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UK international export mail surges ahead

August 23, 2011

Market sizing
TSW’s research indicates a c. £200m market for UK export mail, with percent market shares for some of those interviewed as follows:

DHL Global Mail - 22 percent
Swiss Post - 15 percent
Spring - 6 percent
La Poste - 6 percent
Direct Link - 6 percent

Most of the companies interviewed report growth of around 10 percent in 2010 vs 2009. The remainder regard the market as static; no-one reported a decline.

Market dynamics
There are a number of dynamics at work in driving export mail growth. Clearly one of the main drivers has been the increased volume of packets stimulated by rising internet sales, but it is by no means the only cause. Packets traffic is part of a ‘perfect storm’ of market factors that are bringing about resurgence in this market. The weak currency (sterling vs Euro) is making the UK a much more attractive origin for B2C purchases and also for printing and fulfilment than it was 2 or 3 years ago. Frederic Petton, MD of La Poste UK, confirms: “We’ve seen some businesses relocate their warehousing and distribution out of the Eurozone into the UK.”

According to Tom Wasilewski, Commercial Director of DHL Global Mail, it is the currency in parallel with the online shopping growth that is the driver: “I think the biggest change is the two pieces together.” Robert Woods, Head of International Contract Products at Royal Mail agrees: “I think there are two things driving it; definitely the weak Pound, but as broadband and internet usage increases around the world, that’s also giving people more opportunity to shop around.”

As well as strong UK brands, there is also the issue of better product availability. A notable example is book distribution, where both DHL and Swiss Post are recording significant increases in volumes to English speaking markets such as Australia. Swiss Post has also recognised the importance of books and recently gained volumes from a customer in this market who is growing by targeting English speaking countries.

Supply chain visibility
One thing all Posts are agreed upon is the desire for greater visibility through the supply chain, with the main operators now having to offer goods return services and enter into agreements about liability for loss and service levels. This in itself is another boost to growth as new service level agreements increase consumer confidence.

Mark Eldridge, Director of Marketing & Business Development at Spring Global Mail, emphasises the focus of its reverse logistics policy and believe it removes one of the last barriers of internet selling, as it creates a ‘distance selling’ culture. “It’s reverse logistics, distance selling, transactional mail and direct mail; those are the four new products that we’ll be focusing on during the course of this year.”

Nick Frazer, Commercial Director of Swiss Post confirms this approach “We are trialling a new product in Europe that will include a form of track and trace and a returns service. Without a returns service you’re dead.” This is significant to Swiss Post who report a 20 percent increase in packet traffic as a result of internet fulfilment year on year.

Woods supports this commenting: “The demand for track and trace is growing. Royal Mail is seeing strong growth in its international tracked service, Airsure and now provides tracking overseas on its ‘Signed For’ service to key destinations as a result of customer demand. The market has also been asking for a low cost, easy to use goods return solution which we launched in April covering nearly all of Europe.”

UK retailers target foreign buyers
Petton introduces another market dynamic: “UK retailers are not necessarily presenting themselves as a UK business, some are, some are not.” La Poste is another to report a 20 percent increase in e-commerce related mail.

Indeed there are a number of websites set up by major companies such as ASOS, who are specifically targeting European customers and in some cases setting up foreign language version of their sites (i.e. France and Germany). “Anybody who’s got on their site the opportunity for a customer to transact in their own language; that’s a massive plus point” adds Woods.

There is evidence that this strategy is working for ASOS as the Sunday Times reported a 41 percent profit rise for the company in May “thanks to soaring foreign sales” with overseas on-line sales overtaking those in the UK for the first time.

Petton believes it is also the quality of goods sold on UK websites as well as greater familiarity (by consumers) that are the driving factors in addition to currency.

Direct Link has gone further; Karin Falkentoft, UK MD, explains they have helped companies starting to market their products in Scandinavia with their new website, which has driven traffic upwards. English is a natural second language to many customers in Scandinavia and she believes the element of trust is growing - “it’s gaining momentum.” Falkentoft needs no convincing about the importance of a returns service “The ease of returning unwanted goods and the price of doing it is an incentive to buy online” she adds.

Traffic profile
Although transactional mail is on a steady decline, some report resurgence in direct mail, notably La Poste who has a share of the Google contract, sending six million letters to 36 countries worldwide.

Other sectors such as magazine publishing are suffering a decline as substitution towards online versions becomes prevalent. Online substitution has affected other traffic as well, notably the university sector where Spring report substitution has occurred.

Direct Mail, paradoxically has seen a revival. Eldridge reports that customers such as Dell and Office Depot have increased not the volume but the frequency of their mailings, becoming more targeted. Customers are “more sophisticated with their direct mail now” he adds. Frazer also reports that direct marketing has picked up, but not yet as a consequence of increased packet traffic. Falkentoft also confirms direct mail has swung back and it is being used more actively by companies such as Boden.

This trend is confirmed by mail consolidator Pro Active Business Information: “Email open rates have fallen dramatically; people are finally seeing that social media only gives brand awareness,” comments Jason Boxall, Director

Upstream activity
The most active supplier in terms of recent acquisitions and partnerships has been Swiss Post who acquired MCM Mailing House in Southampton for £2.5 million, which Frazer describes as part of Swiss Post’s strategy to move up the value chain. Partnerships are also a key part of the Swiss Post strategy - in the north they have acquired as a partner Arctic Media, now renamed SPI North. In the south Direct Entry Services now trading as Swiss Post Direct Entry and in Ireland they have signed a partnership agreement with Nightline. Premium partners of Swiss Post are permitted to use Swiss Post branding, stationery and uniforms, somewhat like a franchise model.

Swiss Post is also targeting the smaller end of the market which is mostly serviced on behalf of the other major Posts by consolidators. Frazer reports a partnership is on trial with APC Network, a cooperative of courier companies based in Nottingham, which Frazer reports is going well. It is APC branded but selling Swiss Post products.

Swiss Post is also interested in daily mail pick-ups which Frazer confirms is “an area we want to get into quite heavily” and they are currently deploying a sales team in London cold calling pick-ups of 50+ letters. Data services are offered via MCM (renamed SPI Southampton). Spring also recognise the importance of data services and has developed a data partnership with Dun & Bradstreet and Experian described by Eldridge as “a retention tool and a locking tool for our customers”.

La Poste had previously acquired BTB Mail Flight in April 2008 which adds a letter shop and colour digital printing, enhancing their total offer to include data fulfilment and warehousing. La Poste are also able to tap in their own network within the group via Geo Post UK and ColiPoste who offer enhanced sales channels.

Rationale for using consolidators
Nearly all Posts adopt a dual strategy of targeting both wholesalers and direct customers alike. Interestingly both DHL and Spring label themselves as mail consolidators.

Indeed it is the ability to provide independent advice and an analysis of comparative costs that is one of the main reasons for using a consolidator, enhanced by their suite of upstream services. This is summed up by Daniel Bhoyroo, Export Mail of Heathrow International Express: “Price and knowledge go hand in hand for us – our knowledge is to save costs effectively and what we save has a bearing on cost.”

These days consolidators require a much stronger rationale than just being prepared to execute the small pick-ups that the large Posts may not want to do. Consolidators offer a range of added value services from fulfilment to warehousing to data management to addressing, polywrap and print. Indeed Geoff Formstone, Director of San Marino Mail UK whose company specialises in all products and services to Italy, knows the importance of these services “Data management is now the most important factor for e-commerce and parcel distribution. We have integrated track and trace & bar-coding across all stages of our handover procedures, right through to end delivery. We are driven by our customer’s needs and requirements at the end of the day.”

By reinventing themselves, consolidators have assured themselves a key place in the market. Apart from core services such as fulfilment and warehousing, consolidators have the technical ability to understand the myriad of complex quotes formats, based on both routing and type of traffic. Whereas the Posts will prefer to use their own networks in Europe consolidators are able to mix networks according to types of traffic and routing, which is. another area where they play a key role.

Indeed it is a myth that consolidators will always pick the cheapest supplier. This view is neither held by the Posts themselves nor the consolidators - all are agreed that service is the key factor as far as the end customer is concerned. Indeed only 14 percent of consolidators interviewed felt that price was the main factor when selecting which Post to use. Route optimisation is a tool for consolidators to use to achieve the best price; customers however are more interested in quality and reliability issues rather than the routing itself.

Opening up of EU market/pricing/discounts
The opening up the EU postal market in 2011 is not regarded as materially changing the dynamics of the market as it is already regarded as an open playing field. This view is held by Posts and consolidators alike. Some consolidators actually welcome it.

Nearly all Posts have increased their prices by 4 percent this year which is reflective of UPU price increases. Some posts are still in REIMS and others, notably Royal Mail and TNT Post, have left, but that does not seem to have any material effect on base prices.

There are no published discount schemes in the market place other than Royal Mail’s ‘Chorus Scheme’ which is published on their website; operating as a retrospective scheme based on volume. For all Posts, bespoke pricing for larger Retail customers is the favoured model. ‘Chorus’ is popular with both Posts and consolidators alike and is mainly used by wholesalers.

Printing at the point of distribution
Printing at the point of distribution (or hybrid mail) is seen as an opportunity rather than a threat by all the Posts, but more of a threat by 57 percent of consolidators. Clearly the Posts with their international networks across Europe are well positioned to take advantage of any moves in that direction. DHL for example actively encourage it and recently offered the service to clients who wanted to print material in Asia. Direct Link is offering this service in Scandinavia but has no customers in the UK as yet.

Posts with associated (hybrid mail) technology within the group – e.g. La Poste (Maileva) - are the most bullish about prospects as they have successful domestic services already in operation. Spring however see it as an opportunity for the future and, with the hype that has surrounded the previous launch in the UK yet to be realised, many are adopting a ‘wait and see’ attitude before committing.

Conclusion
Consolidators and Posts appear to have settled into a pattern of working together in order to exploit the new market opportunities presented by export mail. Now that the emphasis has moved way from transactional mail to higher value packets and direct mail traffic, the need for added value services cleverly bundled and priced competitively, can only grow. Those who are more nimble at recognising these trends will claim the larger share.

This article was prepared by Michael Herson of London based The Strategy Works - a strategic marketing consultancy specialising in original business to business insight within the mail sector. Contact: Michael Herson on 020 8868 0212 or mherson@thestrategyworks.com. Website: www.thestrategyworks.com.

August 23, 2011

 

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