E-commerce boom proves a double-edged sword for Aramex

A 'surge' in e-commerce shipments in 2017 boosted revenues for Aramex, but simultaneously weighed on its profit margins.
Higher e-com volumes, but at lower yields, put pressure on margins but boosted revenues for Aramex in 2017.
Higher e-com volumes, but at lower yields, put pressure on margins but boosted revenues for Aramex in 2017.

Share

Aramex has announced that its international express business grew by 19% in 2017, achieving revenues of almost AED 2.1 billion, led in large part by a “surge” in cross-border e-commerce globally.

Almost half of those revenues, some AED 1.022 billion, was achieved in the company’s domestic Middle East market, a 4% growth compared to last year, but while volumes and revenue picked up, the e-commerce activity had an impact on the courier’s profit margins.

“While Aramex reported strong growth in International Express e-commerce business, the company’s margins came under pressure due to applying volume-based incentive rates to certain key customers,” the company said in a statement.

“In addition, Aramex adopted a variable last-mile business model in 2017, which put pressure on Domestic Express margins while capping the increase in operating expenses,” the statement added.

For these reasons, Bashar Obeid, CEO of Aramex, said that he is cautiously optimistic about further e-commerce growth in 2018.

"We are very confident about the growth potential in 2018 amid the continuous boom in e-commerce activities globally, yet we have to remain cautious about the changing competitive environment,” he said, adding that disruption from competitors requires the “highest levels of efficiencies and operational effectiveness” in meeting customers’ expectations.

“We will be focusing on key strategic initiatives in 2018 aiming at transforming our business into a technology-driven enterprise and enhancing our operational efficiencies through various cost restructuring programs,” he added.

Aramex has been pursuing enhancements to its last mile operations since late 2017 when it invested in a new global delivery address system called What3Words, that divides the entire globe up into three-word codes that are accurate to just a few metres.

According to Aramex, the deployment of the system cut its last mile delivery times down by 42%.

In October last year, the express logistics giant added Shop & Ship FLEX to its last-mile delivery service Shop & Ship (S&S) for Middle East customers. The company said at the time that the move was “in response to the rapidly evolving needs of e-commerce customers” in the region.

This service, which offers member-customers huge discounts of up to 90% on shipment fees, is the likely source of the pressure Aramex saw on its margins for e-commerce shipments.

Given the growing global and regional tendency by e-commerce platforms to pursue in-house last mile operations, Aramex needs to find a balance between remaining competitive, while also protecting its own profits.

The answer appears to lie in following the same strategy as UPS, increasing capacity, while simultaneously looking for ways to operate that added capacity more efficiently.

“We will continue to enhance our operations by leveraging innovative technologies that will lead to a further enhanced customer experience and improved business efficiencies. We are also exponentially expanding our capacity on the ground to effectively accommodate the dynamic growth we are witnessing in global e-commerce activities,” says Iyad Kamal, chief operating officer at Aramex.

Aramex’s other business units in the Middle East also saw growth, with the Freight-Forwarding business increasing by 2%, to AED 1.15-billion on the back of a stronger performance from the oil and gas sector.

Aramex's Logistics and Supply Chain Management operations were impacted by currency fluctuations, particularly in the Egyptian Pound, and decreased by 2%. Excluding this impact, it would have grown by 6%.