Home- Insights- Blog- Time critical parcel? Will Royal Mail deliver the transformation required on time?
Blog - Published 19th May 2016

Time critical parcel? Will Royal Mail deliver the transformation required on time?

Royal Mail announces its financial results in the face of challenging delivery trends.

As 500 year old Royal Mail announce their latest results it’s clear all is not well.

Operating profits have slumped 36% to £294m in light of ongoing transformation costs. Recent job cut announcements, falling profit and uncertainty are all obvious signs that the business model is failing. Digital disruption has been impacting on the postal industry for several years now, but the signs are now clear – ignore the disruptions at your peril.

A lighter load on the Royal Mail delivery round

Royal Mail suffering a loss of earningsAt the core of the problem is the reducing number of letters. We are all too aware of a world of instant communication, digital has replaced so much traditional postal activity. Social media and e-Mail have rapidly replaced hard copy communication. In July of 2013 Royal Mail commissioned a report on the outlook of UK mail volumes to 2023.

The report highlighted that the letter delivery volumes stood at 19.7bn in 2005. This has dropped to 13.8bn in 2012 and is estimated to drop to 8.3bn by 2023. An almost 58% reduction in demand for services in the period considered. In simple terms, what took six daily deliveries could be done in two or three deliveries. Any business facing a reduction in its core activities of such a size is going to need to adapt, and adapt fast.

More vans less bikes?

Whilst letter volumes have fallen, there has been, and continues to be, a surge in parcels. The same report highlighted growth in parcel numbers from 1.3bn in 2005 to 1.7bn in 2012. This number was expected to rise to 2.3bn by 2023. An increase of almost 77% in the same period. Whilst the volumes are much smaller, the price point is of course much higher. Clearly a shift of focus towards parcels would mean a focus on growth. With the downside of digital on letters comes the upside of parcels. More and more internet shoppers continue to drive parcel volumes up. BHS have provided the latest example on the shifting buying patterns of consumers.

The postman always rings twice

With the growth in parcels predicted, why are Royal Mail struggling to capitalise? The level of competition has never been so intense. There are traditional rivals such as Fed-ex and DHL who have traditionally focused on this area. But in recent years new entrants have come into the market and technology is starting to threaten the future. Technology that has been around for a long time has enabled individuals to operate deliveries for large logistic companies. This has meant they have a much more flexible and nimble organisation that can respond quickly to peaks and troughs in demand. Effective routing a remote scheduling using technology has enabled this model.

This could take a step further with Uber stating they want to use their model and infrastructure to ‘move everything not just people’. With no infrastructure except it’s technology, and an army of part time self employed drivers, an Uber logistics offering would be a massive threat to Royal Mail in the parcel delivery space.

A further threat is the continual development of drone delivery. Medical deliveries by drones have been occurring since 2011 in some countries. Now with the might of Amazon, Wal-Mart and Google all pushing on, the wider commercialisation is round the corner.

The right to reply

Faced with enormous challenges, Royal Mail need to respond. As with so many cases, the digital distribution is so difficult to respond to with such entrenched processes and infrastructure.

Royal Mail are certainly not alone in that area. The challenge and opportunities are there for SME’s. Traditionally more agile and nimble the opportunity to react and transition are much greater. Traditional barriers to enter are also being broken down and mass markets are becoming accessible to start-ups. We are all familiar with the high profile disrupters like Uber, whattsapp or Netflix. All of these started life recently from nothing, but are now multinational success stories. Just as Royal Mail face the threats of the digital future, the entrepreneurs of today see opportunity. Digital disruption affects every business – it’s how the business responds that will deliver the final verdict.

Print Friendly, PDF & Email
Posted in Blog, Retail, Technology, Transport & logistics

Sarah Hallam - FCCA

Director

Sarah Hallam is a Menzies Director with a wealth of audit and compliance experience. Sarah also provides international accountancy & tax advisory.