Variety in Business Models. Postal Challenges and Strategies 2011

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Variety in Business Models.

Postal Challenges and Strategies 2011

Alex Kalevi Dieke Presentation at the World Mail & Express Europe Conference Brussels, 18 May 2011

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Who is WIK-Consult?

 WIK (‘Scientific institute for infrastructure and communication services’)

 Independent research institute, owned by the German government

 ~ 40 consultants/researchers

 > 25 years of experience with economic regulation and sector policies

 Telecommunications, postal and energy markets

 WIK-Consult is a 100% subsidiary of WIK

 Consultancy specialised in regulated industries, founded in 2001

 ~ 60% of revenue from customers outside Germany, mostly in Europe

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Contents of Presentation

Case studies of postal operators

• Deutsche Post DHL (DE)

• Groupe La Poste (FR)

• Itella Corporation (FI)

• Royal Mail Holdings Plc. (UK)

• Swiss Post (CH)

• TNT N.V. (NL)

Challenges and

strategic options

for postal operators

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3 1,835

1,118 1,113

-396

-800 -400 0 400 800 1200 1600 2000

Total Mail Express &

Logistics

Other

Deutsche Post DHL

Revenues per business segment in m EUR

Profits per business segment in m EUR (2010)

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Express & Logistics

Mail Services

73%

27%

0%

 Current position

 Mail revenues modestly down

 Express & Logistics revenues up

 Postal Bank divested

 Strategic objectives for 2015 (‘Strategy 2015‘)

 Maintain the position as ‘the postal service for Germany’ / maintain focus on core business

 Become ‘the number one logistics company for the world’ / cautious approach to target global growth markets & industries

 Increased focus on digital communication (‘E-Postbrief’)

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Groupe La Poste

0 5,000 10,000 15,000 20,000 25,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 Express & Logistics

Mail Services Financial Services

22%

24%

757

179

324

612

-357

-600 -400 -200 0 200 400 600 800 1000

Logistics

Financial Services

Other

54%

 Mail revenues decline despite price increases

 Modest growth in express & financial

 Strong in financial services

 Strategic objectives for 2015 (‚Ambition 2015‘)

 Focus on Parcel & Express in Europe / plans to enter new markets in Europe

 Focus on Financial Services

 Modernise post office network &

technological innovations for mail in France

 Foster innovation in mail products (‘hybrid mail services’, mobile access)

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Itella Corporation

0 500 1,000 1,500 2,000 2,500

Mail Services Other Services

38

58

-11 -9

-40 -20 0 20 40 60 80

Logistics

Other

14%

27%

60%

 Mail volumes decline, shaky revenues

 Solid revenues in Express & Logistics

 Profits rely on mail

 Strategic objectives for 2015 (‚Vision 2015‘)

 Focus on Information and Logistics

 Expand further to markets Europe and Russia

 Clear footprint in digital communication

 Focus on ‘high-value solutions business’

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6 404

121 129 154

0 50 100 150 200 250 300 350 400 450

Logistics

Other 0

2,000 4,000 6,000 8,000 10,000 12,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 Mail Services

Other Services

 Mail revenues decline despite price increases – revenue affected by downstream access competition

 Instability due to pending postal legislation

 Profitable parcels & express business

 Strategic objectives

 Focus on modernising operations -

‘World Class Mail programme’ running since 2006

 Reduce number of mail centres

 Expand range of insurance products offered in post offices

Royal Mail Holdings Plc.

Profits per business segment in m GBP (2009) Revenues per business segment in m GBP

10%

20%

70%

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7 930

199 164

571

-4

-400 0 400 800 1200

Logistics

Financial Services

Other

Swiss Post

 Current status

 Mail revenues decline

 Profitable financial services

 Reduced presence in foreign markets

 Strategic objectives for 2010-2013:

 Focus on domestic market

 ‚In the next three years, Swiss Post will focus even more heavily on four areas of activity: communications, logistics, retail finance and public passenger transport’

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000

Financial Services

Mail Services Other Services

Profits per business segment in m CHF (2010) Revenues per business segment in m CHF

37%

27%

12%

24%

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TNT N.V.

 Current status

 Mail revenues stable, but volumes decline

 Separation of TNT

 Strategic objectives for 2015: (‘Vision 2015‘)

 PostNL (Mail): Expand in areas with core competencies

 Mail in the Netherlands, Germany, UK, and Italy

 Parcel operations

 TNT Express

 Strengthen existing express business

 Expand to adjacent markets: high-end standard parcels, value-added

services Profits per business segment in m EUR (2010)

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000

Mail Services

660

402

320

-62 -200

0 200 400 600 800

Logistics

Other

62%

38%

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Impact

Pressure on prices

Improve cost base Develop new

business

General economic trends

Competition from new entrants Structural changes,

e-substitution

Mail profits

erode

Increase prices?

Today’s Challenges Strategic options for

postal operators

Challenges and Strategic Options

Mail volumes

decline

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Improve Cost Base

Restructure branch networks

 Deutsche Post now

converted all post offices to agencies

 900 of 1050 Itella outlets are now agencies

Reduce employment

 Royal Mail reduced employment by ~65,000 since 2002. 1,700 further job cuts planned

 Swiss Post saved 23 m CHF in staff cost 2010.

Optimise sorting networks

 Continuous modernisation &

new sorting technology at many postal operators

 Automated sequencing gets better and better

 Royal Mail expects to achieve annual savings of £30 million by closing mail centres in Greater London

Consolidate IT systems La Poste plans to

consolidating IT activities of Retail and Banque Postale, expects €70 million savings by 2012 Outsource employment

 Contract drivers at several parcel operators

 Some mail operators acquired competitors with lower/more flexible wage structures.

E.g. Netwerk VSP (NL), First Mail (DE). No massive outsourcing yet

More flexible delivery networks

 Deutsche Post reduced delivery of direct mail on Mondays. That way, fewer sorting centres need to operate on week-ends

 TNT Post considers reducing weekly deliveries to 3 for some products

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Develop New Business

Develop products for secure electronic communication

 Itella: NetPosti

 Deutsche Post: ‘E-Postbrief’

 Swiss Post: Inca Mail, Swiss Stick and Swiss Post Box

Extend parcel pick up / promote e-commerce

 Deutsche Post: massive roll-out of automated pick up stations (>2,500

‘Packstationen’)

 Itella introduces pick up in kiosks

 Royal Mail to relies on pick up in delivery offices - plans to extend opening times

Extend portfolio of financial services

 La Poste: E.g. Third party

insurance and credits for SME’s

 Royal Mail: E.g. car and home insurance, a ‘two-in-one’ credit card Expand to international markets

 TNT & DHL in express & mail

 La Poste and Royal Mail in parcels

 Itella & Swiss Post Solutions in document management

 Nordic posts in logistics

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Increase Prices

0.46 0.53 0.55 0.58

0.75 0.78

0.00 0.20 0.40 0.60 0.80 1.00

-2%

11%

24% 26% 27%

70%

-20%

00%

20%

40%

60%

80%

Increase in letter post tariffs (FSC, 20g) 2000-11 Letter post tariffs (FSC, 20g) in 2011

 Substantial recent increase in public tariffs – justified by volume decline

 Bulk tariffs likely increased less

 More competition for large senders – other media & mail competition

 Difficult for postal operators to enforce price increases to large senders

 Price increases may create risk of further volume declines

 Public tariffs generally controlled by regulators

FSC = Fastest Standard Category

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Variety in Business Models. Postal Challenges and Strategies 2011