The Age of Postal Transformation

Postal operators are currently facing four major challenges: 

• A decline in the traditional mail business, a 23% decrease in volume of letter-post items between 2015 and 2020.
• A Universal Postal Union (UPU) analysis found that the number of parcels posted doubled between 2015 and 2020, with concerns about margins in a competitive market.
• Digitalization of practices that challenges the distribution model which relies on a physical network. 
• New customer expectations that prioritize customer relation, trust, and ecological considerations.

To address these challenges, Sia Partners supports postal operators in their transformations: 

• Evolving the product portfolio, leveraging logistics assets, with a particular focus on e-commerce.
• Adapting distribution channels through the evolution of the physical retail network coupled with digital channels. 
• Prioritizing customer relations and strengthening initiatives to reduce the environmental footprint of operations. 

We have already successfully supported postal operators in these various transformations. 

Logisitics transformations in the management of mail decline and investments support the development of e-commerce

All postal operators in developed countries are encountering the same market context. Firstly, an increasing reduction in the volume of letter mail since the Covid period: 76% of postal operators mention reduction in mail volume as the most important impact on their business in 2023. Secondly, a break in the’ double-digit increase in parcel volume between 2020-2021. This second point has raised margins and volatility challenges in 2023, whereas the biggest challenge in the parcel industry in 2022 was capacity management.  

In 2023, we have identified a rise in transformation projects to achieve operational efficiency, with different mechanisms, for Parcel and Mail activities.  

For Mail activities, logistics network rationalization is key. This means managing decline as close as possible to reality, and anticipating transformations one to two years in advance, to supervise people and real estate management. While Universal Postal Services forecasts a 2.5% drop per year in global letters worldwide, we observed, for developed countries, a heavier drop with a double-digit decline from 2020–2021.  

AI based solutions can analyze adjustments in transport links, containerization rules, sorting programs, allocation of postal codes during site closures, among others. AI solutions also help anticipate and measure customer impact, depot by depot (postage price, transport’s cost).  

New containerization rules make it possible to move certain activities up the value chain, by entrusting them to customers or their logistics providers (pre-sorting activities before the depot). 

We also observed transformation in delivery, with the development of retention mechanisms in the sorting center, and the optimization of the postal worker's bag, according to the mail products. For example, distribution of products with delivery time beyond 3 working days are not automatically pushed to postal worker’s bag and can be retained for a few days for mass distribution with other products. 

For postal operators having launched digital transformations across the logistics process (collection demands, transport, depot receptions, sorting programs etc.), we noticed some savings in the structural costs and ability to downscale quickly (site closures).  

Regarding Parcel activities, taking a prominent place in e-commerce is the key. While competition is tough and international, margins are pushed to a minimum.  

In 2023, postal providers have suffered a scissor effect, with inflation and investments pushing up costs, and parcel volume stabilizing. This has had an impact on their margins. We identified that the major postal workforce model is a weakness when facing volatility and the need for agility in a day-to-day capacity. This led to a greater share of subcontracting in the middle mile and sorting center activities, less in the last mile where operations are generally merged with mail.  

Investments in the parcel's logistics process are focus on three major items:

1. High quality of services in tracking and tracing. Data at the forefront of valued added services and experiences, for the customer and network capacity.
2. Automation in parcel handling and sorting, to cover  volatility without having to manage workforce adjustment. 
3. Last mile delivery optimization, with AI use cases on route optimization.  

We observed different cross border approaches. On one hand, a significant share of e-commerce, 20% of global e-commerce, is cross-border, according to Pitney Bowes. On the other hand, the impact of past and future regulatory changes will need to be identified.  

Demand for reverse logistics is also on the rise, with assets from the postal network ready to be mobilized: post office coverage, presence of postal workers on the route.

Pure third-party logistic (3PL) activities seem to be new opportunities for postal operators, where both real estate and logistics expertise exist within the postal network. This makes  sense as space is freed up in mail sorting centers, and the distribution network already exists as a “plug and play” opportunity. The synergies of a 3PL activity with the postal distribution network offer postal operators a privileged position to address retailers’ needs.  

Physical networks of postal operators represent both a unique asset for proximity to all citizens in the region and a significant source of expenditure. 

The proximity between citizens and postal locations is often regulated by state requirements, typically in the form of a certain number of touchpoints per inhabitant and indicators such as travel times and distance to the nearest postal contact point. 

However, there has been a significant decline in traffic in the postal touchpoints in recent years (-38%) [1]. Postal operators are therefore seeking solutions to maintain physical networks that meet citizens' proximity needs while maximizing commercial efficiency. 

We have observed several initiatives launched by postal operators to adapt their networks: 

• Adjusting the opening hours of post offices to ensure global geographic coverage while aligning with traffic evolution. 
• Increasing partnerships with local public or private entities to provide postal services. 

Furthermore, to maximize the commercial potential of their networks, postal operators conduct field marketing studies to identify the predominant customer profiles in areas covered by post offices. The goal is to tailor offerings and marketing in post offices to better meet the expectations of the customer base, thus increasing revenues. (For example, post offices in industrial areas may emphasize offerings and marketing targeted to a  professional clientele) 

Also, to leverage the geographic coverage of the network, postal operators commercialize third-party products (such as transportation tickets or event tickets) in post offices. This presents an opportunity for operators to generate additional revenue. 

Therefore, the evolution of postal operators’ networks revolves around three main axes: 

• Adapting the network through partnerships (public or private) and adjusting opening hours based on traffic;
• Tailoring offerings and marketing to suit the post office's customer base to maximize response to their needs and, consequently, the number of transactions; 
• Opening the network to generate additional revenue through the distribution of third-party products. 

The expertise developed by Sia Partners in this type of transformation, along with the complementary expertise of our consultants (data science, real estate, customer journeys, marketing, HR support, project management, etc) enables us to provide you with the best possible support in meeting the challenge of transforming your physical retail network. 

Presence in the region, proximity to citizens: the main asset 

We saw that the transformation of networks and the capitalization on logistic networks are two levers for tackling postal industry challenges. A third assets is trust, as historic public services providers, postal actors are deemed trusworthy and can act as intermediaries in sensitive sectors. Today, in a context of multiple crises (inflation, military conflict, eco-responsible issues, etc.), we are observing a rise in consumers' need to trust the brands behind their purchases. 

With their extensive infrastructure, secure networks, and trusted reputation, postal operators are increasingly becoming key players as trusted third parties, offering a wide range of new services that go beyond traditional mail delivery. The goals for postal operators are to diversify revenue sources, and secure employment and growth, in a context of market evolution.  

There is an opportunity for postal operators to have a major role in the transition to a sustainable economy, because of their role as public service providers and their wide territorial presence. 

They often have to partnership with the government or local authority to deliver services to support citizens. We observed three main business areas to explore for postal operators, in which we have assisted our clients in developing new offerings.

• Digital security 

As data protection and compliance have become paramount, postal operators around the world are well-placed to address this market, by focusing on digitalization, securing and managing mail and documents online safely. For example, by digitalizing their historic activity with a service that enables users to receive, store and manage their digital mail and documents. This includes items such as invoices, bank statements and other official communications, all in one secure, electronic inbox. Similarly, the interconnectivity between physical and digital flows is an axis for diversification, with solutions that facilitate the digital management of physical mail dispatch and the digital receipt of physical mail or invoices via a secure digital platform. 

Postal actors may also address this opportunity with no link to their historical mail activity. As trusted third-parties, they can offer services such as identity verification, digitalization of identity documents, etc. Examples of operators diversifying their offerings in this way are La Poste (France), Swisspost (Switzerland), Correos (Spain) or USPS (US). 

• Silver economy and elderly healthcare   

Another opportunity to diversify postal offerings lies in the evolving demands of the aging population, particularly in the domain of elderly healthcare. One notable example is the provision of in-home healthcare services designed to enhance the well-being of seniors. This initiative extends beyond traditional postal offerings and encompasses a wide range of services, including medical check-ups, medication management, and companionship. By addressing the needs of older individuals, and providing assurance to their families, these initiatives highlight the postal service's ability to leverage their nation-wide coverage and the role of the postal worker in tackling contemporary societal issues. Ultimately, these efforts contribute to enhancing the quality of life for a vulnerable demographic. 

For example, the following postal actors have launched a solution for, or demonstrated interest in, diversifying in the silver economy: La Poste (France), Royal Mail (UK), Deutsch Post (Germany), Japan Post (Japan). 

• Ecological transition and circular economy 

Some postal actors are actively involved in advancing sustainability through energy efficiency and circular economy solutions, aiming to minimize waste and promote responsible consumption. In response to environmental concerns, these postal operators play a significant role in advocating for sustainable practices. Their circular economy initiatives, enhancing the last-mile network towards a first-mile one, encompass various activities, such as collecting and refurbishing electronic devices, recycling packaging materials, and encouraging eco-friendly consumption habits. By facilitating the repurposing of goods and materials, they contribute to reducing the environmental impact of both businesses and individuals. 

For example, these postal entities have shown interest, or already invested, in solutions to support a sustainable transition: La Poste (France), PostNL (Netherlands), Bpost (Belgium), Canada Post (Canada). 

Postal operators now significantly exceed the scope of their historical activities: they have evolved into trusted third-parties that offer a wide range of essential services in the digital age. Their commitment to security, reliability, and efficiency positions them as key players in shaping the future of digital transactions, in helping our seniors and playing an important role in CSR commitments. 

Sources

1. Sia Partners, 2023. The countries observed are France, Belgium, Switzerland, Ireland, and Italy, between 2017 and 2022.