to day operations and thereby reduce their reliance on human resources (eg. UPS CACHE hub in Chicago is almost entirely automated). 3.8. Convergence Towards Fully Integrated Logistics Solutions: As quality, cycle time speed and supply chain optimization become increasingly important, more and more companies are looking to single source outsourcing as a viable alternative to their traditional models. In terms of transportation, this means a growing focus on complete logistics, or supply chain solutions. In addition to the “major” 3PL organizations (Ryder, Tibbett & Britten, etc.), hundreds of small logistics firms also exist to address this need, in many cases serving only 2 or 3 customers. Most of the major courier companies have also responded to the challenge. In 1999, Purolator announced a strategic alliance with Burnham, FedEx partnered with KPMG and purchased Tower International and TNT further integrated with their Contract Logistics group. This trend will surely continue into the future, with the end result being that the use of the term “courier” may at some point in time only be reserved for local, in-city type deliveries (all others will be fully integrated logistics service providers). 3.9. Growing Importance Of The Internet As A Channel Of Distribution: Internet purchases by businesses in the U.S. are forecast to be $1.5 trillion by 2004 (and grow 100% annually between now and then). Business to consumer ecommerce is also significant, and forecast to grow from its current level of about $8 billion to $184 billion over the same period. Using a Canadian conversion factor that assumes Canada represents 10% of U.S. activity, the value of the Canadian business-to-business internet market will be almost $200 billion annually by the year 2004. Using research conducted by Ernst & Young, which suggests the average transaction purchase value on the internet is $92.00 (U.S.), and assuming an average revenue/shipment for these purchases of $6.00 (Journal of Commerce, January 2000), this would suggest the size of the courier-related shipping market in the U.S. in 2000 was $3.0 billion. Applying these same figures to Canada would indicate total courier industry revenues associated with internet-based purchases in 2000 was about $570 million.

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For courier companies, the shift away from larger shipments, distribution centres and retail locations to direct delivery models of individual purchase shipments has the potential to drive growth to double digit figures for some time to come. The primary implication for couriers will be to develop a method to complete these deliveries to the homes of consumers (since many large companies now prohibit the delivery of personal purchases to their premises) in a cost-effective manner. Some, such as FedEx, are going to be adopting a strategy that will focus primarily on the “business� internet purchaser alone (the amount of business purchasing that is forecast to be completed online represents even higher growth than personal transactions).

Revenues in $ (000,000's)

Internet Based Courier Market Size - 2000

600

$571.0 $423.0

400 $148.2

200 0 B to B

B to C

Total

Source: Infobase Marketing Courier Market Size Model

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4. Impact Of The Internet On The Courier Industry The emergence and continued development of the internet, and it’s impact on the economy, business models and life in general has arguably been one of the most significant developments of the past century. The effect of the internet on the courier industry in Canada has been equally significant, and may be viewed from four primary perspectives; a. b. c. d.

Functionality: refers to the ways that courier companies have leveraged the capabilities of the internet to improve existing business processes, customer service, etc. New Services: refers to the new revenue producing services couriers are offering as a result of the internet Competitive: refers to how the internet has and is changing the competitive framework of the industry. Industry Volume: refers to the impact the internet has had on industry shipping volumes, shipment characteristics, etc.

4.1. Functionality One simply needs to visit the web sites of any of the tier 1 competitors in the market to see that courier companies have aggressively adopted a number of internet-based functionality’s including; - Time In Transit - Rate Calculation - Drop Off Locator - Pickup Scheduling - Claims Status - Ordering Supplies

- Customs Classification - Shipment Tracking - Proof Of Delivery - Invoicing - Address Validation

4.2. New Services In addition to developing useful and cost-saving functionality’s in their web sites, some couriers have also introduced new revenue based services including; a.

b. c.

Secure Document Delivery: uses encryption to send messages over the internet in a secure manner. Some companies also offer a hybrid electronic-physical delivery service where a message is transmitted electronically to a receiving station, printed and then a hard copy delivered to the final recipient. Electronic Bill Payment: allows courier company customers to transfer funds and pay bills electronically. Eparcel Fulfillment: allows retailers and other vendors to integrate their online sales efforts with the delivery capabilities of a courier.

4.3. Competition The internet is affecting the competitive environment in two ways; a.

b.

Emergence Of New E-Based Competitors: refers to load-matching and other e-based courier services. Examples include goship.com, smartship.com, iship.com, nowdocs.com and a host of others. Focus Of Near Competitors On Courier Business: several LTL and other heavier shipment weight service provider participants are introducing courier-type, express or expedited delivery solutions in an attempt to capitalize on the large increase in smaller weight, direct shipments that are being generated from web-based purchases.

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4.4. Industry Volume In the year 2000, total courier shipments generated from the fulfillment of online purchases are estimated to have generated $571 million in revenue, or just over 12% of the value of the industry.

Internet Based Courier Market Size - 2000 Web Based 12.3%

Total Estimated Market Size In 2000: $4.7 Billion Other 87.7%

Source: Infobase Marketing Analysis

If future predictions by various internet-based research groups and thinktanks regarding expected values of internet-based purchases are correct, over 50% of all courier shipments will be generated as a result of an online purchase by the year 2003.

Courier Industry Revenues From Web Purchases

% Revenue

60

51.0

50

40.8

40 30 20

23.6 12.3

10 0 2000

2001

2002

2003

Year

Source: Infobase Marketing Analysis

Regardless of whether or not these predictions are realized, it is clear that being able to provide fulfillment services to online vendors will become an increasingly important courier industry key success factor.

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5. Inbound To Canada Courier Market 5.1. Total Market Size The Inbound market is defined as shipments that originate in another country that are delivered to a destination in Canada. In the year 2000, the size of the Canada Inbound courier market is estimated at $1.3B ($US) and 230,409 packages per day. 2000 Inbound Courier Market To Canada - 230,409 Pkgs/Day

Other 19.3%

2000 Inbound Courier Market o Canada - $1.3B U.S. Other 21.5%

U.S. 80.7%

U.S. 78.5%

Source: Infobase Marketing Courier Market Size Model

As the above graphs illustrate, approximately 80% of all inbound courier shipments to Canada originate in the United States. This is largely a function of the strong relationship between the Canadian and U.S. economies, and is generally consistent with the share of total imports into Canada that originate from the U.S.

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6. Canadian Courier Industry – Fleet Study 6.1. Total Fleet Size In the year 2000,a total of 24,700 vehicles are estimated to be involved in the pickup and delivery of courier shipments in Canada. Step vans make up the majority (52%) of the Canadian courier industry fleet, followed by cargo vans (20%). The remaining courier industry fleet is comprised of a number of vehicle types including cars, cube vans, straight trucks and tractor-trailers (for definitions of vehicle types see Section 7). Vehicle Type Number Of Vehicles % Of Total Vehicles Cars 2,841 11.5% Cargo Vans 5,014 20.3% Cube Vans 1,778 7.2% Step Vans 12,943 52.4% Straight Trucks 1,161 4.7% Tractor-Trailers 963 3.9% Total

24,700

100.0%

Source: Infobase Marketing 2000 Courier Fleet Study Note: Above figures are estimated based on percentages of total vehicles obtained from surveyed courier companies.

6.2. Distribution By Province The distribution of vehicles throughout the country closely approximates provincial share of Gross Domestic Product, with Ontario holding the large majority (45%) of the total. Quebec and British Columbia account for the next largest concentrations (with 19% and 13% for each respectively).

Vehicle Distribution By Province

% Of Vehicles

50

45.6

40 30 19.5 20

12.9 8.9

10

2.9

3.5

1.9

2.9

1.6 0.0

0.2

0 BC

AL

SK

MN

ON

PQ

N.B.

N.S.

PEI

NF

Other

Source: Infobase Marketing 2000 Courier Fleet Study

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6.3. Type Of Ownership Over half, or almost 53% of the total vehicles used in the courier industry are company owned. This is explained by the large share of market held by major, or tier 1 players (who are also more likely to own their own vehicles). Despite this, the extensive use of independent operators is evident in the 24% share of vehicles that are independently owned*.

Type Of Vehicle Ownership Company Owned 53.1%

Indp. Owned 23.1%

Leased 23.8%

Source: Infobase Marketing 2000 Courier Fleet Study *

Note: Independently Owned refers to Owner Operators.

6.4. Distance Traveled As can be seen in the graph below, highway tractors travel the greatest distance each year (over 185,000 kms.). This is explained primarily by the fact that this is the vehicle most often used for long and medium hauls (while other vehicle types handle primarily short hauls, or local shipments).

Average Distance Traveled Per Vehicle Per Year Tractors 185,878

Straight Trucks

48,200 36,598

Step Vans

Overall Average Distance Traveled: 51,317 km

42,972

Cube Vans Cargo Vans

61,503

Cars

61,424 0

20

40

60

80

100

120

140

160

180

200

Distance (000 kms) Source: Infobase Marketing 2000 Courier Fleet Study

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6.5. Fuel Usage And Consumption Gasoline accounts for the majority (58%) of total courier fleet fuel purchases, followed by diesel at 37%. Given their relatively low percentage of total fuel purchases (about 5%), it is clear that the use of various alternative fuels such as propane, natural gas, electric vehicles, and others (methanol) within the courier industry is limited.

Percent Of Total Fuel Purchases By Type Propane 4.3%

Diesel 37.1%

Natural Electric Other Gas 0.0% 0.0% 0.8%

Gasoline 57.8% Source: Infobase Marketing 2000 Courier Fleet Study

As can be seen on the graph below, the average fuel efficiency ratings vary from a low of 2.8 km/l for highway tractors to a high of 8.5 km/l for cars. As might be expected, fuel efficiency decreases in relation to the size of vehicle.

Kilometers/Litre

Average Kilometers Per Litre By Vehicle Type 9 8 7 6 5 4 3 2 1 0

8.5

Overall Average Fuel Efficiency: 5.2 km/l

6.6 5.7 4.1

3.8 2.8

Cars

Cargo Vans Cube Vans Step Vans

Straight Trucks

Tractors

Vehicle Type Source: Infobase Marketing 2000 Courier Fleet Study

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When viewed in terms of fuel efficiency versus package capacity by each vehicle type however, tractors emerge as the most efficient vehicle type used by courier companies with a rating of 20.3 packages/litre. Next to this, straight trucks are the most efficient with a rating of 17.7 packages/litre.

Average Package Per Litre Rating By Vehicle Type 25 20.3 17.7

20 14.9 15

12.6

10 4.8 5 0.3 0 Cars

Cargo Vans

Cube Vans Step Vans

Straight Trucks

Tractors

*Note: Above ratings calculated by dividing the total package capacity of each vehicle type by the total average litres of fuel used in the operation of each. Source: Infobase Marketing 2000 Courier Fleet Study

6.6. Use Of Technology Overall, approximately 64% of all courier vehicles utilize some type of on-board vehicle technology. Although specific details cannot be provided to protect the confidentiality of one of the larger participants in the study, readers should note that the above figures do reflect a significant bias (based on one respondent only whose use of vehicle technology is very limited). When the impact of this organization is removed, over 90% of total courier fleet vehicles in fact utilize some type of on-board vehicle technology. Cellular data and radios are the most common technologies present in courier vehicles. Cellular data is present in 45% of all vehicles, while radios are found in 23%.

Percent Of Vehicles With Technological Capabilities

% Of Vehicles

50

44.5 36.5

40 30

22.7

18.8

20 10

8.0 0.5

0.3

0 Satellite Comm.

Cell. Voice

Cell. Data

Radio

Perform. Monitor.

Other

None

*Note: Satellite Communication is defined as any communication that is sent via satellite systems e.g. OnStar. Cellular data devices are any devices that transmit data through cellular technology including alphanumeric pagers or tracking devices that transmit data only. Radio refers to two-way radios. Onboard computers account for the “other� category. Source: Infobase Marketing 2000 Courier Fleet Study

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Although specific details are not available given the data gathering methodology used, it is also worth noting that a number of respondents reported having multiple technologies present in their vehicles. 6.7. Vehicle Age The overall average age of courier industry vehicles in Canada is 4.9 years. This ranges by vehicle type from 3.0 years for cube vans to 5.8 years for step vans.

Average Vehicle Age By Type

Type Of Vehicle

Tractors

4.1

Straight Trucks

4.2

Step Vans

5.8 3.0

Cube Vans Cargo Vans

Average Vehicle Age: 4.9 Years

3.6 4.5

Cars 0

1

2

3

Years

4

5

6

7

Source: Infobase Marketing 2000 Courier Fleet Study

6.8. Vehicle Utilization Most courier companies in Canada use the cars in their fleet for emergency deliveries of single packages or letters, which explains why the capacity utilization for cars (at 34%) is so low. Capacity utilization is based on the maximum axle weight limits and average package weight carried (as estimated by companies surveyed). Utilization rates for more commercially oriented vehicles is generally in the range of 70% to 75% of total allowable maximum axle weights.

Average Capacity Utilization By Vehicle Type 90 80 70 60 50 40 30 20 10 0

71.1

70.1

74.1

Cargo Vans

Cube Vans

Step Vans

75.0

78.3

33.5

Cars

Straight Tractors Trucks

*Note: For the purpose of this study, utilization refers to the percentage of actual weight carried by a vehicle as compared to it’s total maximum gross axle weight capability. Source: Infobase Marketing 2000 Courier Fleet Study

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The overall average capacity utilization of the vehicles in the fleets of the Canadian courier industry is 68.7%. 6.9. Domestic Versus U.S. Miles The vast majority (over 95%) of the total miles traveled by courier fleet vehicles are within Canada. The predominant use of tractors as a method for transporting large consolidations of ground shipments to the U.S. is reflected by the relatively high percentage of miles traveled in the U.S. by this vehicle type (13%).

% Of Total Travel

Percentage of Total Distance Traveled Within Canada 100

91.9

94.2

99.9

97.3

95.6

91.4

87.2

80 60 40 20 0 Cars

Cargo Vans

Cube Vans Step Vans

Straight Trucks

Tractors

Average

Source: Infobase Marketing 2000 Courier Fleet Study

6.10. Operating Cost Analysis Fuel accounts for almost half, or 50% of the total costs associated with operating courier vehicles (which in turn explains why many have implemented fuel surcharges in the past year).

Fleet Operating Cost Breakdown By Expense Category 47.5

% Of Total Expenses

50

34.0

40 30 20

7.0

6.0 10

5.2 0.3

0

Fuel/Oil

Tires/Tubes

Operating Supplies

Insurance

Licenses

Other

*Note: Operating Supplies also includes parts and vehicle repairs. Other expenses refers to washing and re-painting of vehicles. Total expenses do not include driver wages and benefits. Source: Infobase Marketing 2000 Courier Fleet Study

Parts, repairs and other operating supplies is the next highest expense associated with operating courier vehicles (34% of total costs).

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6.11. Future Growth For the period 2001-2006, almost 70% of the companies surveyed are forecasting the size of their vehicle fleet will grow. Despite this, growth estimates predicted are moderate at best (the overall average growth rate forecast on an annual basis is just over 2%). On a more positive note, over 36% are indicating they expect the number of vehicles in their fleet to grow by more than 2% per year.

% of companies

Anticipated Change In Fleet Size Over Next 5 Years 45 40 35 30 25 20 15 10 5 0

36.5

21.8 13.7 9.5

11.3 2.4

Decrease

Flat

0.1- 3.0

3.1- 5.0

5.1-7.0

4.8

7.1-10.0

Over 10.0

Anticipated Growth (In %) *Note: The above figures represent anticipated growth over the next five years. To obtain annual growth rate, divide anticipated growth by 5. Source: Infobase Marketing 2000 Courier Fleet Study

These figures indicate respondents are divided in their predictions for the future; while a significant portion are predicting strong growth (over 2% per year), an almost equal percentage to those predicting strong growth are expecting their fleet sizes to decrease or remain flat.

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7. Methodology 7.1. Terminology Used For the purposes of this study, the Canadian “courier market” is defined as all letters, envelopes, paks, packages or boxes sent for either next day or later, sameday delivery to a destination within Canada, to the U.S. or any other International location. An overnight or later shipment is a shipment that is delivered one or more days after the day it is picked up. A sameday shipment is one that is picked up and delivered on the same day. A “courier shipment” is defined as one or more packages going to the same destination at the same time in which no single package weighs more than 150 lbs. As used in the context of this report, an “International” shipment refers to a destination outside of Canada other than the United States. The U.S. has been segregated for reporting purposes given the high proportion of total activity outside of Canada represented by this country. A “pak” or “pouch” is defined as a plastic container, usually about 16” long and 12” wide, designed to accommodate either large documents or small-sized goods. An example would be the “PuroPak” shipping container. In some cases branded paks, which include the courier company’s name and logo, are supplied free of charge to customers. Alternatively, plain white paks can be obtained from most office and shipping supply retailers and wholesalers. As used in the context of the overnight or later segment of the market, an “Express” shipment is defined as being; “Letters, envelopes, paks, packages or boxes that have a guarantee (usually money back), full tracking and delivery overnight by noon.” This “non modal” working definition was intentionally adopted as it is clearly speed of delivery (and not mode) that defines purchaser behavior in the market. Within the domestic segment of the market, “Express” shipments do in fact include some “ground based” movements (for Purolator in particular). The following definitions were used for classifying vehicles for the fleet survey. •

Car = any passenger type vehicle, including mini-vans, and pick-up trucks. Maximum vehicle weight for this category is 500 KG.

Cargo Van = half to 1 ton capacity, Ford Econoline type (or similar make) vehicle. Smaller than a cube van. Maximum vehicle weight for this category is 1,000 KG

Cube Van = cargo box with adjoining Econoline style (or similar make) passenger cab. Larger than a cargo van, but smaller than a step van. Maximum vehicle weight for this category is 2,500 KG

Step Van = Gruman bodied (or similar make) which allows driver to walk into the passenger area of the vehicle. Cargo area can usually be accessed from the passenger area. Larger than a cube van. Maximum vehicle weight for this category is 2,500 KG

Straight Truck = 5 ton, or other similar type of vehicle where passenger cab is separate from cargo area. Usually has folding rear doors. Larger than a step van. Maximum vehicle weight for this category is 5,000 KG.

Highway Tractor = separate cab/power unit designed to haul a separate cargo trailer. Maximum vehicle weight for this category is 30,000 KG

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Note: Canada Post’s right-hand-drive vehicles, although slightly smaller than a standard step van, for the purpose of our study were included in the step van category of vehicles. 7.2. Methodology This report is based on a combination of primary and secondary methodologies, which varies with each of the major sections. The basic process followed was to use secondary data to model base statistics. This was then supported by the use of Delphi panels of several industry participant firms and personal interviews with various other “industry experts”. It should be noted that this exercise at no time attempted to solicit proprietary information. Part of the interviewing process in fact clearly stated to respondents that no proprietary information should be shared in the course of the discussion. Instead, respondents were asked to provide their opinions as to the degree of accuracy of the various data points of information shared with them. In the large majority of cases this was primarily a confirmation exercise, as most respondents felt the information resulting from the initial creation of the various base models was highly accurate. Nevertheless, a few interviews did occur which resulted in changes to some key assumptions underlying the model. 7.3. Data Reliability Although the market sizing study sections are not based on a statistically valid research methodology, based on separate analysis and discussions with industry participants, and more recently, comparisons with Statistics Canada primary research data, it’s overall accuracy level is estimated at 95.0%. As an example, Statistics Canada’s study estimated the size of the total courier market in Canada in 1998 (latest year for which figures are available) at $4.259B while the figure contained in this study for the same year was $3.995B. Statistics Canada acknowledges however that this figure does include some degree of “double counting” due to the use of Owner Operators. After the effect of this phenomenon is removed, the Statistics Canada figure becomes $4.066B (1.7% variance versus the figure contained in this study). As the fleet survey component of the report represents just under 81.0% of total industry revenues, its confidence level is estimated at 95.0%, with a margin of error of +- 0.7. 7.4. General Notes In reviewing this study, readers should be aware of the following information; A. The market size information does not include volume and revenue data for “courier compatible” shipments in the Airfreight and/or LTL trucking sectors (although figures for the various couriers included in the study do include shipments above the traditional courier shipment weight threshold of 200 lbs., since there is no way of isolating heavy weight shipments alone). Estimates for this “compatible” segment of the market were beyond the scope of this study. B. The study also excludes the impact of Bus Parcel delivery companies (although estimates for this segment of the market are available by contacting Infobase Marketing). C. The study also does not explicitly include revenues derived from secure delivery of documents via the internet (although it is assumed any such revenues would be included in the non-operating revenues of companies studied). 23


D. The companies that are included in the “others” category in the study market sizing tables refer to the several specialized or “niche” participants that exist in the industry (eg. Dicom Courier, ICS Courier, Midland Courier, etc.) as well as regionally focused organizations which, although perhaps quite viable in their local market region, do not generate volume and revenues sizeable enough to be reported separately. E. Revenue figures do include transportation and additional charge (eg. cargo insurance, collect billing, etc.) revenues (separate analysis by Statistics Canada suggest that such additional charges represent less than 1.0% of total revenues for the industry as a whole). F. Within the domestic segment of the overnight or later market, “Express” shipments do in fact include some “ground-based” movements (for Purolator in particular). G. In terms of the overnight or later U.S. ground market, it should be noted that the study generally includes “direct” shipments only (eg. excludes drop shipping). This fact notwithstanding, figures for the various courier companies included in the study could in fact (and do where applicable) include drop shipments since there is no way of isolating drop shipments alone (drop shipments refer to large bulk shipments that are sent across the border as a single movement, broken down into many smaller individual shipments, and delivered to multiple consignee’s through a domestic U.S. courier network). H. The market size figures contained in the overnight or later section of this report reflect a significant impact of email on letter and document shipment volumes. Specifically, the figures reported assume that letter/document volumes for 1999 will decline by 20% between the period 2000 and 2003 (and that this decline will occur equally over each of the four years). Although dramatic, this figure is considered to be conservative as compared to the predictions of some industry experts (that suggest letter/document volumes will decline by as much as one third). I. In assessing the impact of the internet on the courier industry, this study has attempted to focus on incremental package volume that will be created as a result of the fulfillment of online purchases alone. This is not to suggest that online pickup scheduling and other web-based functionality’s, which are also clearly impacts the internet is having on the industry, are not important. To the contrary, many of the large global integrators (eg. UPS, FedEx, DHL, etc.) have been quoted in secondary publications indicating that the percentage of their transactions that are completed online is quite high. Apart from anectodal quotations, unfortunately no specific information could be obtained for this phenomenon. J. Readers will note that while non-modal service definitions are used for all Canada origin market data contained in this report, the same is not true for Canada inbound information (instead the terms air and ground are used). This different methodology was adopted primarily out of necessity; service level information for companies outside of Canada was simply not available. K. When reviewing this study, it is important readers clearly understand the use of the term “on-board vehicle technology”. In the context of this report, the term has been used to denote any type of technology that is used inside the vehicle. This may or may not refer to technology tools that are physically mounted to, or part of the vehicle (eg. cell phones are mobile in nature and carried by drivers).

\Summary Report Final.doc

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