Analysis

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Industry Profile

In 2008, the couriers and local messengers industry included 19,546 establishments, and it provided a variety of services from letter delivery by bicycle messenger to high-tech equipment delivery to foreign countries by air. ¹ 

The industry includes very large businesses that are often subsidiaries of multinationals, integrated Canadian trucking companies and small independent contractors. Because of this wide range of activities and business size, the sector is not homogenous. It is not unusual for businesses of the same size in the same segment to have very different management philosophies, especially with regard to the use of employees versus the use of contractors or equipment leasing versus purchasing.

Despite the economic slowdown in 2008, the industry generated operating revenue of $8.7 billion in 2008, up 4.2% from 2007 (see Table 1).

By their very nature, couriers and local messenger services provide support or intermediary services (derived demand). Thus, the industry's economic health is largely dependent on general economic conditions. Although certain industries, such as financial institutions, law firms and pharmaceutical distributors, use their services on a daily basis, almost every business uses courier or local messenger services at some time or another.

Fuelled by technological innovations, the rapid growth of corporate e-commerce and electronic retail shopping (see the box "E-commerce is growing fast in Canada"), the couriers and local messengers industry showed a significant and steady growth in the past decade. For instance, in terms of gross domestic product, the couriers and local messengers industry contributed $3.2 billion to the Canadian economy in 2008 (chained 2002 dollars), up 59% since 1998, which is about twice the growth of the economy as a whole for the same period. ² 

Industry operating expenses totalled over $7.9 billion in 2008, an increase of 5% compared to 2007.

In the industry as a whole, salaries, wages and benefits constituted the largest operating expense with 36% of the total, followed by other purchased services with 31%, then the costs of energy and supplies with 14% of the total.

In comparison with 2007, the largest increases in operating expenses were in depreciation expenses with a 12% increase, followed by other operating expenses with an 11% increase and rental and leasing expenses with a 9% increase.

The operating margin, which represents the difference between revenue and expenses, is a good indicator of an industry's economic health. The operating margin for the couriers and local messengers industry was $879 million, down 5% compared to 2007. At the same time, the operating ratio (operating expenses divided by operating revenue) moved up from 0.89 to 0.90.

In geographic terms, since it is a service industry, the couriers and local messengers industry accurately reflects business activity in Canada. Thus Ontario accounted for 47% of the total operating revenue, followed by Quebec with 19% and Alberta with 12% of the total revenue. Together, the first four provinces (Ontario, Quebec, Alberta and British Columbia) were responsible for 88% of the operating revenue.

One industry, two distinct segments

The North American Industry Classification System (NAICS) sub-divides this industry into two distinct, but complementary segments: couriers and local messengers. ^7 , 8 .

Couriers provide national and international delivery services, using surface or air transportation, or a combination of both. In the context of their activities, courier businesses usually use an established network of terminals extending beyond Canada's borders.

In 2008, there were about 1,987 courier establishments in Canada that generated almost $7.2 billion in operating revenue, an increase of 6% over 2007 (see Table 2). While this segment accounted for only 10% of all the industry's establishments, couriers generated 82% of the total operating revenue. Courier establishments had an average operating margin of about $299,000 per establishment and the segment's operating ratio was 0.92.

Local messengers provide messenger and delivery services within a restricted geographic area, like a city or a metropolitan area. This segment also includes all independent contractors (or owner operators) working as sub-contractors for courier businesses.

In 2008, there were 17,559 local messenger establishments in Canada that generated operating revenue of $1.6 billion, a decrease of 1% compared to 2007. This segment accounted for 90% of the total number of establishments, but only 18% of the industry's operating revenue. Additionally this segment had an average operating margin of $16,000. Note that the modest average operating margin is mainly attributable to the fact that this segment includes a majority of independent workers. ⁹  Finally, its operating ratio was 0.82.

Looking at the distribution of expenses by segment, we observe that salaries, wages and benefits were the most significant operating expense items for couriers (40%), followed by other purchased services (29%). In contrast, for local messenger services other purchased services were the most significant expense item (46%), followed by cost of energy and supplies (20%). This situation is due to the fact that local messenger services regroup a large contingent of independent workers who do not explicitly pay themselves a salary.

Differences by revenue size

The presence of a few very large firms causes the industry to be highly concentrated, especially the courier segment. ¹⁰  For instance, the five largest courier businesses, which accounted for about 220 establishments, represented 79% of the operating revenue for this segment.

For the purpose of this study, establishments were classified according to business revenue size. ¹¹ 

Large businesses are businesses with annual revenue of $25 million or more. There were 323 establishments in total, generating operating revenue of $6.7 billion, up 5% from 2007. While they only account for 2% of the total number of establishments, large businesses were responsible for 76% of total operating revenue. On average, this group had an operating margin of $1.8 million per establishment (see Table 3).

Medium-sized businesses are businesses with annual revenue from $1 million to less than $25 million. There were 308 such establishments that generated $839 million in operating revenue. This represents a 1% decrease from 2007. This group accounted for 2% of the total number of establishments and generated 10% of the total operating revenue. On average, this group had an operating margin of $134,000 per establishment.

Finally, small businesses are businesses with annual revenue of less than $1 million. This group included 18,915 establishments and generated operating revenue of $1.2 billion, up 2% from 2007. Although they accounted for 97% of the total number of establishments, small businesses were only responsible for 14% of the total operating revenue. On average, this group, which is mainly composed of small independent contractors, had an operating margin of $14,000 per establishment.

Types of services and volume of business

Couriers and local messengers encounter competition from the national postal service industry, common air and highway carriers, which also deliver small shipments (less-than-truckload or "LTL"). However, their door-to-door delivery services are characterized by a wide variety of expedited and non-expedited services associated with different features, such as a required signature, delivery time guarantee, many security procedures and electronic tracking of shipments.

In the industry as a whole, establishments belonging to large and medium-sized businesses (with revenue of $1 million or more) delivered 713 million packages, generating approximately $6.9 billion in delivery revenue (see Table 4).

Globally, the services provided are grouped here into two categories, based on the amount of delivery time.

1. Expedited services (or express shipments) include same day and next day or overnight delivery;

• Same day services are the main activity of specialized local messenger businesses. For this reason, this segment accounted for 94% of the total delivery revenue and 96% of the total number of packages delivered. This type of service is usually limited to a specific metropolitan area; deliveries are made by bicycle or using light vehicles and are associated with a delivery time guarantee.

• Next-day/overnight services are mainly performed by couriers. In fact, this segment accounted for 97% of the total delivery revenue and 96% of the total number of packages delivered. Deliveries are typically made using highways and air transportation (on chartered flights).

2. Non-expedited services consist of other services -- two days or more.

• Other services -- two-days or more are almost exclusively provided by couriers, as this segment accounts for almost all the total delivery revenue (98%) and total number of packages delivered (98%). Generally, deliveries are made using highway, air (on regular flights) or, rarely, maritime transportation.

In the industry as a whole, each piece delivered generated an average of $9.69 in delivery revenue. Next-day and overnight services generated the largest average revenue per piece ($12.59), while other services -- two-days or more generated the smallest average revenue per piece ($7.44).

The higher average price per piece observed in the expedited services category is a result of the fact that market price of this type of service is higher. However, it is important to note that other factors also contribute to the higher average price per piece, such as the type of item being shipped (e.g.: letter, package, etc.) and the weight of the shipment. For example, one might think that it is more common to see heavy packages sent by non-expedited services and letters and small packages sent by expedited services.

Origin and destination of deliveries

Ontario has continued to generate the most activity in the industry, having been the origin of 46% of the country's delivery revenue (see Table 5). Quebec came next with 18%, followed by the Prairies with 16%.

Shipments to Canadian destinations accounted for 84% of total delivery revenue.

Fleet and equipment in service

Since time really is money in this industry, couriers and local messengers must rely on dependable and well performing vehicles and equipment to provide the means for delivery services.

In the industry as a whole, establishments that are part of large and medium-sized businesses (businesses with revenue of $1 million or more) have around 35,000 vehicles and various pieces of equipment (see Table 6).

Couriers depend to a large extent on relatively expensive fleets of vehicles and equipment, ranging from simple trucks to cargo aircraft. The most popular vehicles in this segment were minivans and cube vans (55%), followed by trailers (16%) and other equipment (12%). This segment had approximately 27,000 items of equipment in all.

Deliveries by local messengers are most often made by light vehicle. As a matter of fact, the most popular types of equipment in this segment were automobiles (51%) followed by cubes and step vans (25%). The segment had about 8,000 items of equipment in all.

Employment

Establishments associated with large and medium-sized businesses had slightly more than 54,000 employees (see Table 6). Of this number, 94% worked in the couriers segment, while 6% worked in the local messengers segment.

These establishments also reported that they used the services of more than 18,000 independent operators. Those were split almost half and half between the two segments.