The postal industry is undergoing significant transformation due to the increasing digitization of practices, as well as the evolution of consumer expectations and demands. In a highly competitive context, posts must reinvent themselves to cope with the decline in their market share and the rise in operational costs.
As a result, postal leaders recognize the need to adapt to these challenges and focus on several key areas to drive growth and ensure the longevity of their organization: sustainability, innovation, and collaboration. These were the topics of exciting discussions held at the Leaders in Logistics Summit in March 2023 in London, where many postal operators were able to share their experiences.
A volatile and competitive delivery market
Mail delivery in freefall
For the past decade and longer, postal operators have been facing a decline in mail volumes. According to a study by Statista, the number of letters distributed worldwide decreased by 27% between 2011 and 2020, from 360 billion to 263 billion. This trend is reflected in all postal actors, with a decrease of 8% for La Poste Group in 2022 compared to 2021, -0.7% for Deutsche Post DHL Group, -5.6% for CTT Correios and -5,3% for Poste Italiane. At the same time, the long term growth of e-commerce sales and the significant acceleration during the COVID-19 health crisis have led to a strong increase in parcel volumes. Postal services have experienced an acceleration in the parcel delivery activity, which now represents more than half of the revenues of Royal Mail, for example.
A highly competitive parcel market
In the majority of developed e-commerce markets, the parcel delivery market is already saturated with many players. Postal services must therefore coexist with large specialized players such as DHL, DPD (Chronopost, BRT, SEUR…), FedEx, UPS, GLS, Evri, Yodel, but also smaller regional organizations. During the opening session of the Leaders in Logistics Summit, Andre Pharand (Global Managing Director of Accenture’s dedicated Postal, Parcel & Last Mile business unit) noted that postal operators are losing market share in this activity to smaller, B2C–specialist players, with few assets, offering flexibility and reliability at lower costs. The market share of Royal Mail Group’s parcels is said to have fallen from 55% in 2016 to 38% in 2020, and that of Swiss Post from 89% to 80%.
War in Ukraine: decrease in volumes and increase in costs
After exceptional years for delivery companies in 2020 and 2021, volumes decreased in 2022. During the roundtable discussion “Digital, sustainable, efficient: logistics in a post-Covid world” at the Leaders in Logistics Summit, Thiemo van Spellen, Group Global Accounts Managing Director of Geopost, said: “At the start of 2022, we were still experiencing a normalisation following the Covid situation which saw volumes and business grow like crazy. Then came Russia’s invasion of Ukraine, which has accelerated negative trends in the delivery sector. Looking at Europe, consumer online spending is down, which is having an impact on our volumes.“
Geopolitical uncertainties have led to a global inflation with a double whammy for carriers:
- An increase in their operational costs due to rising fuel and energy prices.
- A significant decrease in their volumes.
Charles Brewer, CEO of Pos Malaysia group, has observed a 30% reduction in parcel volumes between 2021 and 2022, resulting from both the macroeconomic environment and increased competition. The same observation is made for other postal operators: –5.3% parcels volumes delivered by USPS in 2022, –4% for Swiss Post, –10% for Colissimo (Groupe La Poste), -6% for PostNord and -3.8% for PostNL.
Innovation and Digitization at the heart of postal concerns
In order to face these challenges and remain competitive, postal actors must adapt and modernize their processes. Innovation through digitization is essential to remain relevant in today’s world. Digitization helps postal services streamline their operations, improve the customer experience, and develop new business models.
AI for postal players
There is no doubt that logistics professionals are turning to technology, especially Artificial Intelligence (AI) techniques, to improve performance and profitability. This is the case for Pos Malaysia, which is currently examining the issue of the customer journey and ways to improve it. Charles Brewer, CEO of the group, said at the Leaders in Logistics Summit: “We have recently introduced chat bots to handle customer enquiries as we found that customers didn’t really want to pick up the phone. We are now using ChatGPT to answer questions. 48% of our enquiries now use this method. This has also helped us to reduce costs and provide a better experience.” Among its various digitalization actions, Pos Malaysia has also transferred its information systems to the cloud, which has reduced associated costs by around 40%.
AI can be an excellent way to improve the quality of data and accurately analyze a company’s activity. Companies can thus optimize their network and anticipate potential activity developments. This allows predicting the necessary resources to meet customer needs. In addition, technological tools help reduce the manual and time-consuming tasks of operational staff, as well as operating costs. Employees can focus on higher value-added tasks and make informed decisions based on data.
These are the challenges that Kardinal is trying to address with its highly efficient software solution composed of two modules:
- Territory Analytics & Optimization (TAO) for sectorization and optimization of delivery depot territories, allowing depot managers and planning teams to visualize and optimize their operations and run simulation scenarios to efficiently plan future requirements.
- Always-On Route Optimization (ARO) for route optimization. Thanks to its continuous operation, the tool allows planners to adjust routes in real time to maintain efficiency and service when everday issues challenge the operation of even the best planned routes.
“As a decision support tool, Kardinal’s solution supports parcel delivery players in their efforts to become more agile and resilient,” said Jonathan Bouaziz, CEO and co-founder of Kardinal during the panel discussion “Picking the winners: which technologies are set to deliver mainstream logistics transformation?” at the Leaders in Logistics Summit.
Robotization and automation are also beginning to play an increasingly important role within the warehouses of carriers. During a round table at the Leaders in Logistics Summit dedicated to innovation, Sven Richard Magerøy Tønnessen, Head of Emerging Technologies at Posten Norge, testified that the postal operator had recently tested drones to deliver water samples to a laboratory for analysis. By traveling 60km to the laboratory, the drone delivery “helped reduce transportation emissions by 99%”. The conclusive results of this test have convinced Posten Norge to apply this type of technology to other operations, such as inventory management within its 3PL automated warehouses.
The power of partnerships to drive innovation
To achieve this drone delivery, Posten Norge’s department for Emerging Technologies and their express delivery service partnered with one of their clients and the Norwegian start-up Aviant. Collaboration between postal players allows for the acceleration of the adoption of new technologies. Some postal services may be tempted to build their own systems and tools, but as Mike Richmond, Chief Commercial Officer of Doddle, points out, “by working with partners they could roll out something like this much quicker“. Swiss Post is well aware of this and created a corporate investment arm around six years ago that invested in 16 startups, an investment of around CHF 1-2 millions. Thierry Golliard, Director of Open Innovation and Venturing at Swiss Post, testifies: “External partnerships with universities, start-ups and other organisations, enables us to be quick when it comes to innovation and helps us to stay relevant.“
CTT Correios de Portugal has also developed a startup program called “1520” to support ideas and accelerate solutions related to its needs and strategic objectives. The postal service has, for example, collaborated with Robosavvy, a startup specialized in robotics, for the implementation of three automated guided vehicles that, with a robotic arm, process more than 90,000 packages/day.
Dynamic pricing in response to activity volatility
Faced with the rise in operational costs, postal operators are looking for ways to maintain profitiability as volumes decline. The sector’s pricing method is historically not very flexible, traditionally publishing price revisions on an annual basis. Delivery actors are increasingly turning to dynamic pricing, including FedEx and UPS. This principle, long since applied by airlines, consists of increasing prices when demand is high and capacity is reduced, and decreasing them when demand is low and capacity is greater. Prices thus vary according to the available capacity, which means that carriers are able to measure it. Open Pricer already supports many major parcel delivery players in this issue.
FedEx was able to make a profit of 150 million dollars on home delivery fees during peak season 2022 thanks to dynamic pricing. Extra charges were adjusted each week based on the increase in volumes shipped by customers compared to the beginning of the year. This type of pricing may also be implemented by postal operators in the future.
Postal services' efforts intensify for more sustainable delivery
In a context of growing awareness of the environmental impact of parcel delivery, postal operators around the world are intensifying their efforts to make their operations more sustainable.
United Posts in the pursuit of sustainability
More than twenty postal operators have joined a pilot program for measuring and managing sustainability (SMMS) established by IPC (International Post Corporation) in partnership with Kahala Posts Group (KPG) since 2008. Among the 24 posts, we can find bpost, Correos, Le Groupe La Poste, Deutsche Post DHL, Swiss Post, PostNord, PostNL, Royal Mail, and USPS.
The SMMS program provides a common structure for measuring sustainability and reporting, which enables participants to share their sustainability management strategies, performance, and achievements. All have committed to pursuing the following sustainable development goals by 2030:
- Reduce transportation and energy-related emissions by 50% compared to the 2019 baseline of 5.9 million tons.
- Energy use in own buildings from renewable sources of 75%.
- Vehicle fleet comprising at least 50% alternative fuel vehicles, with at least 25% of the total fleet to be electric vehicles.
- 50% of sustainable packaging.
- 75% diversion of waste from landfill to either recycling or reuse.
In 2021, posts reported a 4% decrease in emissions compared to 2019 and up to 34% since 2008 according to a study by SMMS in 2022. Since 2008, the efforts of posts have cumulatively reduced emissions by 25.7 million tons of CO2. The number of electric vehicles has increased in parallel by 629%, from 17,000 in 2012 to 107,000 in 2021, representing 17% of the fleets.
Intensified individual initiatives
Each postal actor has undertaken initiatives to meet the demand for greener delivery. For example, PostNord, the Norwegian and Swedish postal service, has implemented various projects to achieve its carbon neutrality goal by 2030:
- Increasing the number of green corridors in southern Sweden to reduce emissions from its road transport.
- Setting up one of the largest solar panel installations in the Norrköping warehouse to power its electric trucks and sell excess energy.
- Converting its vehicle fleet with 64% of the energy used coming from renewable sources.
An Post, the Irish postal service, has been delivering to Dublin for 3 years using 100% electric vehicles and is expanding these emissions free deliveries to all major cities in Ireland. During a roundtable discussion at Leaders in Logistics Summit on sustainability, David McRedmond, CEO of An Post, stated that, in addition, the company “plans to open up its post office network to competitors, such as DPD, in order to enable more sustainable deliveries in general.“
In terms of sustainability in the transport sector, two major challenges loom on the horizon:
- On the one hand, the availability on the market of large-scale technological solutions that allow for precise measurement and optimization of CO2 emissions.
- On the other hand, the need for harmonized accounting standards for CO2 emissions so that comparisons between carriers are possible.
German postal service Deutsche Post recently suggested creating a CO2 label for packages in Germany to inform consumers about the carbon footprint of carriers. Similar to the “Nutri-Score” nutritional value displayed on food products in supermarkets, this label would provide more
The postal industry is facing several significant challenges: a continuous decline in mail volumes, the volatility of parcel delivery activity, increasingly shorter delivery times, demand for more eco-friendly delivery, difficulty in profitability due to rising operational costs… Postal leaders acknowledge this situation and seek to digitize to gain efficiency and profitability, particularly by leveraging technologies such as AI. Although the digitalization and robotization of their complex and historic networks are time-consuming processes, the movement has already started. At the same time, postal actors are intensifying their efforts to reduce the environmental impact of their activity by increasingly using bicycles or electric vehicles for urban deliveries and promoting automated lockers.
In this context, Kardinal can support postal services in these challenges to help them face these major transformation issues. With its expertise, Kardinal can offer innovative solutions to postal sector companies to improve their operational efficiency, profitability, and environmental impact.