One size doesn’t fit all: adapting to changes in letter delivery

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A retail analyst recently wrote that the pandemic “hit fast forward on movies we were already watching”. That’s certainly true when it comes to digitization and the postal sector.

For postal operators this story has two components: on the one hand, a dramatic increase in e-commerce and B2C deliveries is good for business; however, on the other, this was accompanied by simultaneous and aggressive volume decline in traditional mail.

Posts need to adapt to the changing market conditions quickly, and if there is one key take-away it is probably that one size doesn’t fit all. So, while increased B2C capacity is required, and new customer-centric offerings like PUDOs, lockers and various home delivery options are being implemented for e-commerce, posts also need to find answers to how they can implement major cost shifts in their mail operations and maintain this increasingly costly USO, which is still a dominant element of the revenue and cost structure.

This summer, our friends at Posten Norge (Norway Post) implemented one of the largest transformations in the company’s 373-year history by moving away from a five-day service to alternate day mail delivery.

Posten isn’t alone – other posts reduced the number of letter deliveries per week before the pandemic hit, and Australia Post is implementing temporary changes to letter delivery in response to current conditions.

How it will work
One week, households will receive letters on Monday, Wednesday and Friday; the following week, Tuesday and Thursday. This way all recipients will have mail every other (working) day. Posten Norge delivery staff will now need to know two routes (they cover a different one every second week) and alternate between them, but a continued full-time job for those still in service will be maintained.

As a result of this change, the number of delivery staff required will reduce by as much as half. However, Norway Post has decided to keep a five-day service for certain services such as mailbox-delivered B2C parcels in urban areas and newspaper delivery in rural areas (newspaper delivery is a result of a government-initiated tender for rural area newspaper deliveries). B2B parcels will be delivered five days per week and B2C parcels to PUDOs and lockers will also continue with a five-day service.

The locker network will be expanded over the coming years, with a target of 1,000 lockers by the end of 2021 in addition to the existing 1,500 PUDOs in Norway. (This total of 2,500 is well above Last Mile Experts’ MVP rule of 1 to 10,000 inhabitants, which would require some 500 access points.)

“The transformation to every second day delivery was decided and planned for long before Covid-19, however the need for the transformation has obviously increased by the escalated letter decline we have seen over the last months,” says Gunnar Inderberg director of operational development at Posten Norge.

Norway’s letter volumes peaked in 1999. Since then the annual letter volume has declined by more than 70%. Disruption is an often-used buzzword these days, and few industries have been more disrupted than those of the postal operators. We all use email, banks don’t send bank statements, governments communicate digitally, invoices are handled through online banking, and so forth. These are not volumes lost to competitors, it is volume lost to new technology and new ways of interacting and as a result these volumes will never come back in their old form, much like the way that traditional film is now a thing of the past in the photographic industry.

This is an inescapable reality all over postal Europe. However, the Nordic countries, alongside the Netherlands, have seen the largest volume declines so far in Europe and thus have implemented the most dramatic changes to cope …. and can be a good example for others to observe and learn from.

The good news is that the implementation of alternate-day letter delivery has gone well in Norway. There was media attention. However, most people don’t receive mail every day, and while the letters we receive may be important, they are seldom time critical any more.

“Urgent messages just aren’t sent by mail and probably haven’t been for years – hence few letters really require an overnight service these days,” says Posten’s Inderberg.

“For parcels it is a different story and that is why we will uphold a five-day service for that and even increase our service offerings.”

While it is still early days after the implementation, the transformation has been communicated to senders for a long time and most senders understand the requirement for change and realize that the alternative would be dramatic price increases. There is no longer room for ‘one size fits all’ solutions, and as a result postal service offerings have to become more focused on the actual needs and the willingness to pay in the different market segments.

 

Ian Kerr is the founder and host of the Postal Hub Podcast, the weekly podcast for the postal and delivery sectors.

Marek Różycki is managing partner at Last Mile Experts, specializing in CEP and e-commerce last-mile advisory.

 

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