Falling volumes test some operators to destruction

Postal Services & Parcels Report as at Q2 2008. The quarterly CILT Cost Indices for Logistics and Transport report has just been released and highlights the plight of the postal services and parcels sector.

The background to Amtrak's collapse is explained by factors such as increasing fuel costs and the international credit crunch. The report highlights potential serious problems ahead for Royal Mail's postal service.

Royal Mail's results reflect the period prior to the real upsurge in fuel prices that occurred in Q2, and the rate increases will also have been formulated prior to that upsurge …so presumably things must have got worse? The annual results were quickly followed by a Postcomm press release on the need for private sector funding for Royal Mail – the government-commissioned review in May claimed that Royal Mail's finances were so precarious they could destabilise its commitment to the universal postal service, which is now handling about three million fewer letters each day than a year ago.

Indeed, after years of strong growth, the whole courier, express and parcels sector is in a state of upheaval with a slight downturn forecast for the next three years and e-commerce providing the only bright spot, according to a speech that Dr Walter Maderner, principal of AT Kearney GmbH, is due to make in late September at Courier and Parcel Logistics Expo 08

Dr Maderner's view is certainly borne out by the message on Amtrak's website at the time of writing this report: “Netfold Limited t/a Amtrak went into administration on 22 August 2008 and has ceased trading”. The company is reported as having been struggling with the combination of rising fuel prices and falling consumer spending.

Post and parcels companies are very vulnerable to downturns in business as they need volume to pay for the networks required for the services they offer. Regardless of consumer spending downturns, many operators have spare capacity for at least 85% of the year anyway, and are often said to be dependent on only a few weeks in which to turn any real profit.

How to read the Index graph

The indices included in this graph are the CPI index for Postal Services (the cost of posting letters and parcels) and the SPPI elements for National Post Parcels and Courier Services (the cost to businesses of using these services). Then, for comparison, the CPI index at top level has been included to illustrate general inflation over this period. The base year for the SPPI is currently 2000, and the base year for the CPI is currently 2005. In the graphs, the indices have all been rebased in order to be able to compare the changes between indices from the two different sources over the last five years.