Last updated: Disruption in the postal industry: Digital transformation delivers

Disruption in the postal industry: Digital transformation delivers

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Disruption in most forms brings equal part threat and opportunity, and disruption in the postal industry is no different.

However, the latter can only be achieved if approached and leveraged correctly, placing the capacity for agility – and dare I say creativity – at the center of success.

In a business context, this applies to both the mindset for navigating disrupted landscapes, and the technical prowess for harnessing the opportunity that lies within.

The postal industry: Getting a financial grip

The postal industry is an example of a sector which has seen mixed fortunes in the last decade.

With mail volumes continuing to decline as digital forms of communication proliferate, and many countries privatizing their postal assets to reduce sovereign debt following the 2008 credit crisis, transformation programs have focused on increasing efficiencies in the postal networks with the primary goal of reducing operational costs.

More recently however, the focus has shifted from saving costs to the more interesting goal of creating new revenue streams.

The increasing popularity of online shopping and other forms of e-commerce, in addition to the continuous proliferation and preference for subscription based services, have all been drivers of this, leading to growth in parcel deliveries.

The segment with the highest growth is cross-border e-commerce deliveries. E-commerce platforms such as Amazon, eBay, and Alibaba are the leaders of this movement. While this has been a welcome opportunity for postal companies, it has also created a new set of challenges.

Meeting the challenges: Staying relevant in the digital age

There are two primary challenges when it comes to disruption in the postal industry:

  1. Competition between government and private sectors
  2. Delivery challenges around logistics and on-time delivery

The first challenge is the increased competition between postal companies and third-party logistics providers such as DHL, FedEx and SF Express, with e-commerce providers themselves getting involved in the parcel delivery.

Amazon in the UK is Royal Mail’s largest parcels customer, but at the same time Amazon is competing with them by increasingly delivering their own parcels and eating into Royal Mail’s growth in parcel delivery revenues.

To make things worse, Amazon is taking the easiest and most profitable deliveries, hitting Royal Mail’s bottom line profit in addition to their top line revenue growth. The situation is such that Royal Mail’s CEO Moya Green has said that addressable market volume depends on expansion on Amazon Logistics (*), in other words it is beyond Royal Mail’s control to a large extent. Alibaba has taken a different approach by investing in Singapore Post’s Quantium Solutions business, as they see Asia Pacific as a growth market for them, and Singapore Post understands the complexity of delivering to many different countries in the region.

The second challenge relates to “last mile delivery.” For consumers to embrace e-commerce, they must be confident their parcels can be delivered. For people who are not at home for a large part of the day this is a concern which can potentially limit the value of their orders, and even result in customers discontinuing to place orders at all. This challenge inspired no shortage of innovative solutions – stirring up the industry creating opportunity where options were becoming limited.

What started as basic tracking, alerts and post office collection has evolved into a wide variety of services – the development of which shows no signs of slowing down. Take for example the USPS Access Point service which allows customers to have packages delivered to pre-determined locations in the neighborhood. Small business such as shops, coffee shops and pharmacies with available secure space can become partners of UPS to offer this service.

And of course, there are startups which have brought their own flavor of innovative ideas designed to fill the delivery gap including postal lockers, intercept services and collection points. A good example of a startup providing postal lockers is InPost, founded in Poland and already operating in more that 20 countries. Now, some of the more forward-thinking postal companies haven’t wasted any time bringing such service offerings to market themselves – either independently or in partnerships with a startup. In the case of UPS Access Point, UPS introduced the service following the acquisition of a Belgian startup called Kiala who were already providing collection point services. In Singapore and Australia, the local postal operators have already started offering postal locker services.

Disruption in the postal industry: Time to innovate

So, what does this all mean for postal operators? In short it will require transformation of the business to create a new set of capabilities that will support business model innovation. Some of these capabilities include:

  1. Innovative business models involving revenue sharing and settlement with the partners involved in last mile delivery.
  2. Omni-channel customer engagement to allow the consumer to choose for example the last mile delivery options, and track deliveries.
  3. Agile pricing strategies to allow charging based on various parameters, for example weight, volume, temperature control, delivery time, etc.
  4. Recurring billing for subscription based services. As an example, the UPS Access Point mentioned above is available to consumers on a subscription basis.
  5. The ability to offer tiered pricing and volume discounts to the e-Commerce providers and sellers.
  6. Event-based charging so that each letter or packet can be priced accurately to avoid revenue leakage, and to enable better revenue management.
  7. Scalability to support millions of consumers and massive volumes of transactions that the consumers will generate.

Postal operators wishing to stay relevant, be competitive and successfully navigate – or even lead – the digital disruption journey, will need to pay particular attention to selecting the right billing solution to enable offering these diverse services and options for more convenience and better outcomes.

Paramount to a successful outcome is being prepared to navigate often unexpected requirements for renovating your digital landscape. As you look for how to monetize new opportunities, taking an honest look at your legacy systems and asking whether they will both serve to scale and protect your business as you evolve is an important first step. Adopting new technologies that enable you to establish new business models driven by agility, creativity and innovation are at the foundation of not only surviving disruption, but thriving in it.

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