Why open networks are a closed subject with many posts

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One question dividing postal leaders is whether or not to open posts’ delivery networks to commercial carriers. Is operating a carrier-specific network a commercial advantage, or is it a missed opportunity? Analysis from Marek Różycki, Last Mile Experts, and Ian Kerr, Postal Hub Podcast

At the recent UPU World CEO Forum in Amsterdam, we had the opportunity to speak with and hear from many postal CEOs about the hot topics in the postal world.

Posts are grappling with the challenges of connecting with young customers, who might be unfamiliar with the range of services posts offer, as well as meeting the needs of older customers, who might be resistant to change.

It was refreshing to hear from postal leaders who are taking a new approach to engaging with their workforces, with all the disputes and tests of resolve that that entails.

One topic that seemed to divide postal leaders, however, was the question of whether posts should operate a closed or an open parcel delivery network. Let’s consider the two options.

Closed (carrier-specific) network

Typically, postal operators are by default closed networks. They grew from being state-owned letter delivery organizations, operating in a monopoly situation. They usually have significantly more access points than any alternative operator thanks to the post office network. In many cases, the post office is open at best for standard business hours – although this is changing in some leading post office networks. Many posts haven’t yet fully embraced interactive delivery management tools or automation (lockers) – two key advantages their private competitors may have.

As e-commerce grew and posts’ B2C e-commerce volumes grew, some posts considered their closed network to be a competitive advantage. Their approach to e-commerce retailers was to say, “We are the only carrier offering 100% nationwide coverage and our retail network is closest to the consignee.”

Advocates of this approach will say that by not allowing anybody in, the incumbent operator strengthens its competitive advantage, meaning customers have no choice but to work with them. Moreover, the barriers to entry are too significant for any newcomer to become a serious challenger.

One of the best examples of this approach is Deutsche Post DHL, which believes its unparalleled network of post offices, access points and lockers creates an unassailable wall protecting their home market.

Open (carrier-agnostic) network

Some posts, such as USPS, operate more like a parcel delivery platform than a carrier-specific channel. They deliver parcels for a variety of carriers – yes, including direct competitors – for a fee. The USPS’s service is called Parcel Select, and is often used by other private parcel companies to complete last-mile delivery of their shipments

Losing the title of the only carrier that delivers to 100% of the population may result in forfeiting some competitive advantage, but should guarantee more parcels going through the network – including parcels to rural and remote areas.

In addition, if this volume is used to expand to a wider network with better coverage (and customer experience) it actually makes it more difficult for any new challenger to enter or compete. And that includes ‘stealth competitors’ such as Amazon.

A final argument here is that if other carriers are allowed to use the postal network, they won’t be ‘forced’ to set up their own alternative network due to consumer demand for PUDO or parcel locker alternatives, which will in turn compete with the incumbent.

Marek, who is a fan of military history, adds that unassailable walls such as the Maginot Line are fine until somebody decides to circumvent them in a disruptive or unexpected manner… as was the case with this ‘invincible’ fortress.

So which is best?

And this is the 64,000-dollar question. While Marek is a big fan of posts operating an open network, arguing that it will actually strengthen the incumbent Post’s position, Ian is more cautious in his approach, holding the view that there’s more than one way to skin a cat when it comes to opening postal networks.

What we need for any final conclusion is to have more empirical evidence from those posts that have decided to bite the bullet and open up their networks.

 

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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