The last few years have seen a quantum change for the world’s Postal Operators. Accelerated digitization is continuing to change the way people communicate and shop, creating both a huge challenge and equally, a significant opportunity.
A recent McKinsey white paper stated that mail volumes have already declined by more than 30% since 2005 and will likely decline by a further 25% by 2025. At the same time, e-commerce will be worth in excess of $8 trillion (GMV) by 2025 and account for more than 25% of total retail sales by 2021.
Now you would think that one would offset the other and that the postal sector would be flourishing in the new world, but that isn’t the case. Only half of the top 20 postal operators have managed to demonstrate success in transferring their leadership position in the mail to a leadership position in a parcel, and are, for the most part struggling financially.
The problem is that the e-commerce world is just very, very different!
Consumers are asking for more choice, more convenience and more control. They expect the choice of delivery speed; the same hour, same day, next day, deferred, they want greater transparency and convenience, and all at an incredibly low price – 70% percent of consumers still expect e-commerce deliveries to be free!
Competition is getting tougher. The giants; Amazon, Alibaba, Walmart and JD.com, along with many, many other local and regional players like Lazada, Shopee, Flipkart, MercadoLibre, etc., are building out their own and highly effective logistics capability, known in the industry as ‘captive’, and by now have captured 30 to 50 percent market share – putting a large chunk of the e-commerce logistics markets out of reach already and putting their existing business at risk.
Legacy costs undermine their competitiveness. Fixed models, the Universal Service Obligation commitments, outdated delivery models, increasing wages and benefits often mean that labor costs are 20% to 40% higher than those of their new competitors
All of that said, the upside should continue to excite! The global e-commerce opportunity is already huge and will only get bigger and bigger, presenting an amazing opportunity to those postal operators who really ‘get it’ and who can see the path to greatness. So where should they focus:
- Where to Play
Not all e-commerce customers are necessarily the right customers and not all geographies are the right geographies.
Most global markets are dominated by 3 or 4 ‘giants’ who can provide you with a significant number of parcels, but they come at very low margins and incredibly high demands. As mentioned earlier, many ‘platforms’ have developed their own ‘captive’ logistics infrastructure, as such the volume you often get is the volume they don’t want – and if they haven’t figured how to make money in that category or to that geography, it is unlikely you will!
You should clearly develop a commercial strategy that includes which customer segments you are focused on, which geographies, estimate the category and market growth of each, the market potential, the risks, and the areas where you can clearly win.
Critically, you don’t need to go after all – size isn’t everything! Target the right products, the right customers, the right geographies, the ones that will deliver sustainable and profitable growth, the ones where you can win.
- How to Play
Having identified who you will focus on, next you need to develop a solid infra-structure plan that moves your operation from ‘flats’ and ‘letter’, to accommodate ‘parcels’.
You must take an almost draconian approach to cost-cutting. The goal must be to create an infrastructure that allows you to deliver on the customer experience requirements and at the lowest cost. You should drive intelligent automation, especially in the terminals and sort centers that delivers a lower unit cost for delivery and distribution, and finally, explore alternate delivery and labor models that deliver a smile in the last mile.
- How to Get Organized
The Postal sector is a little too established, bureaucratic and far too internally focused and as we all know the ‘disruptors’ aren’t! You need to take a long hard look at your culture, your leadership team, processes and governance and ask are you set up to compete and win.
As such, take a long hard look and where needed redesign the center, the structures, the support teams, the processes and finances so that all are pointed towards the customer and the opportunity.
In summary, the environment has changed and changed beyond anyone’s imagination, and for the postal operators the transformation required is no longer a ‘nice to have’, it is a necessity. This is the start of an exciting transformation journey in an increasingly online and digitalized world – The Post Office can still deliver!