THE NEW DELIVERY REALITY Achieving High Performance in the Post and Parcel Industry 2016 CONTENTS

FOREWORD STATE OF THE POST AND PARCEL INDUSTRY HIGH PERFORMER HIGHLIGHTS BEING A DIGITAL ORGANIZATION POST AND PARCEL PRIORITIES FOREWORD

It’s now a decade since Accenture started day delivery ofered broadly and at no cost to the producing these annual reports about the post and consumer. But it’s here and it begs the question— parcel industry and I can confidently say that the what next? industry isn’t just surviving, it’s stronger than ever. All of this change points toward a very diferent Many businesses are profitable; many more are delivery landscape—one in which digital plays a far making a real success of parcels delivery. And while more important role. This delivery reality demands digital technologies can disrupt, their potential to more speed and features at less cost. It relies on deliver innovation-led growth is where the next wave data used in new ways to fundamentally alter long- of success will be found. standing practices and models. Faced with what’s happening in retail, delivery, and marketplaces, that But these organizations must act fast. New technology change really can’t come soon enough. and capabilities are driving real changes in the way consumers behave and their expectations. They are I’ve spent 18 years in the postal industry and I can also creating new competitors that use their digital honestly say there’s never been a more exciting foundations to smash through previous barriers time to be a post and parcel player. I hope you to entry. enjoy finding out how you can capitalize on the new delivery reality. At the heart of all this there’s delivery. Growing eCommerce popularity is evolving free shipping into Brody Buhler a competition-slayer—a free and fast last mile. Less Global Managing Director than five years ago we never thought we’d see same Accenture Post and Parcel

FOREWORD A DECADE OF POST AND PARCEL INDUSTRY INSIGHTS

Accenture in-depth research has identified the four, critical dimensions of high performance in the post and parcel industry: LOGISTICS

• Defend the core business DELIVERY

DIVERSIFY SELECTIVELY • Grow the parcels opportunity RETAIL

• Diversify selectively GROW THE PARCELS OPPORTUNITY

• Transform into a digital business.

DEFEND THE CORE BUSINESS As the industry battles disruption, high-performing BE A DIGI companies are seizing the new growth engine of parcels T AL ORGANIZ while making their existing mail businesses more profitable.

A But to succeed in the long term, post and parcel companies TION must continuously reinvent themselves to achieve excellence Four dimensions of post and in all four dimensions of post and parcel high performance. parcel high performance

FOREWORD STATE OF THE POST AND PARCEL 01 INDUSTRY DIGITAL IS RESHAPING THE INDUSTRY

Powerful digital trends continue to reinvent the post and parcel industry. Technology-driven innovations redefine products, realign customer expectations and reshape the competitive landscape. As retail shifts toward digital, post and parcel organizations are reengineering their core businesses to meet the new reality of rapidly growing B2C parcel delivery.

STATE OF THE POST AND PARCEL INDUSTRY Technological trends:

Mobility Artificial Data Intelligence Internet Telematics Analytics of Things Blockchain Smart Cloud Autonomous Robotics Data management and security Sensors Vehicles and Beacons

Digital product Cost reduction demands pressure

Operational ENHANCED CUSTOMER EXPERIENCE New competition flexibility

Changing consumer expectations

DEFEND THE CORE GROW PARCELS DIVERSIFY SELECTIVELY

STATE OF THE POST AND PARCEL INDUSTRY VENTURE CAPITAL-FUNDED START-UPS ARE REINVENTING DELIVERY

The flow of capital into this sector has dramatically able to innovate at pace with eCommerce demand. increased over the last few years. The impact is Post and parcel players are just starting to embrace being seen especially in last mile delivery. In contrast these innovative business models—but they cannot to the fixed-cost, company-owned asset model aford to delay. of incumbents, start-ups are using partnership or crowdsourced technology-driven models to Venture capital funding supply chain and disrupt the value chain. logistics start-ups

Information-driven and rooted in the platform or sharing economy, these start-ups are inherently nimble and “asset lite” which enables them to be experience- versus eficiency-focused. They operate anywhere, at a fraction of the cost, using 2013: 2016(Q1) : data and analytics to coordinate complex networks. Fueled by a low cost of capital, these start-ups are US$266M US$1.75B

STATE OF THE POST AND PARCEL INDUSTRY VENTURE CAPITAL-FUNDED START-UPS ARE REINVENTING DELIVERY

Venture capital investment and start-up activity, 2013 to 2016 Size of funding, US$m ONIBAG CASE STUDY Recent entrant Onibag has created a next day network across 70 cities in the United States—without owning a single vehicle or 1,753 building. It crowdsources first and last mile 1,202 services and then uses spare capacity on 441 312 266 388 424 the national bus system for transport. This 17 model helps to enable Onibag to charge less 2013 2014 2015 2016 Q1 than half of its competitors while making significantly more profit. eCommerce enablement Supply chain and logistics

STATE OF THE POST AND PARCEL INDUSTRY INCUMBENTS ARE INVESTING AT A RECORD PACE

Industry capital expenditure has grown Acquisitions are being made around logistics and more than 40% from 2013 to 2015 as post transportation, parcels and express, technology and and parcel organizations make significant software, financial services, and mail. investments in increased capacity, new capabilities and diversification to keep up Capital expenditure as a percentage of revenue with eCommerce-driven change and demand.

Some are spending as much as one-third of their revenues on major internal or external projects. Almost all are investing in additional capacity to accommodate eCommerce growth, especially 2013: 3.7% 2015: 5.1% for peak periods. Merger and acquisition activity is also high. Unlike the last 15 years, acquisitions are now smaller and more specialized.

STATE OF THE POST AND PARCEL INDUSTRY INCUMBENTS ARE INVESTING AT A RECORD PACE

Capital expenditure trends 2012 to 2015 Aggregate capital expenditure* EUR€m +41%

-1%

15,665 13,046 10,937 10,812

2012 2013 2014 2015

* Measured at 2012 exchange rates

STATE OF THE POST AND PARCEL INDUSTRY ECOMMERCE IS POLARIZING DELIVERY

Changing retailer and consumer behaviors afecting “missing” eCommerce capabilities in such areas as the eCommerce logistics chain are polarizing delivery— warehousing or fulfillment technology. at one end, a global direct model; at the other, The battle for the last mile is fiercer. Online retailers hyper-local delivery. Simultaneously, the use and are investing in customer proximity as they seek to importance of a robust domestic, national network accelerate delivery speed and reduce delivery cost. is being reduced. They use free, fast delivery as a competitive diferentiator Increasingly, consumers are shopping beyond to take eCommerce market share. These dynamics their borders. Ubiquitous eCommerce is leading create greater demand for last mile services and erode to significant growth in cross-border volumes. a significant barrier to entry—the cost of building and Consumers are less concerned about where the maintaining an end-to-end network. goods come from and more interested in what they are priced and when they will arrive. Global eCommerce growth 2016 to 2020

In response 67% of all merger, joint venture and Domestic 2 and international: acquisition transactions in 2015 occurred outside 20.2% the player’s domestic country,1 mainly to supplement 3 International only: 25.5%

STATE OF THE POST AND PARCEL INDUSTRY ECOMMERCE IS POLARIZING DELIVERY

AMAZON PRIME NOW HUBS RETAILERS EXPAND ACROSS THE SUPPLY CHAIN As of 2016, there were 58 Amazon Prime Now Increasingly, Alibaba, Amazon and Walmart hubs in the US, stocking high velocity items for are focusing on the first and middle mile. same day delivery 4 and ofering one to two hour Walmart and Alibaba have begun leasing shipping delivery to more than 77.6 million consumers.5 container space to transport manufactured goods Amazon is also opening Prime Now hubs from China to North America. Alibaba ofers in , Spain and Italy.6 this capacity to third-party merchants. Retailers and marketplaces are taking such measures to secure much-needed capacity and to lower overall cross-border transportation costs.7

STATE OF THE POST AND PARCEL INDUSTRY PARCEL VOLUMES GROW BUT PRICING POWER DECLINES

In a healthy growth market like eCommerce As marketplaces increase market share, they demand shipping, yield should be increasing and creating better service at lower prices which depresses yield. pricing opportunities. Instead, revenue per package is flat globally—declining 0.5% from 2013 to 2015. While many factors are at play, the race for capacity 80%+ of online retailers receive at least 40% and the emergence of new entrants is impacting yield. of their revenues from marketplaces.8 Our research shows growing marketplace dominance is impacting yield, as volumes from small and Top three global marketplaces’ General Merchandise medium shippers move into marketplace models. Value growth between 2010 and 20159 98% CAGR: of online retailers use at least 48% one marketplace as a channel.

STATE OF THE POST AND PARCEL INDUSTRY PARCEL VOLUMES GROW BUT PRICING POWER DECLINES

Changes to parcel volume, revenue and yield CAGR 2013 to 2015

Parcels volume growth Parcels revenue growth Revenue per package

CAGR CAGR -0.8% 19,437 5.9% 18,160 -0.3% CAGR 17,347 128,576 4.8% 117,035 122,503 10,134 8,696 9,189 8.0% 44,939 47,471 51,539 7.1% 8.33 8.36 8.28 9,303 5.17 5.17 5.09 8,652 8,971 77,037 3.7% 72,096 75,032 3.4% 2013 2014 2015 2013 2014 2015 2013 2014 2015

Postal players Integrators

STATE OF THE POST AND PARCEL INDUSTRY MAIL VOLUMES DECLINE BUT AVERAGE PROFITABILITY IS UP

Today, the world sends Many postal organizations benefit from strong 100 billion fewer letters mail profitability, with the average mail profitability than a decade ago. in 2015 being 6.8%. Streamlining and modernization of their mail operations, and a recent focus on price In 2015, total mail volume declined by 2% globally, increases, has helped to secure that profitability. significantly lower than the 6.3% total volume decline In some cases, better margins are the result of between 2007 and 2010. This number is markedly dramatic price increases as our research shows skewed by a few large players with relatively modest postal organizations are testing mail elasticity. declines. The average mail volume decline was 4.5% for 2014 to 2015. Consistent transactional mail Mail pricing annual growth in Europe volume decline has been ofset by the continuity 2010-2013: 2013-2016: of small gains in volumes. 5% 11%

STATE OF THE POST AND PARCEL INDUSTRY MAIL VOLUMES DECLINE BUT AVERAGE PROFITABILITY IS UP

Mail volume decline and forecast 2005 to 2019

Stability Major decline Deceleration Gradual decline Managed decline 400 350 300 250 200 150 Mail volume 100 50 STAGE 1 STAGE 2 STAGE 3 STAGE 4 STAGE 5 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

CAGR -0.4% -6.3% -3.5% -1.8% Est. -2%

Global mail volumes in aggregate, in billions of items

STATE OF THE POST AND PARCEL INDUSTRY DIVERSIFICATION DRIVES GROWTH— BUT TESTS PROFITABILITY

Our analysis shows diversification is an important No one-size-fits-all in diversification. Post and parcel driver of revenue growth for post and parcel organizations have a competitive advantage from their organizations. Expansion across the logistics supply ubiquitous network. But with higher than average cost chain adds revenue while leveraging existing assets of labor, they need to find oferings that fit their and skills to improve utilization. There is synergy in commercial structure, while introducing lower cost these investments, as broader logistics capabilities and flexible labor to enable new business models. fill last mile networks to improve the profitability Revenue growth 2013 to 2015 of both business units. Investment continues in payment and financial services capabilities—providing new sources of Mail: –US$2B revenue with higher profitability. Financial services diversification remains the most profitable and the fastest growing diversification strategy for : 10 the industry as postal organizations in particular Non-mail US$14B seek better utilization of their vast retail assets.

STATE OF THE POST AND PARCEL INDUSTRY DIVERSIFICATION DRIVES GROWTH— BUT TESTS PROFITABILITY

Segment profitability 2015

Operating margin [2015,%]

35%

30%

20% FS median 14.9% 15% Mail 10% median 7.7% Parcels Logistics median 4.8% median 4.6% 5% Mail 0% Parcels -15% Logistics

-20% Financial Services (FS) Mail Parcels Logistics Financial Services Segment

STATE OF THE POST AND PARCEL INDUSTRY HIGH PERFORMER HIGHLIGHTS 02 5 SUCCESSFUL STRATEGIES DETERMINE HIGH PERFORMANCE 1 2 3 4 5

Drive superior Make mail Enable Accelerate smart Adopt a value profitable eCommerce diversification commercial strategies mind-set

HIGH PERFORMER HIGHLIGHTS HIGH PERFORMERS 1 DRIVE SUPERIOR VALUE GROW REVENUES 2.82X DRIVE GROWTH AT HIGH DELIVER BETTER RETURN ON FASTER than middle and bottom MARGINS with an average CAPITAL by relentlessly pursuing performers combined, generally overall EBIT of 11.8%, significantly value. High performers create driven by a smart blend of higher than the 0.3% of bottom value with their invested capital acquisition and organic growth. performers. at nearly three times the rate High performers deliver value of the next group. while driving scale. From 2014 to 2015, managed not only to grow SingPost has been successful USPS has realized an average revenues 7.9% but also increase at driving profitable growth by annual sales growth of more its EBIT by 20.1%.11 making major acquisitions; in than 20% since 2012, driven 2015 revenue growth was 25.6% by investments in predictive and EBIT margin 17.3%.12 analytics and best-in-class CRM Cloud technology.13

HIGH PERFORMER HIGHLIGHTS HIGH PERFORMERS 1 DRIVE SUPERIOR VALUE Overall revenue growth by performance group CAPITAL SPREAD IN 2015 (ROIC – WACC*) 6 5.2 Top 10 5 5.7% 4 4 Middle 10 3 1.9%

2 Bottom 11 -16.1% 1 -0.5 0 *ROIC – WACC (Return On Invested Capital – Weighted Average Cost of Capital) -1 Top 10 Middle 10 Bottom 11

Measured at 2012 exchange rates

HIGH PERFORMER HIGHLIGHTS HIGH PERFORMERS 2 MAKE MAIL PROFITABLE DRIVE HIGHER OPERATIONAL APPLY SMART PRICING INNOVATE TO REINVENT THE EFFICIENCY AND UTILIZATION They use aggressive price increases, MAIL SERVICE They aggressively move packets averaging above 10.5% CAGR They focus less on declining onto their mail network and between 2013 and 2016, to ofset mail revenues and more on continue to invest in automation. mail volume declines.15 adding value to mail. They develop Some shift to a single mail and unaddressed and addressed Australia Post increased the price parcel network while others slow admail products, undertake of a stamp from 70 cents to 1 dollar mail to create more consistent data-driven marketing with online while also introducing a priority volumes. geo-targeting tools and invest in label to accelerate delivery for digital enhancements to mail. Investments in automation 50 cents more.16 and network realignment have Data Services uses Strategic pricing unique to each of placed Post’s multi-year data and analytics to create its brands has enabled Austrian Post postal transformation on track to targeted marketing campaigns Group to maintain volume with high surpass its planned CAN$250M that improve mail value and ROI.18 profitability (19% EBIT in 2015).17 (US$185M) in annual savings.14

HIGH PERFORMER HIGHLIGHTS HIGH PERFORMERS 2 MAKE MAIL PROFITABLE Mail volume and revenue change from 2014 to 2015, in percentages

2 AVERAGE MAIL MEDIAN MAIL PIECES 1 Top 10 Middle 10 Bottom 11 EBIT IN 2015 PER EMPLOYEE 0 -1 -1.9 -1.7 Top 10 15.9% 101,218 -2 -4.2 -3.7 -5.2 -3 -5.4 Middle 10 -4 8.7% 81,265 -5 Bottom 11 -6 -9.4% 82,250 Mail volume change from 2014 to 2015 Mail revenue change from 2014 to 2015

Mail volume and revenues change (average of individual company changes)

HIGH PERFORMER HIGHLIGHTS HIGH PERFORMERS 3 ENABLE ECOMMERCE

GROW REGARDLESS OF TARGET CROSS-BORDER FOCUS ON THE RECIPIENT MARKET COMPETITION DELIVERY They give consumers control over They capture more than their fair In particular, postal players run delivery by ofering flexible delivery market share of the B2C growth engine. a highly-focused, international and returns while using consumer strategy to achieve nearly twice as PARCELS REVENUE CAGR OVER 5 YEARS data to improve the delivery much revenue from outside their experience and eficiency. Top 10 12.0% domestic boundaries as other Middle 10 5.2% performers—across all products. 7/10 Bottom 11 4.4% Japan Post’s acquisition of Toll for high performers have or US$4.9 billion gives it significant are planning a platform that focuses on the recipient vs Australia Post and presence in cross-border logistics 3/11 bottom performers. have invested in strong domestic and serves as a foundation for its capabilities and command market growth aspirations in Asia.20 UPS My Choice has 29 million shares of approximately 75% and subscribers across 16 countries.21 66% respectively in B2C.19

HIGH PERFORMER HIGHLIGHTS HIGH PERFORMERS 3 ENABLE ECOMMERCE Parcel revenue growth by performance group, Percentage of revenue outside headquartered country, 2015 in percentages

12 25 10 20 8 15 6 12.0 9.2 9.7 10 20.9 19.9 19.6 4 15.5 5.9 4.9 5.2 2 4.4 5 9.6 7.5 0.9 2.4 0 0 Top 10 Middle 10 Bottom 11 Top 10 Middle 10 Bottom 11

1–year revenue growth 2014 to 2015 Post and parcel players 3–year CAGR revenue growth Postal operators only 5–year CAGR revenue growth

HIGH PERFORMER HIGHLIGHTS HIGH PERFORMERS ACCELERATE GROWTH 4 WITH SMART DIVERSIFICATION STRATEGIES DRIVE SYNERGIES IN LOGISTICS EXPAND FINANCIAL SERVICES DIVERSIFY THROUGH They gain economies of They deliver strong financial ACQUISITION scale through capacity and services’ revenue growth of 7% They react more rapidly to the infrastructure, creating low (between 2013 and 2015) while market through M&A—adding marginal costs for incremental also driving strong profitability new capabilities or capacity more business and delivering high of 14.9% in 2015. These services quickly than can be achieved eCommerce density. help to sustain the cost of the organically. They account for retail network. nearly 50% of all M&A activity FedEx completed the acquisitions with more than 3x the M&A of Bongo International, GENCO Less than 15 years after launching activity of lower performers. and TNT Express over the last Kiwibank, financial services and two years, adding additional banking at New Zealand Post has been the most eCommerce logistics capabilities.22 represents 88% of all net profits.23 active in M&A activity over the last 5 years, closing 35 deals since 2011.24

HIGH PERFORMER HIGHLIGHTS HIGH PERFORMERS ACCELERATE GROWTH 4 WITH SMART DIVERSIFICATION STRATEGIES Number of mergers, acquisitions and joint ventures from 2011 to 2015 DIVERSIFICATION (NON-MAIL) REVENUE GROWTH 2014 TO 2015 70 67 Top 10 9.5% 60 Middle 10 4.9% 50 41 Bottom 11 -0.1% 40 34 36 63% 30 18 20 50% 15 32% 44% 7/10 10 6 5 45% 55% 0 high performers have 6% 6% 0 0% diversified into logistics, Top 10 Middle 10 Bottom 11 achieving an average operating margin for Domestic Foreign Unspecified logistics activities of 4.8%

HIGH PERFORMER HIGHLIGHTS HIGH PERFORMERS 5 ADOPT A COMMERCIAL MIND-SET FOCUS ON THE MARKET DRIVE SHAREHOLDER VALUE CREATE A PROFIT-LED CULTURE They focus on the question “what They are able to deliver true They create a profit-led culture do customers want?” as opposed value creation reflected in cash using privatization as a catalyst to to “what will the regulator let us do?” or stock growth that is returned reorient performance management to shareholders. and investment strategies to a USPS retained more than US$550M profitability mind-set. last year by using analytics to DPDHL has a strong value predict customer defection before driven culture leading to the THE IMPACT OF PRIVATIZATION it happens, and proactively best shareholder return in 2 YEARS 2 YEARS reaching out to specific customers the industry.26 BEFORE AFTER27 with a targeted service message.25 Year-on-year 0.36% 6.05% revenue growth 8/10 Average EBIT 5.19% 9.74% are privatized

HIGH PERFORMER HIGHLIGHTS HIGH PERFORMERS 5 ADOPT A COMMERCIAL MIND-SET

Total return to shareholders, 2011 to 2016 Organization and multiple of share price as of May 2011 3.8 Recent listings >> Royal CTT Poste Japan 3.6 Mail Italiane Post Amazon 3.7 3.4 Group DPDHL 2.4 3.2 Aramex 2.2 3.0 bpost 2.0 2.8 2.6 Yamato 1.9 2.4 Austria Post 1.9 2.2 FedEx 1.8 2.0 1.8 SingPost 1.8 1.6 S&P 500 1.7 1.4 CTT 1.7 1.2 UPS 1.6 1.0 0.8 S&P Transportation 1.6 0.6 Poste Italiane 1.1 0.4 Royal Mail Group 1.1 0.2 0.0 TNT 0.8 May Nov May Nov May Nov May Nov May Nov May Japan Post 0.8 11 11 12 12 13 13 14 14 15 15 16 PostNL 0.6

HIGH PERFORMER HIGHLIGHTS BEING A DIGITAL ORGANIZATION

Digital is the fourth strategic priority that underpins and informs the other three and demands a balanced approach across three actions: drive eficiency, digitize delivery and create new revenue.03 BE A DIGITAL ORGANIZATION

DIVERSIFY SELECTIVELY DRIVE DIGITIZE CREATE NEW EFFICIENCY DELIVERY REVENUE Used to prove Used to prove Used to deliver GROW PARCELS digital to the digital capability growth but board and free up publicly to requires capital, capital for other change brand board buy-in investments. perception. and a digital DEFEND THE CORE brand image.

BEING A DIGITAL ORGANIZATION DIGITAL WILL BECOME VITAL TO HIGH PERFORMANCE

The Accenture digital performance index28 shows how digital investments are positioning Our research shows the post and parcel industry companies for growth, identifies the gaps required is in the midst of digital transformation, but has for digital transformation and assigns post and yet to reap the full rewards. This will change parcel organizations to one of four categories: over the next two years. Evolving consumer 1. Digital high performers (strong digital expectations that will demand data-driven, and financial performance) more personal services, for example, will require new digital capabilities. Digital investments will 2. Digital leaders (strong digital capabilities also underpin the operational eficiency and not yet delivering financial value) cost saving programs necessary for continued 3. Traditional leaders (strong financial profitability improvements. Post and parcel performance without digital) organizations are just beginning to realize the financial rewards of digital but our 4. Digital contenders (companies with research shows those investments are the potential to improve their financial creating the foundation for future growth. performance with the right digital investments).

BEING A DIGITAL ORGANIZATION Accenture digital performance index

Digital versus financial performance Prioritized digital, Achieving high awaiting rewards Digital leaders 18%* Digital high performers 6%* performance in Companies made of companies of companies the digital world significant progress Postal: 10% Postal: 6% Companies with in digital capabilities, both strong digital working to translate performance and that into financial financial performance results

Got by without digital Digital contenders 60%* Traditional leaders 16%* Maintained financial Companies have of companies of companies strength with legacy survived in the past Companies have without building up Postal: 61% Postal: 23% achieved strong financial

digital capabilities (DPI score) Digital performance performance without prioritizing digital *Note: Taken from the Accenture Digital Performance Index which researched 343 companies across eight industries. Financial performance (HPB score)

BEING A DIGITAL ORGANIZATION DIGITAL INDEX FINDINGS IN BRIEF

Post and parcel organizations score well in terms of a stated digital strategy but less well for investing and implementing digital across their organizations. Enabling digital capabilities can future-proof an organization’s corporate strategy.29 27% 90% Have a dedicated budget for digital transformation, Include digital in their strategy. despite a majority identifying digital as part of their market expansion strategy. 48% 13% Aim to ofer an integrated Significantly* optimize customer targeting physical and digital shopping and with digital technologies. (*Scores ≥ 3) information-gathering experience. DIGITAL PROGRESS DIGITAL

51% IMPROVEMENT FOR AREAS 35% Are using digital technologies to change Have open innovation initiatives. their product development process.

BEING A DIGITAL ORGANIZATION POST AND PARCEL04 PRIORITIES

There are some distinct and emerging opportunities that can create a significant impact on post and parcel industry performance. ARTIFICIAL INTELLIGENCE: A NEW FACTOR OF PRODUCTION

AUGMENT LABOR AND CAPITAL OPTIMIZE THE NETWORK ANTICIPATE CUSTOMER AI can automate simple or oft- Algorithms can quickly analyze BEHAVIORS repeated tasks enabling workers volumes of data to identify patterns Services could be designed to to focus on value-added tasks in not visible to the naked eye— anticipate delivery changes. areas such as customer service, trafic information, weather events, By building customer data automated parcel tracking and or Twitter feeds. AI self-learns, into “consumer genomes”— exception handling, which could creating continuously improving living profiles of preferences, result in significant cost savings. processes and eficiency. behavior, motivations and needs—parcel delivery can AI bots will power 85% AI market by 2020 go beyond giving customers of all customer service 31 choice to understanding why interactions by the US$ 5.05B they make those choices and year 202030 anticipating behavior, lowering costs while delighting customers.

POST AND PARCEL PRIORITIES AUTONOMOUS VEHICLES: THE NEW DELIVERY ENGINE

AUTONOMOUS VEHICLES WILL CHANGE THE While autonomous vehicles can find a location, POST AND PARCEL INDUSTRY IN TWO WAYS or a person, some challenges around secure Transport utilization will improve delivery must still be resolved, such as last Air or ground-based autonomous vehicles can meter management or vandalism risks. be available for delivery 24/7, enabling radically diferent utilization profiles. By 2020 Transport costs will radically reduce Labor costs associated with transport will decline 10 million (or be eliminated) leading to drastic cost reduction. Forecasts say that there will be more than 10 million The changes will begin with line haul—Uber’s Otto cars with self-driving features globally.33 division made the first autonomous delivery in the United States in October 2016.32

POST AND PARCEL PRIORITIES PARCEL DELIVERY: AS A PLATFORM

CONVENIENCE IS ECOMMERCE RETURNS INTERCONNECTED THE NEW LOYALTY AS A DIFFERENTIATOR ECOSYSTEMS As retailers use the delivery The evolution of eCommerce forces Retail competition is focusing on experience to compete for and retain delivery companies to develop new delivery models that are free, fast customers, improving the consumer capabilities to fit with the dynamic and convenient. The lines are blurring delivery experience with features resolution of returns. Turning returns between retailers and shippers. like control of parcel delivery will into a value capability instead of a Solutions that tie retail demand be key to unlocking loyalty. “necessary evil” creates diferentiation with shipper supply and optimize as an eCommerce delivery partner. the ecosystem will become more of consumers important as capabilities mature. 65% globally consider of eTailers place the ability to change 79% returns capabilities of retailers say that delivery instructions among the most 68% a direct consumer to an important factor important criteria shipper relationship when selecting a when evaluating is one of their top delivery company.34 a delivery provider.35 three priorities.36

POST AND PARCEL PRIORITIES MOBILE ADVERTISING: THE SECOND WAVE OF MAIL DISRUPTION

THE POWER OF PERSONALIZATION of global digital advertising spend by 2018 The dramatic improvement and growth in mobile 60% will be attributable to mobile, which will advertising has the potential to disrupt direct mail. It is overtake desktop advertising in 2017 37 less expensive than traditional advertising mail and ofers a totally diferent and far more personalized experience— Print advertising losing share to digital advertising radically changing the potential efectiveness of Digital 23% 28% 33% advertisements. 37% Television Audio With smartphones serving as life management devices, 39% 39% 38% 36% Cinema it will become more important to make mail relevant on 7% 1% 7% 6% Out-of-home these devices. Postal organizations have an opportunity 7% 7% 1% 1% 5% 7% 7% 0% Print* to tie digital, mobile content to their physical products 23% 19% 16% 14% Global advertising to create a new consumer channel. 2012 2014 2016 2018 shares by category (%) *Print includes newspapers and consumer magazines

POST AND PARCEL PRIORITIES SECURITY: THE NEXT CRITICAL CHALLENGE

FOSTERING DIGITAL TRUST Digital technologies have opened up new business 50% models and opportunities, but also introduced new of consumers globally are confident that their national postal operator keeps their risks—valued assets become less tangible, more personal information private and secure.38 distributed, and more vulnerable to cyber threats. As post and parcel organizations store greater quantities of more sensitive data, their security 48% of cybersecurity professionals from large capabilities must mature. enterprises believe management views The digital enterprise must foster a culture of cybersecurity as an unnecessary cost. security that enables digital trust. Digital trust represents secure, transparent relationships 76% and engagement between the enterprise and of enterprise security professionals its employees, partners, and customers. believe they need to improve their ability in threat and vulnerability assessments.

POST AND PARCEL PRIORITIES RESEARCH METHODOLOGY

Our analysis is based on publicly available We measured high performers based on a comparison information, content published by post and parcel of metrics across six diferent elements and created organizations and Accenture industry knowledge a scorecard identifying which organizations performed and experience. above average within the industry. Comparative analysis was adapted to account for government ownership As in previous years, we have used a quantitative of the majority of postal organizations. model to assess financial performance and a qualitative model to determine the drivers of high We also adjusted our methodology to normalize performance. Our methodology is based on the reported numbers for non-recurring items and for value of discounted cash flows to shareholders, pension obligations, included a calculation of the or economic value added (EVA®) and the total return on invested capital (ROIC), and undertook shareholder return (TSR). deeper research into diversification. RESEARCH SAMPLE

Thirty-one post and parcel operators

ORGANIZATION COUNTRY ORGANIZATION COUNTRY ORGANIZATION COUNTRY

An Post Ireland Germany PostNord /Denmark DHL (DPDHL) Aramex United Arab Emirates (Posten) FedEx United States Australia Post Australia PostNL Netherlands (AusPost) Groupe La Poste France (La Poste) Royal Mail United Kingdom Austrian Post Group Austria Group (RMG) Gruppo Poste Italiane Italy bpost Belgium (Poste Italiane) Singapore Post Singapore (SingPost) Canada Post Canada India Post India Corporation (CPC) South African Post South Africa Japan Post Japan Ofice (SAPO) Ceska Czech Republic Switzerland Brasileiros Brazil (ECT) New Zealand New Zealand TNT Express Netherlands Post (NZ Post) Correios de United States Postal United States Portugal (CTT) Service (USPS) y Telégrafos Spain Post Ofice United Kingdom UPS United States (Correos) Limited (POL) Yamato Japan REFERENCES

1 Bloomberg, Company financial statements, Accenture analysis 20 https://www.bloomberg.com/news/articles/2016-07-05/japan-post-to-expand-in-asia-after-4- 2 Accenture analysis and eMarketer 9-billion-toll-acquisition 3 Global Cross Border B2C e-Commerce Market 2020: Report highlights & methodology, April 21 UPS press release. https://pressroom.ups.com/pressroom/ContentDetailsViewer.page?Concep 2016. http://unctad.org/meetings/en/Presentation/dtl_eweek2016_AlibabaResearch_en.pdf tType=PressReleases&id=1477943968941-160 4 Amazon Prime Hub United States. 22 FedEx Annual Reports http://qz.com/636404/how-amazon-is-secretly-building-its-superfast-delivery-empire 23 New Zealand Post Annual Reports 5 Amazon website. https://www.amazon.com 24 La Poste Annual Reports, Bloomberg Wall Street Journal. http://www.wsj.com 25 www.usps.com 6 Amazon Prime Hub Europe: http://www.globalfinances.me/2016/07/28/amazon-prime-now- 26 Accenture research and analysis comes-to-spain-those-who-will-be-the-winners-and-losers/, http://supplychainanalysis.igd. 27 Accenture research and analysis com/Hub.aspx?id=13&tid=1&rid=71&nid=3704, https://ecommercenews.eu/amazon-launches- 28 A report will be launched in 2017 that features a more in-depth look at the findings of the amazon-prime-now-in-italy Digital Performance Index 7 Global Trade Magazine, January 5, 2017. 29 Accenture Digital Performance Index 2016 http://www.globaltrademag.com/global-logistics/online-retailers-investing-logistics 30 http://www.forbes.com/sites/ciocentral/2011/09/27/customers-dont-want-to-talk-to-you- 8 Diferentiating delivery: How to win the eCommerce battle, Accenture eTailers research report 2016 either/#1c12e4893a2b 9 eMarketer, Annual Reports, Accenture analysis 31 http://www.marketsandmarkets.com/Market-Reports/artificial-intelligence-market-74851580. 10 Accenture analysis html” \t “_blank” = US$5.05B 11 Poste Italiane Annual Reports 32 Uber and Anheuser-Busch Make First Autonomous Trucking Beer Delivery, Fortune, October 2016. 12 SingPost Annual Report http://fortune.com/2016/10/25/uber-anheuser-busch-first-autonomous-truck-beer-delivery 13 Same-day delivery startup Deliv gets funding boost from UPS, Wall Street Journal, February 33 10 million self-driving cars will be on the road by 2020, Business Insider, June 2016. 2016. http://www.wsj.com/articles/same-day-delivery-startup-deliv-to-get-funding-boost-from- http://uk.businessinsider.com/report-10-million-self-driving-cars-will-be-on-the-road-by-2020- ups-1456290060 2015-5-6?r=US&IR=T 14 Canada Post Corporation, Summary of the 2014 to 2018 Corporate Plan. 34 Accenture Citizens Pulse Survey 2016 https://www.canadapost.ca/assets/pdf/aboutus/corporate_plan_summaries_en.pdf 35 Accenture eTailers research. https://www.accenture.com/us-en/insight-post-parcel-etailer-research 15 Sample of 35 postal operators; Accenture research 36 Ibid 16 Australia Post press release; Australia Post website. https://auspost.com.au 37 Zenith Optimedia, BI Intelligence 2016 17 Accenture analysis 38 The State of Cybersecurity and Digital Trust 2016, Accenture. 18 http://www.royalmail.com/corporate/marketing/data-services/marketing-data https://www.accenture.com/us-en/insight-cybersecurity-digital-trust-2016 19 http://www.theaustralian.com.au CONTACT US ABOUT ACCENTURE Brody Buhler Accenture is a leading global professional services company, Global managing director providing a broad range of services and solutions in strategy, Accenture post and parcel industry group consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more [email protected] than 40 industries and all business functions—underpinned Brody Buhler @brodybuhler by the world’s largest delivery network—Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for Andre Pharand their stakeholders. With approximately 394,000 people serving Principal director and clients in more than 120 countries, Accenture drives innovation global management consulting lead to improve the way the world works and lives. Accenture post and parcel industry group Visit us at www.accenture.com. [email protected] The views and opinions expressed in this document are meant to stimulate thought Andre Pharand @andre_pharand and discussion. As each business has unique requirements and objectives, these ideas should not be viewed as professional advice with respect to your business.

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