A mixed bag?

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Elmar Toime, a leading international postal consultant, looks at the main considerations for posts looking to combine lettermail and parcels into one delivery stream

For both parcels and letters, operational strategies are driven by productivity needs and quality of service. Letter delivery has regulatory requirements in terms of service and price. Whereas parcel delivery is driven by market competitiveness and the demands of senders and receivers for safe, fast and cheap delivery.

At a superficial level, the idea of combining delivery seems attractive. Letter carriers carry small parcels anyway. Letter volumes are falling, so there should be capacity on the delivery route. Parcel volumes are increasing, and rather than increasing parcel routes, the letter-delivery worker can take on more parcels. Combining the two rounds could save labor costs, keep service standards in place, and perhaps reduce delivery costs for both letters and parcels. However, it is not that easy.

There are many things that need to be considered. First is the impact on work processes. In a finely tuned, highly productive mail delivery service, routes are determined by detailed analyses – number of stops per route, distance between stops, optimal start and finish points, etc. Adding a new step, such as having to stop and wait for someone to answer the door, disrupts the routine. It is a marginal cost, but it is still a cost.

On the other hand, where letter delivery is not so tightly managed, there can be capacity to add more parcels to the route. This highlights that the effectiveness of combining parcel and letter delivery is more feasible in rural or low address density areas. There, the carrier is likely to already have a van or vehicle and adding parcels may be less of a problem, compared with a postal worker in the inner city using a trolley.

Capital investment may also need to be made. Adding greater e-commerce parcel volumes can make on-foot and bicycle delivery unfeasible. Delivery routes may need to be equipped with new vehicles, such as Deutsche Post DHL’s new StreetScooter electric delivery vehicle, which has been designed to accommodate greater parcel volumes.

Investment may also need to be made into redesigning last-mile delivery hubs. Lettermail usually arrives in these hubs sequence sorted so that loading up the carrier’s mail containers is a far more efficient process. Making parcels fit into this routine adds complexity and cost.

Another complication is the trend for the number of letter delivery days to be reduced, from five or six days per week to three and possibly less. However, e-commerce is demanding seven-day, same-day and time-slot promised delivery, as well as returns pickup and proof of delivery, all at lower cost. There is a great difference in customer expectation between mail and parcel service.

The business case for combining letter and e-commerce parcel delivery streams depends on many factors, which will be different for each post. Getting this right is a sophisticated exercise and raises a final question: If combining delivery is judged to be an appropriate operational solution, can we still think about parcels in terms of marginal costs, or is it the parcel operation now driving the costs of the new delivery route?


Elmar Toime is an independent advisor to the postal sector. He was chief executive of New Zealand Post Limited from 1993 to 2003 and then executive deputy chairman of the Royal Mail Group from 2003 to 2004. He was a member of the Supervisory Board of Deutsche Post DHL from 2006 to 2016. Today Toime is chairman of Postea Group and a non-executive director of Qatar Post. Other directorships include Solution Dynamics and Blackbay. He is a fellow of the New Zealand Institute of Management and the UK’s Royal Society for the Encouragement of Arts, Manufactures and Commerce

December 1, 2016

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