Uncertainty dampens expectations

Better economic conditions in 2010 and 2011 have had a positive effect on the markets. Yet turbulence in the international economy created new uncertainty in the latter part of 2011 and dampened growth expectations in the short term.

Many of the trends seen in 2010 continued into 2011. Mail volumes continued to fall. Postal operators are doing all they can to find new locations and new ways to reduce costs. At the same time many are demanding necessary changes to their regulatory framework.

Driven by the improvement in the economy and stimulated by new technology and new purchasing and cooperation patterns, the logistics industry developed positively in the last year, particularly in parcel distribution where there were new record volumes, but also in cross-border goods transported by road.

After some years standing still there was a new surge in merger and acquisition activities in 2011. It is expected that there will be further acquisitions in the coming year despite the turbulence in the economy.

Developments in the regulatory framework

As expected addressed letter volumes are now falling faster than before. A mail is falling faster than B mail. This is primarily a result of an increased rate of substitution by digital solutions. Financial motives and perceived environmental benefits contributed to the change in demand from senders.

Adaptation of services and the price model as well as on-going efficiency measures to adapt costs to reduced volumes will compensate for some of the falling revenues, but will not be sufficient to meet the fundamental challenge of high infrastructure costs.

The current regulatory framework is not adapted to modern recipient requirements, senders’ demand or competition from other channels. Postal operators all over Europe and on other continents are now working closely with their respective authorities in order to adapt their regulatory framework to the current market and reality. Several have already implemented a reduction in the number of distribution days. Some have also initiated measures to remove class A mail over time.

Despite the digital development the letter as a medium and the post box as a communication channel will continue to have a clear and value-creating role in the future communications market. But characteristics must be further developed and strengthened, at the same time as the regulatory framework must be adapted to market and customer requirements.

Digitalisation permeates society

Digital services are now a matter of course for most people. In a short time multiple innovations have been launched which have quickly been absorbed and which change how people live and interact - both at work and privately. This development now affects how the industry works – with changed business models, new solutions and changed usage behaviour. This applies both to the logistics industry and the customer industries which the logistics operators serve. In some cases seeing it can be seen that recipients now control the value chain and determine which logistics solutions and operators are chosen. Increased automation and self-service increases the efficiency of processes, but creates new challenges in inspiring customers and creating increased and clearer customer value.

New business models and increased rate of innovation

New ways of thinking and active innovation in the product and market areas provide the basis for new business models that create new growth and profitability.

An increasing number of companies are consolidating and centralising their operative activities in the Nordic region. In continuation of this, companies are also outsourcing parts of their logistics chain and logistics organisation. This creates opportunities and fertile ground for new business models. The proportion of operators which takes responsibility for a greater part of the customer’s value chain through 3PL and 4PL solutions is continuing to grow.

The development toward increased customer power and the necessity for a stronger customer orientation as a result of this means that more operators choose to specialise in certain industries with customised solutions. The dynamics of the market will create challenges and opportunities in the coming year. It is expected that new business models and new and more effective process solutions will be developed.

Online sales have accelerated

The development in online sales seen in recent years has accelerated and online sales now make up over 50 per cent of long-distance trade in Europe. Important markets such as Germany and France are experiencing extreme growth, and in the Nordic region every fourth person buys online each month. This has led to the continued strong growth in parcel volumes and that these have become more international.

For Norway Post, its Nordic presence is increasingly important to serve its Norwegian, Nordic and international customers. New solutions for online trade are quickly being developed and launched to increase accessibility, security and efficiency for customers. Some solutions are here to stay, while others will be gone tomorrow. It is a major challenge to mail and logistics operators to keep up with this development and simultaneously know which horses to back.

The environment is still as important as ever

Mail and logistics operators continue to take a major responsibility for their environmental impact. Significant proportions of the vehicle fleet have been replaced with environmentally-friendly alternatives driven by biofuels and electricity. Systematic work continues to increase capacity utilisation and move goods to more environmentally-friendly forms of transport.

New environmentally-friendly products are being developed and offered to the market. The actual demand and willingness to pay by customers is not always in line with the suppliers’ intentions and hopes, which means that there remains some uncertainty related to how one can achieve success with ‘green’ products and services.

In addition, the recommendations from the authorities change from time to time, which makes it a challenge to define consistent measures to meet the ambitious environmental targets which have been set. The operators in the market must therefore set clear requirements to ensure that the regulatory framework for a sustainable development in business is in place.

Faith in the future despite indications of weaker growth

The indicators for general consumption and market development are moving in different directions. There is a lot of uncertainty. The recent developments in the international economy and turbulence in the financial markets can have consequences for market developments. A further worsening of the situation will also affect the economic development in the Nordic countries. This will force Norway Post to face ever greater challenges with regard to continuous improvements and efficiency measures while simultaneously managing to renew its services and be at the forefront in technological terms. It will also require a strengthening and further development of Norway Post’s Nordic coverage and international connections.

At the same time there are many signs that this market development is beginning to come under control and that the economy will bounce back again. All in all there is increasing optimism in the market and a renewed willingness to invest in development and expansion.