Expanding local express delivery in the Middle East

24 October 2011

The Middle East’s postal and courier service providers need to invest heavily in express mail and parcel businesses to compete with global international players


10-20 letters: Per capita letter volume in the Middle East compared with 250-300 letters in Europe

70 per cent: Regional courier service Aramex’s share of the GCC express mail market

Source: MEED

Postal services have been one of the Middle East’s more neglected sectors. Many countries in the region still lack basic home and street addresses, as well as daily mail deliveries direct to the home. 

Without nationwide systems for distributing post to homes and workplaces, people are forced to pick up mail directly from the post office. Manual postal sorting also does not help on the efficiency front.

Letter volumes are low, averaging an estimated 10-20 letters per capita a year, compared with 250-300 in Europe, but Middle East and North Africa (Mena) economies are now realising the value of postal services. With express mail and parcels delivery emerging as growth areas in line with the rise of internet shopping, postal service providers are waking up to opportunities presented by these operations.

System overhaul for postal operators

The region’s national postal operators are in the process of overhauling their systems. Saudi Arabia’s Saudi Post is introducing a new electronic service featuring fully automated distribution. The system will use handheld radio frequency identification readers with global positioning system technology to read mail. A satellite grid and geographic coordinates are used to assign each house with its own unique number, allowing postal staff to pinpoint addresses, resolving the kingdom’s lack of actual street addresses.

In the Middle East … there’s still a lot of room to grow. Post companies have not tapped into the direct marketing area

Ulrich Koegler, Booz & Co

There are also plans for a pan-GCC postal service, to be known as Khaleeji Express, focused on express mail. Khaleeji Express is the brainchild of the UAE’s national operator Emirates Post, which has been approached by other national postal operators about sharing mail services across borders.

Emirates Post is one of several Middle East operators looking to copy Deutsche Post’s model. Headquartered in Germany, Deutsche Post is the most successful example of a national post company diversifying out of standard mail offerings into a far wider array of services, such as finance, retail and government services. Not only does this open up cross-selling opportunities, it can widen an operator’s revenue base significantly. 

For firms such as Emirates Post and Lebanon’s privatised LibanPost, this has the benefit of enabling them to leverage their post office networks and local brand recognition to build market share under the noses of regional and international courier groups.

With 71 national post offices across the country, LibanPost’s strong footprint gives it an advantage over the competition. “We are the only ones with such a large network,” says Jihad Kosremelli, strategic planning and organisation director at LibanPost. “Even though it’s a small territory, we do cover all Lebanon. Although most of the express is in Greater Beirut, we have this competitive advantage of our network for more remote areas,”

In the Gulf, Emirates Post has made the strongest strides in leveraging its network, widening its service offering to the customer with utility bill payment facilities, airline ticket sales and other value-added services.

Such service value is especially compelling for national operators, such as Emirates Post and Egypt Post, for which parcel delivery accounts for just a small part of their revenue. The ‘big four’ international giants – DHL, UPS, TNT and FedEx – dominate the courier business in the region. DHL is the largest player with a market share estimated at more than 40 per cent.

The region’s operators have significant room for growth in express mail and parcels, as well as in traditional postal services. “On a global scale, letter volumes are going down, so you have a significant substitution in physical mail,” says Ulrich Koegler, vice-president at consultants Booz & Co. “Yet in the Middle East, where you have about 10-20 letters per capita a year compared with about 600 to the US, there’s still a lot of room to grow. Post companies have definitely not tapped into the direct marketing area, which should be significant.”

Koegler says that despite the substitution effect, there should be significant value-added opportunities in providing tailored direct marketing services. “Of course, they need to have better knowledge about the socio-demographics, but should they be able to provide that then I would expect it to be a significant growth area in the Middle East,” he says.

Middle East courier players

The Middle East also boasts nascent pan-regional courier players. Aramex is the main local operator and since starting out in 1982 has competed strongly with the dominant DHL. It has more than 8,000 employees, operating out of 368 offices in 58 countries and is the only firm with a strong enough footprint to rival the big four.

Companies such as Aramex are competing to become the preferred distributors of internet shoppers. Aramex has tapped into the growth in e-commerce with its Shop & Ship service, enabling users to shop on global e-commerce sites using a virtual post office box. Internet shopping is providing a significant boost to parcel volumes. “This is one area we’re working on. We want to become a force on the e-commerce side, because this is really the future,” says Kosremelli. “The future of mail is parcels.”

With this in mind, Dubai-based Kedu launched its Parzel service in March 2011. Parzel is an automated service that allows customers to deliver or collect parcels at a Parzel point. Automated booths are available for self-service parcel collection 24 hours a day, seven days a week. Parzel launched with three machines in Dubai and is planning aggressive expansion in the months ahead.

We want to become a force in e-commerce, because this is really the future. The future of mail is parcels

Jihad Kosremelli, LibanPost

One limitation encountered by Lebanese internet shoppers is the difficulty in importing goods into the country. “Some of the large e-commerce retailers don’t have Lebanon on their maps,” says Kosremelli. “It is improving, but even with eBay or Amazon it’s still difficult.”

According to Bahrain-based investment house Sico, Aramex has established itself as a key player in the Mena logistics chain and is well positioned to benefit from regional economic growth. 

In the GCC express mail market, it has the dominant share (although not in Saudi Arabia) with an estimated 70 per cent of the market. It is poised to capture more business from the growth in e-commerce. Despite a sluggish global economy, Middle East airfreight growth rose by a monthly average of 10.3 per cent in the first half of 2011, according to Montreal-based International Air Transport Association.

Internet influence on couriers

Part of that increase reflects the robust growth in internet shopping in the region, as well as broader demand for imported goods, which is influenced by GCC government spending packages filtering through into pay packets.

“[Most] Aramex business is driven by consumer demand in the Mena region. They make money when people import things from outside, be it from internet or trading companies that transport products into the region,” says Ambereen Jiwani, an analyst at Sico.

Aramex’s edge over the big four couriers is that it is a prominent regional name. This “local” advantage also benefits the more aggressive national players such as LibanPost.

The Lebanese operator says it is seeing year-on-year increases in the express mail business, one of the key areas it wants to develop by leveraging its strong networks and local relationships. “We have two areas expanding, express and parcels. These are increasing, in terms of volumes, and this is our focus for mail-related items,” says Kosremelli.

LibanPost also operates an international express service, on which it says the numbers are getting better as it improves the traceability and reliability of the service. The company says it is becoming more competitive in the market.

The key positioning benefit for LibanPost, Emirates Post and other national players is they also have strong relationships with the public sector. “We are the national postal operator, so we also have an advantage in terms of network, agencies and headcount. We really do cover what is required, which is pushing some courier companies to outsource their business with us. Courier companies that only have greater Beirut coverage tend to outsource their non-Beirut work to us,” says Kosremelli.

By offering lower-priced services, national operators should be able to win more business from the bigger players. A more sophisticated product offering will also help to shore up corporate customers.

In the UAE, Emirates Post offers PO box rental and EziMail bundle services for corporate clients, with enhanced mail pick-up and delivery services. It also offers value-added services, ranging from the most basic – PO Box Light – to EziMail Gold, which offers a 50 per cent discount on unaddressed mail for up to 40,000 pieces, in addition to other benefits.

The bundles leverage the combined expertise of Emirates Post and Empost, the UAE’s national courier company. This is complemented by several value-added services, such as free courier coupons, mailbags, direct mail discounts and SMS notifications.

Government services also provide growth avenues for post operators. LibanPost provides an interface for the public to access state services, such as passports and driving licences.

“There are a lot of services, especially from government-owned entities, that they can build on if they own post offices throughout the country. Across the region, there are pockets of such services, but they are not yet consistent or comprehensive,” says Koegler.  

Aramex is now looking to build on its solid market position to expand into other countries, with acquisitions on the agenda in Africa and Asia. In early 2011, it acquired two express logistics firms in Kenya, extending its presence along the main global trade routes that pass through the Middle East.

“Aramex is investing heavily in Southeast Asia and East Africa,” says Sico’s Jiwani. “It is interested in trade routes between those regions, which are underserved right now, but could be profitable. It’s also focusing on the Indian subcontinent. If you look at the map, when trade flows it mostly goes through the subcontinent from Southeast Asia to the Middle East.”

Tracking trade routes

National players will also seek to track such trade. With its privatised business model, Lebanon’s postal company enjoys more operational freedom than the other national players. Although Emirates Post had considered an initial public offering early in 2011, this has now been postponed. 

LibanPost was privatised in 1998 and was the first and only Middle East national postal operator to undergo privatisation.

Postal privatisation should not be entered into lightly, says Booz & Co’s Koegler. Corporatisation should be the first step. “Making post offices operate as private-sector-minded entities is typically the key,” he says. “The issue is that at this time, some post offices are not attractive enough to investors, as they are not yet producing attractive returns. But corporatisation has been proved to work around the world and that should be the way to make a really proper private sector-oriented company.”

Whether in public or private hands, the region’s national post and courier firms must continue to invest strongly to win more express mail and parcel business from the big international players. Aramex and LibanPost have shown that young companies have the capability to provide the strongest service standards demanded by consumers. Smaller parcel delivery firms and big national operators alike will have to follow suit, as rising e-commerce drives demand for both quality and quantity.

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