PostNord is speeding up its strategic transformation from a mail to a parcels company in response to a dramatic collapse in Danish letter volumes, according to a top executive.
The Swedish-Danish postal group has only a few years to transform into a “parcels company which delivers mail as well”, Tim Joernsen, Executive Vice President for eCommerce and Logistics, told this week’s European Post & Parcel Services conference in Amsterdam.
Mail volumes in Denmark have dropped by a massive 80% over the last 15 years and are disappearing fast following the country’s move last year to e-government and digital-only communications by ministries and authorities. PostNord Denmark made an operating loss of €55 million last year.
“Denmark is the forerunner in digitalisation globally. Denmark is the first country to fully transform into a future with very few letters,” Joernsen said.
As a result, “we have to question everything we are and have,” he told more than 200 postal industry managers. In particular, the group needs to develop “a completely new production model”. “We need to reduce costs radically and dramatically.”
Earlier this month, PostNord announced a major restructuring programme for the loss-making Danish business, including 3,500 – 4,000 job cuts over the next 2-3 years. This is about 40% of the workforce and will cost about SEK 3 billion over the period.
The group will close the mail network, reducing its Danish facilities from 115 centres to just 21. Instead, it will introduce a new production model, with the low remaining mail volumes transported and delivered through the parcels/logistics network. Once the transformation is completed, ‘fast’ priority letters will be delivered within 24 hours and ‘slow’ basic letters will arrive within five days.
Asked by conference moderator Peter Somers whether the Danish postal business would have been financially viable today if the cross-border merger with its Swedish counterpart had not taken place a decade ago, Joernsen admitted: “I think it would have very hard for Post Denmark to have survived without the merger. They would not have survived without the (parent) group.”
The mail volume decline has not been so dramatic in Sweden but now there are also signs of a major digitalisation move in the country, Joernsen pointed out. A dramatic 1.2 million Swedes “went digital” in the first quarter of this year in response to a government offer to pay tax refunds four months more quickly to people who submitted electronic tax declarations rather than paper ones, he explained.
Turning to the group’s growth ambitions, Joernsen underlined that PostNord is already the largest e-commerce and logistics company in the Nordics, and number four in road transportation. Overall, parcels/logistics contributed 51% of the group’s revenues last year, which is expected to rise to about 55% this year and 60% in 2018 as parcel volumes continue to grow at double-digit rates.
The new “Flex Change” app, which enables customers to choose when and how they want a parcel to be delivered to their home or an alternative delivery address, has already been a great success, Joernsen said. The number of missed first time home deliveries has fallen from a very high 44% to just 7% within three months as a result.
Food deliveries is becoming a fast-growing business for PostNord, with about 170,000 deliveries a week now in the Stockholm area alone. “We’re adding 2,000 extra households a month,” Joernsen said.
In addition, PostNord offers same-day deliveries “but it’s not as well structured as we would like”. On pricing for this service, he said: “We might have a year or two for a surcharge for same-day delivery but I think this won’t be (for) long.”
While Amazon is not yet in the Nordics with its own logistics infrastructure, Zalando plans to open a warehouse near Stockholm this year to speed up deliveries. “Zalando is getting closer and closer. They want 20% same-day deliveries in future,” Joernsen commented.
