23.01.2019 - A promising increase in international postal volumes suggests that the postal market may finally be reaping the rewards of digital transformation, explains UPU economist Mauro Boffa.
While the UPU’s Postal Economic Outlook, published earlier this year, showed promising double-digit volume growth for international postal exchanges in 2016, more recent data shows these figures have accelerated faster than expected.
International postal volumes by tonnage were up 10 percent in September 2018 compared with the same period last year. The results are an encouraging sign, considering important e-commerce events – such as Singles’ Day, Black Friday and the Christmas season – had not yet taken place, suggests UPU economist Mauro Boffa.
The UPU’s long-term analysis has shown that GDP growth has accelerated at a faster pace than growth in postal revenues, with average postal revenue growth marked at 2 percent per year and GDP growth at an average of 3.4 percent. The phenomenon – known as “postal–GDP decoupling” – has been a cause of concern for the postal sector for several years.
“It used to be that postal supply was a complement to the economy, but digitization brought along the challenge of digital substitution,” says Boffa, referring to the replacement of letters as the Post’s primary business. Global figures show that the parcels market’s share in revenues grew from 14.3 percent in 2006 to 22.8 percent in 2016, while letter post’s share fell from 48.3 to 38.9 percent during the same period.
Over the last several years, Posts have been changing up their business models, diversifying their portfolios and developing products that would allow them to take advantage of the quickly changing e-commerce market. Consolidation and restructuring are likely responsible for the lag in short-term growth but are an investment in the Post’s long-term prosperity.
Boffa explains that the accelerated growth in international postal exchanges could mean that the postal sector is back on track to reap the rewards of its complementary role in e-commerce, provided that trade policy uncertainty and geopolitical tensions do not cloud next year’s economic growth. This is a risk already acknowledged by the International Monetary Fund, which revised its October estimates on 2018 GDP growth downward to 3.7% (0.2 percentage points lower than the organization’s April forecast).
Emerging models
Though there is no uniform model for revenue segmentation, the UPU’s figures show three emerging business models.
The Africa, Arab and Asia-Pacific regions have demonstrated a trend of diversification beyond parcels and logistics, toward financial and other services.
On the other hand, industrialized countries and Latin America are moving toward diversification into parcels and logistics while maintaining letter post as their core business.
Eastern Europe and the Commonwealth of Independent States have increased their reliance on letter post driven by e-commerce–related small packets.
Surprising market
While digitization has led to the decline in the letters business, it seems to have created a surprising boom in philately. The Internet has made it easier for stamp collectors to find what they are looking for and has connected Posts to a global philatelic market.
Though philatelic products represent only a small portion of revenue for most Posts worldwide, data collected by the UPU since 2004 shows that philatelic revenues have continued to grow, representing 1.8 billion SDR (2.5 billion USD) of global postal revenues reported by designated operators in 2016.
The trend is especially prevalent in Asia-Pacific, likely thanks to an emerging upper middle class.
“Philatelic products are seen as a luxury collectible,” explains Boffa.
For a more in-depth review of the latest UPU postal statistics and a look at where the sector is heading, check out the UPU’s Postal Economic Outlook 2018: www.upu.int/en/resources/postal-statistics/latest-results.html.
This article first appeared in the December 2018 issue of UPU’s Union Postale magazine.
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