Where to for public mail operators?

Postal operations around the world are facing the same issues - declining revenues as letter mail is replaced by online mediums and underutilised labour forces that are legacies of more manual operations.

Two mail operators have recently showed how they plan to reshape themselves in the new era. Canada Post has stated that it is looking towards e-commerce and Australia Post has appointed an ex-Telco executive to run a newly created e-commerce division.

The CEO of Australia Post also noted that it's not his entire business that's in decline. The volume of parcels handled is in fact increasing, largely thanks to a boom in online shopping. Looking deeper into the market it appears that this may be the result of temporary phenomena - imported goods of  less than $AU 1000 in value are exempt from local sales tax (quite a high value) and the Australian dollar has been exceptionally strong (equal with the USD). Last year, retailers pressured the Government on the value of the exemption such that it tasked its independent economic think-tank to conduct a review of the market. Ominously the Productivity Commission judged that there were "strong principle grounds for the LVT [low value tax] to be lowered significantly, to promote tax neutrality with domestic sales".

However, if we remove these external factors from the analysis by looking specifically at national parcel deliveries, we find that parcels are still likely to be a strong performer. Looking to the UK, a country in which retailers have a well developed online presence, we see that Ofcom believes that eight in ten internet users ordered goods online in 2010 (which also happened to be the highest usage of any other European country).

I believe that the most valuable strategic lever for the postal sector may be the relationships with the retailers themselves. That this, the acquisition of exclusive arrangements to deliver goods for specific retailers, akin to the fight for content in the telecoms space. This would be a neat fit, especially as the incumbent postal operators tend to have an uncanny ability to deliver anywhere, a feat most private operators would struggle to match.

Thanks to their unparalleled end-to-end reach the national incumbent postal operators still own a very valuable asset. The question is whether they can they reduce their fixed costs and re-invent themselves in time before the competition moves in.