Signed, sealed, and delivered: Unpacking the cross-border parcel market’s promise

As e-commerce continues to fuel cross-border package deliveries around the world, what should logistics providers pay attention to?

“Deliver the letter, the sooner the better,” crooned the Marvelettes, the Beatles, and the Carpenters in the hit song “Please Mr. Postman,” capturing the familiar sentiment of not receiving a letter quickly enough. But today, with email largely replacing snail mail and more of our shopping done online, parcels have overtaken letters as generators of revenue—and will soon overtake them in volume.

When we last wrote on this topic, in 2019, we projected that the rise of e-commerce would lead to a corresponding surge in demand for parcel (or, interchangeably, package) logistics. We also argued that the trend gave beleaguered legacy postal carriers an opportunity to pivot from mail delivery to package delivery if they could embrace digital innovation and build the appropriate capabilities.

Two and a half years and one global pandemic later, the demand for parcel logistics remains robust: the COVID-19 pandemic has accelerated online purchases and package deliveries at an unprecedented rate. With that in mind, we have refined our understanding of the sector’s global outlook for the next decade.

Even conservative estimates project that cross-border e-commerce in goods—the fulfilment and parcel dispatch of an order taking place in a country different from the customer’s final delivery destination—will expand to around $1 trillion in merchandise value by 2030, from its current value of approximately $300 billion (Exhibit 1). In a bolder scenario, e-commerce penetration of the total world retail market would approach today’s levels in China: more than 30 percent. If the cross-border share of e-commerce came close to 20 percent, the overall cross-border e-commerce market could total $2 trillion in merchandise value. We also expect cross-border supply chains to change significantly.

Cross-border e-commerce will grow to a $1 trillion–2 trillion market by 2030, depending on scenario.
We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

Cross-border e-commerce parcels can travel via three different channels. The postal (or postal-parcel) channel, regulated by the exchange system of the Universal Postal Union (UPU), is today’s dominant mode in shipment volume: it is responsible for routing close to two-thirds of lightweight international parcels weighing up to two kilograms. International express shipments, which make up 5 to 10 percent of the total volume, guarantee fast delivery speeds of one or two days, high reliability, and excellent service quality. Commercial-parcel operators handle the remainder of shipments. Ranging from postal spin-offs to asset-light start-ups, these operators capitalize on the need of shoppers and shippers for reasonably priced but reliably quick and quality shipping. They offer “track-and-trace” visibility for parcels in transit and services such as insurance, which isn’t provided in the postal channel.

Five trends

In this article, we spotlight five interrelated trends that all logistics providers—especially parcel providers looking to enter the commercial side of the business—ought to understand.

1. Cross-border deliveries will continue to surge

We are not only buying more online but also buying more from foreign countries. In 2020, there were 9.3 billion cross-border orders, and 60 percent of them were intercontinental (Exhibit 2). After a short deceleration as a result of limited air cargo capacity, international deliveries are now growing twice as quickly as domestic ones. In 2020, the pandemic affected the patterns in the flow of goods: intraregional flows—especially in North America and Europe—rose as a result of supply chain disruptions and a shortage of transport capacity. Customers therefore hesitated to buy products from Asia.

Intercontinental orders comprise 60 percent of cross-border e-commerce flows, mostly focused on Asia–Pacific countries.
We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

Cross-border parcel deliveries are proliferating for a variety of reasons (Exhibit 3). Price is the main factor, either because the products we desire are cheaper when we buy them from foreign countries or because delivery costs are lower. Meanwhile, the unavailability of certain Western-made products in Asian countries—not to mention the possibility that it may be cheaper to buy some things in America and then ship them to Asia—is spurring growth in parcel deliveries in trade lanes from the European Union to China and from the United States to China.

Consumers overall mostly shop for lower prices in foreign markets, but motivations differ by trade lane.
We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com
Sidebar

The growing popularity of the direct-injection model is another reason for the growth of the cross-border parcel delivery market. In this model, multiple orders are transported in bulk to the destination country before being separated into individual packages passed on to domestic logistics players responsible for last-mile deliveries. For air cargo carriers, the cross-border e-commerce market could be worth around $20 billion (see sidebar, “What’s in it for air cargo providers and start-ups?”).

Current trajectories, as well as our extensive interviews with participants in the sector, indicate that the growing prominence of e-commerce will probably raise the product mix of parcel deliveries of nonexpress commercial products to 80 percent of all flows by 2030, up from today’s share of around 30 percent. The COVID-19 pandemic momentarily boosted the share of parcel deliveries of commercial products to as much as 60 percent in 2020.

2. Regulations and tariffs will increase

The surge in global package deliveries has sparked a corresponding rise in regulations, which can sometimes be disruptive. The Universal Postal Union has reformed the tariff system for its 192 member states, and the European Union’s de minimis legislation came into force in the summer of 2021. In the United States, the Strengthened Opioid Misuse Prevention (STOP) Act bars the entry of packages without identifying data. These initiatives have a short-term dampening effect on cross-border package deliveries by raising the cost of products (or of delivering them), by slowing the shipping process, or by restricting the movement of goods.

In the long run, such tariffs and stricter regulations would probably shift the mix of cross-border products toward the higher end of the price spectrum. Customers buying lower-priced goods may not be willing to pay a premium for international shipping, and shippers may be reluctant to absorb the cost for products with already low profit margins.

However, the playing field for Western postal carriers and parcel players may become more level. Before the new UPU tariffs were imposed on parcel deliveries from China to Europe and to the United States, China Post shipments from China to the West cost a fraction of what private operators charged. The new UPU tariff system has enabled Western private carriers (such as Asendia, B2C Europe, and Landmark) to reduce the price gap between Western and Chinese providers. However, regardless of the carrier chosen, the total cost borne by customers has risen because they will no longer enjoy the cheaper pre-tariff rates.

3. Customers are demanding faster and more reliable deliveries

Not surprisingly, customers are willing to wait longer for foreign deliveries than they do for domestic ones, as they were before the pandemic. But they still expect the time between clicking “pay” and signing for the arrival of purchases to be shorter year on year.

The 2017 cross-border survey of the International Post Corporation (IPC) indicated that 28 percent of European cross-border buyers expected to receive deliveries from another European country within two or three days, and 79 percent expected to receive them within a maximum of one week. Those figures were up from 25 and 67 percent, respectively, a year earlier. The 2018 survey reflected still more demanding customer expectations for delivery times. When asked what one thing postal companies should do to improve cross-border deliveries, 32 percent of the respondents chose make them faster.

This need for speed is the key reason many operators are looking to make the switch from postal-parcel to commercial-parcel deliveries. In addition, expectations for the transparency and reliability of goods for delivery are becoming more exacting. It’s now increasingly taken for granted that customers can track exactly where their goods are, for example.

4. Supply chains will decentralize

When is a black swan no longer a black swan? By some estimates, supply chain disruptions lasting more than a month will probably occur once every four years or less. In the past two years, the COVID-19 pandemic shut down ports, the Suez Canal blockage choked the international flow of goods for months, and Brexit shook up European trade drastically. To become more resilient, many companies are therefore actively decentralizing their delivery chains by opening more fulfilment centers.

Another reason for the decentralization of supply chains is that when e-commerce sales achieve a substantial scale, and it appears that intraregional flows and domestic flows in large markets could well climb, companies may decide to set up local fulfillment centers to improve the quality and speed of service. For instance, the fitness apparel company Gymshark—one of the fastest-growing retailers in the United Kingdom—partnered with the omnichannel logistics provider Radial in 2019 to expand Gymshark’s business in Canada. By leveraging Radial’s network of multiuser fulfillment centers to support deliveries, Gymshark shortened a seven- to nine-day waiting window to three days for 98 percent of its deliveries. Encouraged by this Canadian success, the company expanded the model in 2020 to include the United States.

Meanwhile, Alibaba has ambitions to provide 72-hour deliveries to any place in the world. To augment its logistics capabilities, especially in B2C, the Chinese conglomerate acquired majority ownership of Cainiao and is currently expanding its network in Europe. A central hub at Liège Airport, in Belgium, has served as cargo terminal, fulfillment center, and office for the company since the summer of 2021.

5. Renewed sources of growth will come from specialist segments

As the burgeoning cross-border parcel market becomes more sophisticated, specialist segments will probably outpace the overall market in growth. Direct-to-customer (D2C) and customer-to-customer (C2C) package deliveries are likely to grow more quickly than other segments. In the direct-to-customer segment, for example, PepsiCo is reducing its reliance on grocery chains by selling snacks and beverages directly to customers on pantryshop.com and snacks.com. C2C package deliveries are expected to grow with the emergence of platforms such as Vinted, an online marketplace (based in Lithuania) where users can buy, sell, and exchange new or secondhand items.

Supergiant marketplaces and mature e-tailers, such as Asos, increasingly locate more inventory in the destination region. Emerging small e-tailers, D2C brands, and C2C sellers, an immense source of value for cross-border parcel players, are more likely to pursue a centralized supply chain strategy because they lack the volumes necessary to support multiple forwarding channels and will need to make cross-border single-shipment deliveries with the flexibility to scale.

Seizing the cross-border parcel opportunity: Three key questions

The five trends show that even as commercial products gain share, cross-border shopping patterns and flows in the movement of goods will continue to fluctuate for some time. This suggests that e-commerce is far from the saturation point, both in domestic and cross-border markets, and won’t be for the next five to ten years.

By the decade’s end, winners will probably be pulling clearly ahead from their competitors. Companies offering a commercial standard product will surely raise their market share by offering an optimal balance between price and speed (Exhibit 4). These companies will probably stake out a winning value proposition by providing reliability and end-to-end visibility, as well as an acceptable speed for the shopper and a favorable fee for the shipper. The value proposition for cross-border postal-package services will probably decline over time as a result of higher tariffs and delivery costs, low speed, and the lack of traceability. Postal-parcel services may gradually come to resemble commercial-package services as providers adapt to the changing landscape.

Companies that balance the trade-o s between delivery speeds and prices could be better situated to expand their market share.
We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

When companies consider reconfiguring their operating models to seize the opportunity presented by the growth of the cross-border delivery market, they could ask themselves three questions to guide their decision making and priorities.

The geographical stance: Where to play?

In any business dealing with logistics networks, scale is key to success. However, scale can be approached from different angles and dimensions—global, regional, or even niche and specialist trade lanes. Companies could assess their geographical coverage by determining whether a local, regional, or global play offers them the best chance to seize the lead.

When operators decide where to play, they could consider the next frontier of cross-border deliveries: the ability to customize the sweet spot among reliability, speed, and cost, according to the customers’ specific needs. Companies could narrow their focus, to products where they already have a competitive edge—a strategy that may enable them to offer superlative services at scale and extended scope. Companies may also add to their cross-border service portfolios, including fulfillment in the destination country and specialized return services, as well as regional cross-border, two-person handling. These moves may help companies differentiate themselves, raise adjacent revenues, and capitalize on the next fast-growing segment.

DHL, for example, has decided to focus on global deliveries of high-value premium products. It’s therefore strengthening its product value proposition with the Time Definite International and Day Definite International delivery products, as well as increased speed and reliability. On the regional level, Seven Senders (in Germany) has set its sights on the rest of the European Union and is focusing on expanding its parcel network across the continent. To offer swift deliveries with better end-to-end visibility, the company has invested heavily in its IT and technology stack. The bulk of the investment is going to custom-built software and a return portal for customers.

The operating model: How to play?

There’s no silver bullet—or single winning business model—that will guarantee success in the cross-border e-commerce market; for instance, both asset-light and asset-heavy models have been successful. Our experience in the sector suggests that winners use a combination of organic expansion, mergers and acquisitions, and partnerships to scale their businesses. Different expansion methods may be required at different stages of maturity.

We have found that the life cycle of the cross-border parcel delivery business typically has three phases (Exhibit 5). The first starts when a business is newly established and the priority may be to have a minimum viable product with a strong focus on selected trade lanes (such as specialized Asian ones). The next stage comes when a company prepares expansion plans, which may require more capital support or selective M&A to expand activity in scale and scope—for example, by adding more trade lanes or building larger sales teams to address more high-value shippers. The final stage involves scaling the business to regional or global reach with the gradual multiplication of gateways, sales teams, and line haul routes, as well as the expansion of the first- and last-mile partner network. The Australia Post subsidiary Australia Post Global eCommerce Solutions (APG), for example, expanded its operations from a focus on Chinese exports to Australia into a global network of 22 hubs and 130 active trade lanes.

Parcel players’ cross-border expansion journeys typically have three stages.
We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

Throughout this evolution, companies need to find their sweet spot in the asset control and quality control matrix. Asset-heavy players, for example, could seek to identify segments in which they can make successful plays for asset-light consolidation. After companies take stock of their capital expenditure budgets, they can decide which expansion path—organic or M&A—would make the most sense to achieve their growth ambitions.

Of course, technological disruption may be just around the corner. Companies could prepare themselves for (and even harness) impending new technologies by continually assessing and reassessing the capabilities they need. For example, Asendia, formed in 2012, when LaPoste and Swiss Post joined forces in the international mail market, has expanded over time by integrating technology companies, such as Anchanto, eshopworld, and WnDirent. These acquisitions have given Asendia the capabilities needed to maximize the potential of its asset-light model in transport and distribution networks.

Execution: How to win?

Once a strategy and operating model have been decided on, a company needs to embed core capabilities across the end-to-end delivery chain (Exhibit 6). These capabilities not only are crucial for commercial and operational excellence but also differentiate leaders from the rest of the pack.

Mastering core capabilities across nine stages in the cross-border delivery chain positions logistics players for success.
We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

Companies must master five key execution priorities to differentiate themselves.

1. Local partnerships and customer ownership. The “no sales, no business” paradigm fully applies to cross-border parcels. Parcel companies need to build up a sales force and marketing capability in the country of origin to acquire clients, establish a brand name, and understand and address the shipping needs of e-commerce merchants for export sales. Only a local sales office will provide enough intimacy with e-tailers to win and renew cross-border service contracts. Partnerships with established local brands can be an alternative solution for companies that lack either the scale to have sales offices in every major parcel-originating country or region or the organizational ability to manage detached agents.

2. Transportation partnerships. Owning huge fleets of aircraft, trucks, and ships in multiple jurisdictions is out of reach for most cross-border parcel delivery providers, so transportation partnerships are crucial for seamless operations. It will be necessary to find trusted logistics partners and to integrate them transparently into the first-, mid-, and last-mile stages, which will probably require both parties to synchronize their IT-tracking and monitoring systems, as well as their workforce management models. APG, for instance, has developed multisource airlift partnerships with AusPost and Qantas Freight to tap into their aircraft capacity, including priority access to the belly space of Qantas airplanes.

3. Capabilities and customs. Having a package stuck in customs is the last thing any recipient wants, and this happens more often than it should. As cross-border deliveries increase in volume, so will the number of parcels held back. To expand capacity in key gateways and make delivery flows smoother, two things are necessary. First, parcel delivery providers should have an intimate understanding of inbound customs requirements: filling in the necessary forms and documentation, as well as the habits and processes of customs agents. Postal providers should have an edge in this area, given their close and long-standing working relationships with customs authorities. Second, these companies must effectively manage their relationships with customs authorities (including data integration and tech innovation). Pitney Bowes is one example of a US shipping company that offers a comprehensive cross-border product (which includes landed costs and compliance solutions) by combining AI and manual checks to screen packages and minimize airlift and customs delays.

4. Last-mile options. Customers now require a variety of last-mile delivery options and greater flexibility in how they receive packages. End users, depending on their lifestyles or plans for a given day, may prefer to have packages sent to their offices or dropped off at their doorsteps. It’s important for parcel delivery providers to understand the consignee’s preferences—which may change at the last minute.

Providers could therefore offer reliable granular and local tracking, time window options, and out-of-home deliveries. Now that flexible returns are becoming the norm for e-tailers, commercial-parcel delivery providers should offer solutions across value chain steps (such as tracking, customer refunds, tax withdrawals, and operational follow-ups). Landmark Global, for instance, gives e-tailers a choice of what to do with returned products. Through the online shipping platform Mercury, e-tailers can decide to consolidate returned products, get products returned to the shipper, or have them destroyed.

5. Overall technology capability. If there’s a recurring theme throughout this article, it’s reliability, speed, and visibility. This triumvirate cannot be achieved without a robust technological framework. Building technological capabilities, whether organically or through M&A activity, is an important first step. But it’s just as important for companies to integrate their data stacks with trusted partners across the entire chain to enhance efficiency and reduce the number of bottlenecks. Of course, in addition to tracking and optimizing the delivery process, companies are now expected to communicate this information to customers and to offer them options for customizing the delivery service according to their needs.


Logistics providers cannot ignore the continuing growth of the cross-border parcel delivery market. Now, when that market is not yet saturated, is the time to consider a decisive play—before it’s too late. Companies that actively pursue a thoughtful strategy and follow through with impeccable execution should find themselves pulling ahead by the decade’s end.

Explore a career with us

Related Articles