Mature yet continuously innovative, UK e-commerce is world leading. By total value, it is third only to megamarkets China and the US, with revenues expected to increase to over £230bn by 2025. It is a phenomenal success story. This has translated into exponential growth for the UK delivery industry over the past decade. According to Shiply, five billion parcels were processed annually in 2023, up from just 1.7 billion parcels in 2013.
While e-commerce growth - turbocharged by the Covid-19 pandemic - inevitably slowed post-pandemic, its upward trajectory continues. There are signs that the UK parcel market enjoyed a bumper Christmas: FedEx predicts UK deliveries topped Europe at 1.29 billion parcels in Q4 (up 11% year on year).
Meanwhile, a wave of digital natives - more of them, with deeper pockets - is injecting momentum, with social commerce the next frontier. TikTok and Retail Economics project that this market will leap from £7.4bn to nearly £16bn in sales by 2028.
Despite this rapid growth, there’s no doubt that last-mile economics remain challenging, brutal even.
Consumer expectations are extremely demanding; anything slower than ‘tomorrow’ is not good enough. A recent Office for National Statistics report found that while 78% of people are satisfied with parcel firms, two-thirds have had delivery issues in the past six months, with the most common one being delays. Customers vote with their feet, and dissatisfaction with delivery options is estimated to be behind around a third of dropped baskets.
Then there’s the environmental cost. Urban deliveries create significant challenges for cities – from congestion to road safety to clean air. A recent World Economic Forum white paper estimates that, for dense cities like London, urban delivery traffic could increase by 50% by 2030, raising carbon emissions by 25% and adding four minutes to the average six mile commute. All of which has implications for brand and stakeholder relations, efficiency, ESG performance and more.
Addressing last-mile pain points isn’t just a priority, it’s a survival strategy. Facilitating future e-com growth and mitigating these challenges will drive future network evolution and logistics real estate needs. Here’s what we see:
Electrification everywhere: Electric vehicles are the future, but they need power infrastructure. So, expect massive investment in charging capability and co-located renewables.
Smarter networks: Technologies like route optimisation and emissions-reducing software, and interconnected, AI-powered delivery strategies to reduce waste, will make or break businesses. Every logistics hub needs to be a data-driven powerhouse.
Shared solutions: Collaboration is king — shared distribution models that reduce distribution inefficiencies and lower the cost to serve will become the norm.
Rethinking fulfilment: Increased automation along the length of the supply chain, accelerated by the recent announced increases to employers’ National Insurance contributions and minimum wage. Expect bigger sheds at the back end and an elevated role for urban logistics at the front end to ease the last-mile crunch.
The UK parcel market is relentless, and so are its challenges. It is a high volume, low margin business where AI and automation have yet to make a full impact. But where there’s friction, there’s opportunity — and the UK, as always, is ready to deliver.
As published in Property Week, February 2025
