Think you know the postal industry well? Then take a look at these statistics.

In 2020, Amazon delivered more parcels than FedEx. Walmart delivered as many as Canada Post. And Accenture’s analysis of postal and parcel operators’ financial reporting globally shows their profit margins on parcels almost doubled — while margins on mail fell by more than a quarter.

If those figures surprise you, you’re not watching the industry as closely as we are. So let’s take a look at how closely we’ve been watching. For the past fifteen years, we’ve conducted an in-depth annual analysis of post & parcels globally, examining industry trends, how different players are responding, and what strategies they should apply to ride out disruptions.

The result? An industry perspective that’s both global and historic — enabling us to pinpoint what’s happening today and how it’ll play out in the future.

The pandemic-driven disruption …

So, what have we found this year? As you can imagine, the industry has changed quite a lot since 2006. But in no year have the changes been as dramatic as in 2020, with COVID-19 creating unprecedented disruption — often coupled with major opportunities — for postal organizations worldwide.

The key driver was changing customer behavior, as lockdowns and social distancing saw more people go online to buy more things across more categories. From food to toys to furniture, e-commerce sales rocketed, taking parcel deliveries with them.

The upward impact on parcels per household was global — with the US and China exemplifying the trend, as Figure 1 shows. And the financial impact for postal and parcel organizations globally? A US$46 billion rise in parcel revenues in a single year, not far below the aggregate US$61 billion increase recorded in the four years 2016-2019.  

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Figure 1: Parcels per household 2018-2020 — US and China1

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…has upended the industry’s economics …

The net effect has been to accelerate the rebalancing of revenues from mail to parcels that was already underway before the pandemic. Alongside rising volumes and revenues in 2020, the parcels business also experienced a sharp rise in profitability. Postal organizations’ earnings before interest and tax (EBIT) margin on parcels leapt from 3.7% in 2019 to 6% in 2020, reversing years of decline (see Figure 2). Meanwhile, EBIT on mail fell sharply.

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Figure 2: Impact of the COVID-19 pandemic on mail and parcel profit margins2

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The bottom line? While parcel volumes rose fast, revenues rose faster—reflecting increased pricing power for postal and parcel operators. The effect is that volume changes are now having a material effect on profitability – meaning postal organizations need to really pivot to parcels as their main focus.

…with postal organizations adapting well

It’s a rebalancing that brings wider implications, including potential societal and sustainability impacts over the “last mile”. More parcel deliveries can mean more trucks, more congestion, more cardboard for households to dispose of and potentially — until electric vehicles take over — more carbon emissions. Organizations across the industry are thinking hard about how to mitigate these impacts.

In the meantime, they’ve generally responded well to the changes triggered by the pandemic. The relatively strong revenues of most postal and parcel players worldwide show they’ve been quick to adapt their networks to accommodate the unexpected spike in demand. The biggest winners are those that had strong parcel businesses to begin with, those with flexible networks and those with limited exposure to from retail post office revenues.

Same-day delivery becomes the norm …

The surge in parcels has been accompanied by the rise of same-day delivery services. As recently as a couple of years ago, consumers were generally satisfied with two-day or next-day delivery at best. But today, same-day delivery—as pioneered by Amazon — has a high value and is something they’re willing to pay for (see Figure 4).

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Figure 3: Consumers’ views on value and willingness to pay for different aspects of parcel delivery3

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What’s clear is that once consumers have experienced the “luxury” of same-day delivery, they don’t want to go back to a slower service. Indeed, Amazon Prime members spend four times as much as non-Prime customers.

…with marketplaces and retailers leading the way

All of this is driving rising speed and innovation in parcel delivery capabilities, spearheaded by marketplaces/integrators and retailers. Marketplaces remain dominant, with the top three — Amazon, Alibaba and jd.com — accounting for 45% of global e-commerce fulfillment, and Amazon delivering more parcels than some household-name logistics operators (see Figure 4).

Retailers are also  getting into delivery, with major players such as Walmart now delivering other retailers’ products alongside their own. And top consumer brands are increasingly delivering direct to customers, bypassing retailers.

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Figure 4: Parcels delivered by marketplaces/integrators, posts and retailers, 2015 versus 2020

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It’s a complex and fast-evolving set of drivers. And in combination they’re completely reshaping the B2C segment, as inventory gets closer to consumers and more deliveries become local deliveries.

Next steps

Given the seismic shifts I’ve described, how should post and parcel operators respond? In my view, they need to seize the opportunities on offer by rethinking their networks to accommodate retailer and consumer needs and capture greater volumes. Staying still is not an option. The pandemic has changed the world — and the industry must change with it.

In my next blog, I’ll look at more of the trends reshaping the postal industry, zeroing in on the shortening of supply chains and rising importance of sustainability. So watch this space. And if you’d like to do a deeper dive around any of the trends discussed in these blogs, please contact us — and let’s discuss how we can reshape the postal industry.

This content is provided for general information purposes and is not intended to be used in place of consultation with our professional advisors. This document refers to marks owned by third parties.  All such third-party marks are the property of their respective owners.  No sponsorship, endorsement or approval of this content by the owners of such marks is intended, expressed or implied.

Sources:

1. Computed parcels per household using population and household data from government publications. Source: eMarketer; Accenture Client Value Services.

2. Capital IQ, Bloomberg, Company Reports; Accenture Client Value Services.

3. BMO Capital Markets : Delivery Dilemma: How E-Commerce Is Disrupting Last Mile Logistics; Accenture Client Value Services.

 

Andre Pharand

Managing Director – Consulting, Post and Parcel Lead