Achieving High Performance in the Postal Industry Accenture Research and Insights 2013

Contents Foreword

2

Introduction

3

Strategic shifts Key findings

4

High performer highlights



6 7

Industry impacts

19

On the horizon

21

1

Foreword The postal industry is undergoing a transformation. Business models that have existed for generations are colliding with the latest technology and social trends, creating an unprecedented market—a very different environment from the one we discussed in our first postal study published in 2006. Yet even then we had begun to see the signs of change in the industry; innovators were already beginning to explore new models. Fast forward to our 2013 research and, despite a continued tumultuous business climate, there are postal organizations that are thriving. High performers have largely focused on diversification, launching profitable new business lines that are vastly different from their historic business. They have also reworked their legacy mail networks into parcel networks that are well positioned to take advantage of the growing eCommerce wave. These high performers are leading the postal industry’s transformation. Diversification has ensured the survival of postal operators, but it remains to be seen if there is still a profitable business to be found in mail. The decline of physical mail has been a constant trend for many years, to the point where many postal operators are now questioning the essence of their modus operandi. Can the mail business be turned into a profit center again? Or will it continue to have a dilutive effect on the overall business? Accenture believes the answer is positive—mail can be profitable again. That profit will only come as postal organizations aggressively shift their operating models to leaner networks that can quickly scale to shrinking volumes. But it will also depend on developing new sales and marketing capabilities

that will drive additional revenue. Our research shows that postal operators are already beginning to explore new ways to stimulate mail volumes and retain the customers they have. Already the keepers of extensive customer databases, postal operators are beginning to apply analytics to gain deep insights that unlock value. The industry is already experiencing the success of such campaigns; for example, USPS is applying predictive analytics to understand customer behavior and identify customers that are likely to mail less. The retention campaigns used to address these customers have already been successful in stemming volume decline.

Brody Buhler Global managing director Accenture postal industry group  

These efforts to drive new revenue and retain customers are just starting to take advantage of new technology. As postal organizations build these capabilities they will need to continue to scrutinize their cost structures and challenge legacy ghosts. We know that to achieve high performance, postal organizations must continually modernize across all areas of their operations. They need to “act smart” by combining cost cutting measures with innovative approaches. They must reinvent the service they offer and keep the customer satisfied. Above all, they need to think of themselves as agile organizations. As they restructure to address their monopolistic legacy and become leaner and more efficient, postal organizations can develop the agility necessary to profitably diversify, effectively compete and drive high performance.

Brody Buhler

2

Introduction The annual Accenture research and analysis of the postal industry continues to draw out insights about the essence of high performance in the postal landscape. Highlighting consistent themes such as the value of embracing technology, the potential for parcels, and the benefits of diversification, this series of in-depth reports sheds light on the next frontier of postal opportunity in the context of past performance.

Organizations analyzed North America

Europe, Africa and Latin America

Asia Pacific

Canada Post Corporation FedEx United States Postal Service (USPS) UPS

Austria Post An Post (Ireland) Ceska Posta (Czech Republic) Correios Brasileiros (Brazil) Correos (Spain) bpost (Belgium) Deutsche Post DHL (Germany) Itella (Finland) Le Groupe La Poste (France) Magyar Posta (Hungary) Poste Italiane (Italy) PostNord (Sweden and Denmark) Posten Norge (Norway) Royal Mail (United Kingdom) South African Post Office Swiss Post (Switzerland) TNT—including PostNL (Netherlands)

Australia Post India Post Japan Post New Zealand Post Singapore Post

3

Strategic shifts Applying the Accenture High Performance Business Methodology, our research uses a quantitative model to assess financial performance and a qualitative model to determine the drivers of high performance. This qualitative model assesses three views of an organization; the “building blocks” of high performance—market strategy, distinctive capabilities and performance anatomy. High-performance businesses outperform their industry peers over the long term: over economic cycles, over industry cycles and over generations of leadership. As in previous years, based on this approach, we categorized postal organizations’ strategies into four main groups: the global players, the regional diversifiers, the service providers and the traditionalists (refer Figure 1). Many of the key themes we identified in previous research studies are supported in the 2013 findings. Indeed, among the four strategic categories, there has been little change in terms of ranking. However, we have seen differences in how change has influenced some postal categories over others. In short:

Service providers are extending their lead. As we have found in the previous two years, service providers continue to dominate the high performers with 60 percent of high performers coming from this category. We also found that, as a group, they improved their overall performance, consistently outperforming other strategies year-on-year with strong capital and employee spread—coupled with consistent revenue growth. Global players are still performing well. Global players have historically performed well because they are focused on parcels and logistics and are globally diversified—often in high-growth countries. Global players are well positioned to take advantage of the continued growth trends in parcels and Accenture predicts they will produce solid results in the next few years as economies reprise their growth.

Regional diversifiers fall into the “middle of the pack.” While regional diversifiers also improved their performance as a group, this year their revenue growth lagged all other strategic categories as illustrated in Figure 2. These players have focused on investments and acquisitions in nearby markets and have struggled to generate synergies or value from this expansion. They are also mostly located in Europe, which has had its fair share of economic struggles. Although this strategic category had one high performer, most of the regional diversifiers fall in the “middle of the pack.” Traditionalists are lagging further behind. Traditionalists are most vulnerable to mail volume declines and, as such, continue to struggle. Nearly every traditionalist in our study slipped in the rankings. While there are bright spots, with one traditionalist in the “top ten” performers, for the most part traditionalists are failing to deliver revenue growth and are negatively affected by tighter regulations and employee spread.

Figure 1: Strategic categories Global players • At least 25% of revenue outside domestic market in 2011 • Revenue came from more than one continent or trade block • Clear strategy of international growth

Regional diversifiers • At least 12.5% of revenue outside their domestic market in 2011 • Revenue came from adjacent countries or the same continent • Dominant strategy of regional growth

Service providers • Dominant strategy of diversification through convenience and proximity • Services beyond mail, shipping, banking and stationery • Innovative solutions across channels

Traditionalists • Strategic approach primarily focused on improving the efficiency of mail • National focus

4

Figure 2. Revenue and capital spread by strategic category in 2011 Average revenue growth1 by strategic grouping—as percentage 1.80%

Sample average

-4.76%

Global players

2.80% 0.40%

-1.10% -2.04%

Regional diversifiers 4.60%

0.56%

Average capital spread2 by strategic grouping—as percentage

-3.19%

Service providers Traditionalists

-8.80%

Note: 1Average of one-, three- and five-year growth rates; 2Average of one-and three-year capital spread, defined as Return on Invested Capital less Weighed Average Cost of Capital (ROIC - WACC)

5

Key findings High performer highlights In the 2013 study, we discovered that our high performers remain largely consistent from previous years—proving that they are successfully executing their chosen strategy. High performers use product innovation and pricing levers to improve mail profitability. Using innovative technologies, postal organizations are adding value to the core product and attracting or retaining diverse customer segments. High performers are also using pricing effectively to improve revenue and profits from physical mail. High performers embrace the diversification of services. Service providers are outpacing all other strategic categories in terms of revenue growth. Geographic diversification, while a sustainable strategy, has proved less of a road to growth over the past two years. High performers are maximizing the opportunity in parcels and taking full advantage of eCommerce trends. While most postal organizations have seen parcel volumes grow, the high performers are taking market share and creating differentiated parcel offerings. They are also preparing for the next wave of eCommerce growth that will be driven by mobility and cross-border commerce.

High performers have a consumer focus. High performers have developed consumer solutions that make available new features and products directly to the recipient. They recognize that monetizing the recipient is the next wave of revenue and that owning the consumer relationship gives them a competitive advantage. High performers make changes to their operating model to address monopolistic ghosts. High performers have focused on flexibility and cost reduction. They have not only scaled their networks to better match lower volumes but have also built flexibility into both the network and their workforce. They have hired new skill sets that are well suited to drive innovation and their diversified business lines. Now, high performers are beginning to challenge legacy burdens such as high pension liabilities and restrictive universal service obligation requirements.

Industry impacts In addition to these key findings from our analysis of the high performers, there are two trends that are noteworthy: Digital mail is yet to be fully exploited. To date, no postal operator has seen material value creation from digital mail. And while many postal organizations now have solutions in the market, none has created a compelling value proposition that incentivizes broad adoption or replaces the revenue lost from cannibalizing mail volumes. Private postal operators present a serious alternative. Some private players are succeeding in gaining a competitive foothold—creating more competitive pressure on mail volumes and emphasizing the need to operate efficiently.

6

High performer highlights Our research evaluates the leading postal players to discover insights around the key factors driving high performance. High performers use product innovation and pricing levers to improve mail profitability

Irrespective of economic improvement, volume declines continue. And postal organizations highly dependent on traditional mail are running out of precious time. As a result, postal organizations need to innovate to limit the loss of physical mail while exploring and experimenting with new ways to stimulate mail volumes—and perhaps even reverse the trend.

Figure 3. Year-on-year mail volume decline -9.95%

-3.56%

-2.17%

324,478 292,178

281,777

275,664

2010

2011

Mail volume

There is little doubt that, during the last four years, we have seen the decoupling of economic growth and traditional mail. Mail declines that began as a gradual 1 to 2 percent decline snowballed into a 5.6 percent decline since 2009 as seen in Figure 3. However, in the 2013 research we have seen this continued fall in mail volumes has begun to slow, with some postal organizations such as Swiss Post, Austria Post and Singapore Post recording a modest growth (see Figure 4).1 Declines in mail pieces per capita have also slowed this year for most postal organizations.

2008

2009

Includes 16 postal operators Deutsche Post DHL, TNT, PostNord, Posten Norge, Itella, Swiss Post, Austria Post, Poste Italiane, Australia Post, Singapore Post, New Zealand Post, Japan Post, Canada Post Corporation, USPS, Correos (Spain), Royal Mail

1. Source: Universal Postal Union, in Latin America and Caribbean and in Asia and Pacific, the volume of domestic service of letter-post items grew in 2010 by 4 percent and 2 percent, respectively. The mail industry in Argentina has grown 40 percent in the last six years. It had an annual turnover of ARS $3.42 billion (US$837 million) by 2009 (Source: www.postandparcel.info).

7

Figure 4. Mail volume growth, 2009 to 2011 Mail volume growth percentage (Year-on-Year)

2010 to 2011

Deutsche Post DHL

-9.0%

Global players -4.0%

-7.2% -4.7%

PostNord

-4.1%

-7.2%

-2.8%

-2.9%

Posten Norge

0.2%

-12.1% -7.1%

Itella

0.4%

5.8%

3.1% 2.9% 2.1%

Austria Post

-7.8%

Poste Italiane

-9.9%

Australia Post

-4.7%

-5.1%

-3.4%

-2.1%

0.3%

Singapore Post

New Zealand Post

-7.4%

2.2%

-3.7% -3.0% -3.5%

Canada Post Corporation

Royal Mail

Service providers 7.9% -1.6%

-4.5% -5.3%

Japan Post

Correos (Spain)

Regional diversifiers -0.8%

1.8%

-4.5% -3.9%

Swiss Post

USPS

Average growth 2010 to 2011

2008 to 2009

-0.8%

-3.6%

-5.9%

TNT

2009 to 2010

-4.6% -8.5% -3.4%

-12.8% -10.5% -9.6%

-1.8% -1.8%

Traditionalists -4.2%

-7.1%

-7.3%

-4.0% -5.5%

8

9

Figure 5b. CAGR 2003 to 2011 by postal organization

Figure 5a. Mail pieces per capita from 2003 to 2011 750

Postal organization

700 750 650 700 600 650 550 600 500 550 450 500 Mail pieces 400 450 345 per capita Mail pieces350 400 345 per capita 300 350

Average

291 Average 291

250 300 200 250 150 200 100 150 50 100

Profitability from product innovation While traditional mail has been around for a long time, there are still enhancements that can improve its value. High performers continue to innovate around mail to discover and implement solutions that sustain or grow mail volumes. For example, USPS is promoting the long-term value of direct mail with an offering that adds mobile barcodes to direct mail to boost impact.2 bpost has developed a service called RelatioMail to increase the value of transactional mail. The service enhances the customer experience by redesigning documents, assisting customers with full market research and providing operational support throughout the implementation process.3 Canada Post Corporation, a traditionalist, introduced a new online service named PrecisionTargeter that enables anyone in Canada to prepare and send unaddressed admail. This turnkey

2011

CAGR -1.34% -3.35% -1.34% 0.87% -3.35% -2.61% 0.87% -2.10% -2.61% -1.53% -2.10% -2.87% -1.53% -1.90% -2.87% -4.84% -1.90% -0.67% -4.84% -3.93% -0.67% 1.97% -3.93% -3.16% 1.97% -3.55% -3.16% -6.12% -3.55% -6.12%

2011

2010

2010

2009

2009

2008

2008

2007

2007

2006

2006

2005

2005

2004

2003

2003

2004

Correos (Spain)

0 50 0

Postal organization Swiss Post USPSSwiss Post ItellaUSPS Posten Norge Itella AveragePosten Norge Canada AveragePost Corporation RoyalCanada Mail Post Corporation Australia Royal Post Mail TNT Australia Post Deutsche TNT Post DHL NewDeutsche Zealand Post Post DHL Singapore Post Post New Zealand Japan Post Singapore Post PosteJapan Italiane Post Correos (Spain) Poste Italiane

CAGR

solution enables customers to target their desired audience in terms of geography and demographics, prepare their postcard or mail piece using templates and print and deliver the mail piece—all using online tools. The unaddressed admail service helps businesses to find new customers through advanced online segmentation tools, contributing to the increase in mail volumes. While many postal organizations are experimenting with advertising mail innovations, transaction mail volumes are harder to grow. Accenture predicts that more postal operators will begin to focus on developing innovations that stimulate both admail and transaction mail volumes. There is still significant revenue to be had in mail and postal players that focus on generating volumes will continue to see positive results (see Figures 5a and 5b).

Profitability from pricing While falling mail volumes have proven a challenge throughout the industry, revenues from mail are another story. Our research has found that when postal organizations have been successful at slowing the decline of volumes, they are able to effectively use price changes to drive revenue growth. See Figure 6 for a sample of postal operators. On average, the postal organizations we studied have achieved a 1.5 percent compound annual growth in revenue from mail since 2010.

2. Source: https://www.usps.com/business/mobile-barcode.htm 3. Source: http://www.ukintpress-conferences.com/uploads/SPPX12/d2_s3_p5_valerie_godin.pdf

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Figure 6. Mail volume decline and price change by postal organization, expressed as a CAGR from 2003 to 2011 Mail volume change 2003 to 2011 CAGR Australia Post

Annualized price change 2003 to 2011

-0.6

Canada Post Corporation

2.3

-0.8

New Zealand Post

-2.8

Poste Italiane

-2.9

Royal Mail USPS

As volume declines continue, postal organizations will need innovative products and services to slow the decline along with robust pricing technologies and skills. The global players in our study are already using sophisticated pricing analytics to competitively price products to gain market share and drive growth.

Mail revenue 2003 to 2011 CAGR 1.29%

2.6

1.29% 5.2

-4.40%

4.9 -2.3

3.87% 6.4

-2.4

2.2

0.15% -1.97%

Postal organizations that are free to set their prices based on what the market will support and not constrained by cost-based, legacy price restrictions can do the same. Accenture predicts that as competition grows, pricing skills and capabilities will increasingly become a competitive advantage.

High performers embrace the diversification of services Diversification has been a consistent theme across all the Accenture postal reports. And while many postal organizations have already embraced diversification, its ongoing significance should not be underestimated. In our 2006 research, we concluded that strategy matters—whatever that strategy may be. In subsequent reports, we saw how the choice of strategy did influence success, with diversification as a key factor in helping some postal players pull ahead of the rest (see Figure 7). Recent economic and competitive pressures have altered postal practices. To survive, postal organizations must not only make radical changes to their cost structures, but also further accelerate these diversification efforts.

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In particular, we have seen the strengthening influence of the service provider strategy, which focuses on diversifying into different business lines. This year, we have seen that strategy continue to pull ahead with 60 percent of the high performers coming from this category. In short, our research clearly indicates that service diversification is critical for high performance. While there are several different options for service diversification, our research has found that the best results have come from three distinct strategies—financial services, parcels and logistics and retail services diversification (see Figure 8).

Financial services diversification Many postal operators have incorporated banking businesses into their service portfolio to diversify their revenue streams. For example, Correios Brasileiros (Brazil Post) has partnered with Banco do Brasil to provide financial services and enable the government to achieve financial inclusion. Today, more than 6,000 post offices (91 percent in the interior) in more than 5,000 municipalities are connected to the Internet and offer financial services. Correios Brasileiros is providing many small- and medium-sized enterprises (SMEs) with access to credit and reducing the time that individuals had to spend waiting in line to pay utilities and other bills.

Figure 7. Revenue CAGR 2003 to 2011 versus mail as a percentage of revenue in 2011 14

Poste Italiane

13 12 Revenue CAGR (2003 to 2011)

11 10 9 8

FedEx

7

Itella

6

UPS

5

Posten Norge

South African Post Office

Austria Post

Singapore Post

Magyar Posta

4

Deutsche Post DHL

3

New Zealand Post Swiss Post La Poste

2

Ceska Post Australia Post

bpost

Correos (Spain)

An Post

1

Royal Mail

Canada Post Corporation

0

TNT

-1 0

5

10

15

20

25

30

35

USPS

40

45

50

55

60

65

70

75

80

85

90

100

95

Mail as a percentage of revenue in 2011

Figure 8. Revenue diversification by type of service, as percentage Global players

100%

Regional diversifiers

Service providers

Traditionalists

90% 80% 70% 60% 50% 40% 30% 20%

Others

Retail

Financial Services

Parcels

2006

An Post 2011

2006

India Post 2011

2006

Ceska Posta 2011

2006

Royal Mail 2011

2006

USPS 2011

2006

Canada Post Corporation 2011

2006

bpost 2011

2006

Correos (Spain) 2011

2006

Logistics

Poste Italiane 2011

2006

Singapore Post 2011

2006

South African Post Office 2011

2006

New Zealand Post 2011

2006

Australia Post 2011

2006

Austria Post 2011

2006

Swiss Post 2011

2006

Itella 2011

2006

Posten Norge 2011

2006

PostNord 2011

2006

Le Groupe La Poste 2011

2006

TNT 2011

2006

UPS 2011

2006

Deutsche Post DHL 2011

2006

0%

FedEx 2011

10%

Mail

Source: Company websites, Annual reports, Accenture analysis

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High performer highlights

Parcels and logistics Postal organizations have grown their parcel delivery capabilities and have diversified their services by operating in the logistics space. Many cover a wide range of logistics services—not only sourcing, warehouse management, transport and specialized services, but also targeted and specialized industry solutions. In particular, Australia Post, named as one of Australia’s most innovative companies as part of the 2012 BRW Most Innovative Companies list, implemented three significant innovations in 2012 to provide its customers with faster access and greater convenience, including 24/7 parcel lockers, retail superstores and new parcel delivery choices. Another example of parcels and logistics success is Swiss Post whose Swiss Express “Innight” service focuses on overnight delivery, specifically customized for different industries such as medical, automotive, etc. For example, Innight Medica in Switzerland4 provides nighttime delivery to every hospital (enabling users to specify an exact location within the hospital) with daily collections and an option of separate courier trips for urgent delivery which can be scheduled through the Swiss Express Web Platform. Deutsche Post DHL, UPS and FedEx have industry sector-specific logistics solutions, covering industries such as aerospace, chemicals, life sciences, technology and retail to name a few.

For example, in the life sciences solutions, Deutsche Post DHL offers specific temperature-controlled logistics services for shipments requiring protected environments, such as vaccines and insulin. All packaging and shipment preparation areas are set up within the same protected environment as per the needs of the shipment.

Retail diversification While some postal organizations are unsure of the value of their retail outlets or may even see them as a liability, high performers have made the strategic decision to use their retail network as an asset. As such, this approach to driving value from their retail networks is proving a differentiator between high performers and the rest.

USPS has also evaluated partnering with other retailers to expand access to services through partner channels at a lower cost. Poste Italiane offers financial services, telecommunications services and expanded retail products through its outlets. In addition, it has created an extensive consumer database across its business units that results in a differentiated customer experience at the retail counter. Cross-selling revenue and improved customer satisfaction are just two of the benefits this solution provides.

All postal organizations around the world offer stationery, envelopes/boxes, office supplies, greeting cards and philately, and such choice has expanded into additional convenience products. Australia Post has almost 4,500 retail outlets across the country and uses this network to offer bill payments, passport applications, and payment of services such as motor vehicle registrations and fishing licenses. USPS is looking at broadening selfservice options in its retail network to improve customer service while reducing the cost to serve these customers.

4. Source: http://www.post.ch/EN/post-startseite/post-geschaeftskunden/post-logistik/post-logistik-loesungen/post-gesundheitswesen-loesungen/postinnight-medica-loesungen.htm

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High performers are maximizing the opportunity in parcels and taking full advantage of eCommerce trends High performers are developing their parcel businesses effectively and gaining share in the growing eCommerce market. Parcels continue to present a significant opportunity for postal organizations. Our research found that investments to improve parcel capabilities continue to provide a solid return. With the projected growth of eCommerce (potentially worth more than US$1 trillion by 2016 according to an estimate by Morgan Stanley in

January 20135) this will continue to be the fuel that drives postal service growth. Our analysis shows that most highperforming postal organizations have seen an increase in revenue contribution from the parcels segment irrespective of their overall strategic choice (see Figure 9). Top-performing6 global players have seen a significant increase in revenue contribution from 2011

compared to 2010. Top-performing service providers have either seen an increase in revenue contribution from the parcels segment or growth in overall parcels revenue in 2011. The topperforming traditionalist—bpost—has seen an increase in revenue contribution as a result of the increase in revenue from the parcel segment in 2011.

Figure 9. Parcel revenue contribution of top performers by strategic category Global players

Regional diversifiers Service providers

Traditionalists

Top-performing service providers have Traditionalists have seen increase in revenue seen increase in revenue contribution contribution from parcels segment in 2011 from parcels segment in 2011 compared to 2010

3.1%

12.4%

5.4%

5.5%

10%

5.3%

-7.8%

Parcel revenue contribution 2011 to 2010*

0.5%

0.3%

0.9%

-0.5%

0.2%

0.5%

0.5%

0.8%

-1.4%

28% 28.8%

Australia Post

Top performers

3.6%

0.5%

0.3%

0.8%

12.9% 13.7%

USPS

20.2% 20.5%

Royal Mail

37.6% 38.1% 12.1% 10.7%

5.2% 6.7%

bpost

Austria Post

6.8% 7%

Le Groupe La Poste

FedEx

TNT Revenue growth

-0.4%

Canada Post Corporation

2011

South African Post Office

2010

UPS

Deutsche Post DHL

21% 21.5%

35.6% 36.1%

82.5% 82.8%

Parcel revenue as a percentage of total revenue

1.5%

1.8%

71.8% 71.3%

7.6%

63.2% 64.1%

5.5%

27.4% 27.9%

31%

Parcel revenue 2010 to 2011 growth

Singapore Post

Top-performing global players have seen significant increase in parcels segment in 2011 compared to 2010

*Represents the increase in the contribution of parcels to the overall revenue in 2011 compared to 2010.

5. Source: “eCommerce Disruption: A Global Theme,” Morgan Stanley alphawise proprietary research, January 6, 2013. 6. Top-performing companies include those which are consistent in performance from a long-term perspective and, in the process, adapt and shape market changes. Top performers differ from high performers who are identified using the methodology outlined in this report (a weighted average of capital spread, employee spread, revenue growth and consistency).

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High performers are enabling solutions further up the value chain. For example, they provide eCommerce store fronts for small businesses, offer logistics and fulfillment services, and are focused on enabling cross-border eCommerce. By doing so, they are using their advantages (first and last mile, banking to guarantee payment and low-cost mail network for small packages). To be successful, however, they must develop warehousing and fulfillment capabilities that are not part of their postal DNA. A growing aspect of the eCommerce purchasing decision is the returns process—an area postal operators are beginning to address. As consumers become more sophisticated and less tolerant of a hard-to-use returns process, it will become increasingly important for postal operators to design user-friendly solutions. This presents a unique opportunity for postal operators to leverage their first-mile advantage to gain market share.

Trends to watch Cross-border eCommerce: To date, eCommerce has focused largely on domestic delivery. But according to research by Triangle Management Services,7 revenues generated by online retailers selling internationally are predicted to almost triple by 2015. Postal organizations are starting to take advantage of this trend, with global players being the best positioned. To capture the full potential benefits, postal operators need to address a number of key issues such as gaining customers in origin countries and enabling customs clearance and breakbulk capabilities. According to an IPC study on cross-border eCommerce in 2010, a lack of trust on the quality of delivered goods, complicated return processes and high delivery costs are key factors which influence cross-border online shopping from a

consumer perspective. Specific to returns, merchants were more concerned about getting data about returned goods rather than delivery speed.8 Postal organizations that wish to take full advantage of crossborder eCommerce will need to provide market-leading visibility systems, service reliability, geographic coverage, userfriendly returns and competitive pricing. Do-it-yourself retailers: E-retailers such as Amazon (globally), 360Buy in China, Rakuten in Japan, and eBay in the United States are investing in offering independent fulfillment services for thirdparty marketplaces. Traditional retailers such as Marks & Spencer and Nordstorm are investing in supporting fulfillment centers to support eCommerce initiatives. These are just a few examples of retailers that are considering investments in delivery capabilities. As the trend toward a preference for online purchases continues, brick-and-mortar retailers will begin to seek ways to leverage their network. One consideration would be to use their network for in-store fulfillment and as a hub for their own delivery network. As parcel lockers and other alternative delivery methods gain popularity, these alternate networks could easily become a reality. Such activities mean that postal organizations would need to leverage their sustainable core-competency in fulfillment logistics to fend off new competitors. Mobile eCommerce: Our research shows the clearest trend in eCommerce is the shift toward mobile purchases. For example, in January 2013, PayPal announced an increase in mobile payments of 250 percent over the previous year.9 As mobile commerce grows, postal organizations must seize the advantage. Other providers have already shown how offering solutions that make it easy to buy and ship via mobile means an increase in market share. Developing capabilities that enable “one-click” shipping, facilitate

simple shipping selection and tracking integration with mobile eCommerce sites (that is, shipping application program interfaces) and introduce mobile management of the shipping process, will be critical for postal operators. Some postal players are already taking advantage of the ability to reach out to their customers “on the go.” For example: Track and trace: USPS launched an update to its iPhone app in January 2012 that enables users to scan barcodes on shipping labels with the phone’s camera for convenient tracking of their parcels and mail. The app also stores the label number for customers to easily recheck the status of the same shipment. Customers can also schedule free next-day pickup of packages through the app, order free expedited shipping supplies or view retail and online prices.10 DPD UK (a member of one of Europe’s leading services groups, GeoPost, wholly owned by La Poste, the second largest postal group in Europe) has launched a mobile website enabling its customers to track their packages from their smartphones or re-arrange delivery. New services: Handyporto, initiated by Deutsche Post DHL, allows the user to send letters without postage stamps using a code sent to the customer via SMS. Austria Post’s e-postcard service allows customers to send postcards via mobile phones. Singapore Post offers MobileOne, which includes a gamut of services ranging from application for a postpaid service to bill payments. P roactive alerts: Customers can be informed that their parcels have arrived via a text message or e-mail. UPS My Choice enables US-based consumers to have more say in when and where their parcels are delivered to them. This subscription-based service enables consumers to register for proactive tracking notices that are sent to their designated e-mail or SMS addresses.

7. Source: http://postandparcel.info/51406/news/markets/visibility-reliability-key-to-success-in-booming-cross-border-ecommerce/ 8. Source: postandparcel.info, http://postandparcel.info/51406/news/markets/visibility-reliability-key-to-success-in-booming-cross-border-ecommerce/

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High performers have a consumer focus. High performers have developed consumer solutions that enable new features and products directly for the recipient. They realize that monetizing the recipient is the next wave of revenue and that understanding the consumer gives them a competitive advantage. In recent research undertaken by Accenture to understand how companies can achieve high business growth in a slow-growth economy, we discovered there is a US$2.4 trillion growth opportunity from understanding consumer behavior change across a wide range of industries.11 For the postal sector, this means focusing on the customer to help optimize the delivery aspect of the service. Innovative delivery options include: Appointment windows. Home delivery of sensitive items can be made using agreed appointment windows. Customers can opt to schedule their mail or shipment to be delivered at a specific date and time window. UPS offers My Choice, a subscription-based, premium service that enables US-based consumers to set specific, narrow delivery windows as well as provide instructions to the carrier.

Hold at nearest retail location. Delivery can be held at a specific retail location after the first attempt or at the request of a buyer. For example, Canada Post Corporation has introduced a hold mail service, if recipients are not available, which helps the postal organization in terms of route optimization and planning. Japan Post offers delivery services through convenience stores such as a partnership with convenience store operator, Lawson Inc. This arrangement enables a 24/7 delivery option while not significantly increasing the cost of service to the postal operator. 24/7 lockers for parcel pickup. Several postal organizations have implemented or are increasing their use of parcel lockers. For example, Belgium’s bpost rolled out a network of parcel locker terminals under the brand name “bpack” in 2012. The terminals enable consumers to pick up and deposit parcels 24 hours a day, seven days a week.

Redirect service based on buyer’s new location. For example, Deutsche Post DHL customers can choose between delivery to their home address, business address or one of the 2,500 DHL Packstations, or to a pre-arranged location of their choice within Germany. Return service options. For example, an easy return solution has been developed by IPC and implemented by 17 postal operators. Under this scheme, consumers in member countries who buy crossborder obtain a free-postage label that enables them to return the goods via any postal retail outlet in their country. Postal organizations can offer distance sellers a priority postage-paid international return service for their customers. Such flexibility leads to increased parcel volume, attracts e-business and avoids over-labeling costs for postal operators, without any operational changes.

Same day delivery in urban/highdensity areas. For example, Australia Post offers Messenger Post, a range of reliable courier services in the central business district and metropolitan areas of Australia’s major capital cities. The simple online booking service includes real-time track and trace and electronic proof of delivery. Three levels of service—Standard, Express or Immediate Priority—mean that deliveries range three to four hours from the time of booking to first available pick up and priority delivery. Customers can also benefit from optional SMS or e-mail notifications to confirm booking, pick up or delivery.12

9. Source: http://techcrunch.com/2013/01/16/ebay-and-paypal-expect-to-do-20-billion-each-in-2013-mobile-commerce/ 10. Source: https://www.cep-research.com/cepresearch/repository/news/2012/january/1801128.html 11. Source: “Energizing Global Growth: Understanding the Changing Consumer,” Accenture 2013 12. Source: http://auspost.com.au/parcels-mail/courier-service.html

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High performers make changes to their operating model to address monopolistic ghosts Prior to the emergence of substitution, digitalization and liberalization, physical mail—and by association the postal organizations that delivered it—had few competitors. As a result, postal organizations were able to thrive using their existing legacy operating models. However, as mail services became more competitive, volumes declined and profits began to fall, causing postal players to seek new lines of business and markets and attempt to control costs to stem the tide of revenue lost from traditional mail.

From this scenario, high performers began to emerge. Postal players that were quick to embrace diversification and strategic cost cutting are positioned well for the future; but even these postal players are not safe from the threat of declining mail volumes. With the market seeing consistent decline and greater competition from all sides, new, improved strategies will prove necessary (see Figure 10). Accenture believes it is vital for the future of the postal industry that monopolistic legacies are challenged. Even today, national postal operators are facing pressures from other postal players in last mile delivery services. For instance,

as a first direct challenge to the previous monopoly held by the Royal Mail, TNT Post UK, the United Kingdom’s largest private mail delivery firm, is working on rolling out a home delivery service to cover the last mile in a clutch of urban areas including Birmingham and Manchester.13 Constraints and difficulties are ever present: massive pension liabilities, the need to manage a flexible workforce at a lower cost, the ability to drive universal service obligation relief around frequency and delivery mode and the closure of retail offices and plants as needed, all have a bearing on postal operators’ performance.

Figure 10. The Accenture competitive/monopolistic model Low

Starting point of most postal organizations; postal player successful only if competitive rivalry is low and conditions ripe

Postal organizations become high performers when they address their legacy challenges as well as diversify into new markets where they have competitive advantages.

As the mail market has become more competitive, postal organizations that are weighed down by legacy structure have seen their performance plummet

Postal organizations that have aggressively addressed their legacy structure have maintained strong performance despite volume declines due to competition

Market competitiveness

High

Monopolistic legacy

13. Source: http://www.telegraph.co.uk/finance/newsbysector/supportservices/9205924/TNT-posties-take-on-Royal-Mail-in-London-trial.html

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Low

Pension liabilities Most of the organizations in our study began as government enterprises where employees were given significant retirement benefits. Those legacy pension obligations remain and it is clear from our research that operators will have to address the cost of these pension liabilities to remain competitive. We found that approximately 80 percent of the postal organizations in the study sample have a pension deficit with more than half of those deficits increasing this year (compared to declines seen the previous year). These costs continue to drag down performance and creative solutions will need to be found to restructure these liabilities.

Flexible workforce at a lower cost Many of the postal operators in our study have taken steps to create a more flexible workforce but there is still more to be done. These changes will continue to be balanced with union demands and regulatory constraints. For example, PostNL announced that it would shift to a part-time, more flexible workforce for delivery of mail.14 This workforce is better suited to adapt to declines in mail volumes and creates a dynamic delivery network at a much lower cost. Postal operators are also evaluating outsourcing as a tool to create additional cost flexibility, especially for non-core, back office functions.

USO relief around frequency and delivery mode While delivery frequency is often dictated by the universal service obligation, many postal operators are beginning to challenge those requirements and consider plans that would reduce the days they perform deliveries. They are also revisiting the mode of delivery as they look for ways to reduce the cost per delivery point. New Zealand Post, for example, recently requested the flexibility to deliver only three days per week and to double the number of community mailboxes in use. And USPS, out of a need to retain a viable USO, has decided to cut Saturday service for its letter business.

Ability to close retail offices and plants as needed Companies are evaluating operational restructuring, using partnerships and outsourcing to gain lean operations. For example, Posten Norge transferred approximately 700 post offices to the partner-run in-store “Post i Butikk” outlets over the past decade to overcome increased costs and meet customer demand of longer working hours. The postal player plans to replace 149 post offices by in-store counters. The move is expected to almost eradicate Posten Norge’s in-house retail presence. However, restructuring also presents challenges. For example, PostNL undertook a network transformation program by centralizing the sorting and delivery operations into nine sites, closing around 300 local delivery offices. The restructuring resulted in a decline in service quality.

14. Source: http://postandparcel.info/44949/news/companies/postnl-begins-delivery-network-restructuring-effort/

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Industry impacts Digital mail is yet to be fully exploited Digital mail remains an unresolved business opportunity for postal organizations. Our research clearly shows that postal organizations have yet to find the right business model and continue to struggle with defining a compelling value proposition for both consumers and mailers. And they also seem to realize that the success of digital mail is a double-edged sword; while it can attract customers, drive significant revenue and lead to profitability, it can also have a material, negative impact on physical mail volumes. For instance, e-Boks, Post Danmark’s digital mail service, has seen significant user adoption with nearly twothirds of the country registered for the solution, but it has also shown greater mail volume declines than its peers. Accenture believes there are still significant questions that need to be resolved to create a viable digital mail solution.

Adoption—postal organizations need user adoption strategies that attract users at scale. To date, the most effective tool has been to enlist a government agency to require the use of the solution for certain communications. Other strategies will be required to make digital mail a useful alternative for consumer communication and to attract needed content.

Multi-channel solutions—postal organizations must develop solutions that enable synergies between physical and digital mail. For example, Postcardmania combines physical mail with delivery tracking and returnon-investment tools that enable the creation of the mail piece so that it can be tied to online marketing efforts.

Monetization—postal players must determine who should pay for what and then find an effective charging mechanism for digital mail. Consumer value proposition—postal organizations must continue to innovate and test to find the right set of features that will attract consumers and content providers. Without a compelling value proposition, existing solutions will continue to languish.

Private postal operators present a serious alternative Freed from any obligation to provide a universal service and able to focus on increasing business mail volumes, private postal operators (PPOs) can offer differentiated products at low cost that are customized to customer requirements. As private players gain a competitive foothold, they create a new threat to mail volumes that can quickly erode the most profitable volumes, leaving the postal operator with less market share and even lower margins. For example, since January 2011, competition has been encouraged in Spain’s postal market. Private sector postal companies, such as Unipost, are able to collect and sort mail and use Correos for last mile delivery. Unipost is a Barcelona-based network of private postal operators (Deutsche Post DHL holds a 38 percent share) that currently

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handles around three million mail items a day. Unipost has grown its market share from around 7 percent in 2006 to nearly 12 percent in 2010, eroding Correos’ own market share—a differential that is likely to increase with the advent of greater liberalization in Spain.

and develop last mile networks, postal organizations may be forced to turn their optimization efforts to their own last mile capabilities. Accenture predicts high performers will aggressively pursue efforts to reduce delivery costs and optimize their delivery networks.

Because of the significant challenges of creating a last mile network, legacy postal organizations have not had to focus on optimizing their delivery capabilities as they have invested in improving the efficiency of their processing and transportation networks. The lower cost structure of PPOs, combined with the strong quality control mechanisms they have implemented for early detection and rectification of errors, gives them robust advantages. As PPOs explore

As the postal market undergoes further liberalization, the threat of PPOs will grow. As they gain market share due to their lower cost operations as well as unique and value-based propositions, the mail volumes they take could place an even larger question mark against the commercial viability of existing postal players.

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On the horizon Our 2013 research shows that while an improving economic picture may have slowed the decline of mail volumes, it has not created the volume increases that will “save the day.” With this reality, postal organizations will have to tackle aggressive cost cutting measures to align their structure to an ever-decreasing base. While mail continues its descent, however, the recovery has produced a growing wave of parcels business fueled by eCommerce. This parcel volume growth, coupled with product and service diversification, has shown that postal organizations can indeed thrive in a new world.

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As our ongoing assessment of the postal industry has shown, the choice of strategic approach is a key determinant of performance, with our high performers pursuing strategies of diversification. Now, postal organizations must be aware of the new demands on their industry and the skills that will be required. Postal players need to place the accent on customer-facing offerings, operational excellence and embracing the latest technologies to deliver the postal service for the future. As they have for decades, postal organizations that embrace change will continue to play a central role in connecting businesses and governments with the constituents they serve.

The apparently indisputable universal service obligation is also beginning to show signs of wear and tear as strategies to lower costs begin to affect longstanding regulatory demands. Competition from private players seems to be impacting postal organizations’ core business, too. But these new entrants also prove that there is value to be had in mail. New capabilities and new business models will be essential for postal organizations to stave off this threat and retain their trusted position. Finally, postal organizations must innovate to meet the increased competitive climate head on and be prepared to seize new international opportunities.

Contacts To discover more about how postal organizations can achieve high performance, please contact the authors: Brody Buhler

Andre Pharand

Vineet Narang

Brody Buhler is the global managing director of the Accenture postal industry group. He leads a team of more than 1,500 postal consultants working at more than 15 major postal clients around the globe, helping them to achieve high performance. Buhler has worked with leading postal organizations on a variety of projects including strategy, transformation, analytics, operations and large-scale program management. Buhler has worked for Accenture for more than 14 years across a variety of roles and is based in the United States.

Andre Pharand is a senior principal in the Accenture global postal practice. He has more than 15 years’ experience leading efforts related to growth and diversification strategies, customer centricity, regulatory impacts, large transformations, organizational restructuring and operational excellence. He has expertise with shipping and time-definite products, transactional mail, direct marketing, digital mail, international/global trade and channel strategy. Pharand is based in Miami, United States.

Vineet Narang is the postal industry program manager within Accenture responsible for growing business, developing and maintaining offerings, driving various strategic initiatives and producing industry-specific points of view and research papers. He has more than 10 years’ experience in business strategy, research analytics and project management and has worked with various government and public service organizations. Narang is based in New Delhi, India.

[email protected]

[email protected]

[email protected]

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Research methodology This report consists of analysis based on publicly available information, content published by the postal organizations and Accenture industry knowledge and experience. For a full overview of the Accenture high performance postal industry process model, please visit www.accenture.com/postal

About Accenture Accenture is a global management consulting, technology services and outsourcing company, with approximately 259,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$27.9 billion for the fiscal year ended Aug. 31, 2012. Its home page is www.accenture.com. Read earlier reports in this series: Achieving High Performance in the Postal Industry: An Accenture Research Project 2006 Achieving High Performance in the Postal Industry: Accenture Research and Insights 2009 Achieving High Performance in the Postal Industry: Accenture Research and Insights 2010 Achieving High Performance in the Postal Industry: Accenture Research and Insights 2011 Achieving High Performance in the Postal Industry: Accenture Research and Insights 2012

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