CONSULTANCY CORNER SUCCESS STORY JORIS D’INCÀ, PARTNER AND GLOBAL HEAD OF LOGISTICS PRACTICE AT OLIVER WYMAN, EXPLAINS WHY POSTAL SERVICES MUST ACCELERATE TRANSFORMATION FOR B2C PARCEL SUCCESS T he e-commerce boom has had a significant impact on the business-to-consumer (B2C) parcel industry. Initially, it provided a much-needed boost to postal services facing declining revenues from traditional mail. But e-commerce growth has slowed considerably since 2022, with parcel volumes either stagnating or declining. For example, European parcel volumes declined by 5-6% in 2022, following growth of about 12% from 2016 to 2021, which was largely driven by the Covid-19 pandemic’s influence on consumer purchasing behavior. While not all the data is in yet, the decline appears to have continued in 2023. To compound the challenges faced by postal services, business-to-business (B2B) parcel legacy players have intensified their focus on the B2C parcel market, gaining control over more lucrative international parcel flows. Additionally, new last-mile delivery providers have entered the scene, targeting densely populated urban areas with superior user experiences and service levels. This has left postal services with fewer attractive business opportunities and excess capacity. Even when it is growing, the B2C parcel business is far from straightforward. Postal services have faced intense price pressure from large e-commerce players, as well as the need for flexibility in meeting cutoff times and maintaining reserves throughout the value chain to accommodate seasonal peaks and volatile volumes. Consequently, profit margins have remained slim, and postal services have not fully capitalized on the boom in recent years. to strengthen positioning along the customer’s supply chain are missed. Additionally, a historically grown product portfolio adds complexity, pricing strategies do not effectively manage capacity use and flexibility relies heavily on huge reserves. A lack of transparency does not enable effective performance management. Looking ahead, talent shortages and decarbonization requirements will put a further strain on investments needed to automate processes and transition to carbon-neutral technologies. Embracing a people-centric transformation To thrive amid competition and seize future opportunities, a fundamental transformation of the parcel operating model is imperative for postal services. This transformation must encompass offerings, operations and performance management. It requires the introduction of new capabilities and skills to leverage game-changing technologies such as artificial intelligence. No alternatives to B2C success THE B2C PARCEL MARKET IS CRUCIAL FOR THE SURVIVAL AND FUTURE GROWTH OF POSTAL SERVICES” Such a significant change cannot be achieved solely through structural adjustments. It necessitates a cultural shift and active engagement of the workforce to embrace new, winning behaviors. Motivating employees and fostering a culture of adaptability are crucial to ensure the sustainability of the transformation. A comprehensive transformation program that integrates both business and people will be pivotal in preparing for the anticipated rebound of the B2C parcel market. By aligning organizational strategy with the development of the workforce, postal services can position themselves to capitalize on future growth opportunities and maintain a competitive edge. The B2C parcel market is crucial for the survival and future growth of postal services, as global traditional mail volumes continue to decline by a rate of 6-7% annually. Diversification strategies have proved challenging for postal services, however, and meeting public service requirements adds to the complexity. Achieving a sustainable return on capital invested (ROCI) in this asset-intensive business is a key objective. But in 2023, the top European players in the B2C parcel business achieved a loss or only low single-digit earnings before interest and taxes (EBIT) – falling short of being able to finance current operations and future growth. To position themselves for growth and improve profitability in an increasingly competitive environment, postal services must undertake a holistic and radical rethinking of their operating models. Current operating models are still rooted in a less demanding and more stable legacy business. Networks prioritize scale over speed, customer journeys lack convenience and opportunities AUTHOR BIO Joris D’Incà is partner and global head of logistics practice at Oliver Wyman, based in Zurich. He has 20+ years of consulting experience and has focused on the transportation and travel sector for the past 15 years 10 www.ParcelandPostalTechnologyInternational.com March 2024