The volume of parcel services is increasing, but not the wages

Andreas Schumann, Chairman of BdKEP – Federal Association of Courier, Express, and Postal Services, explains why, despite a significant increase in volume in parcel services, wages have not changed. This is partly due to the fact that many subcontractors are employed in this area of logistics, and partly because there is still much potential for increasing efficiency.

By Andreas Schumann

(Berlin) The KEP industry reports below-average earnings according to the latest figures from the Federal Statistical Office. And once again, the groundhog appears.

In terms of earnings, the industry ranks among the bottom. The paradox is that despite a significant increase in parcel volume, the situation has not improved. The dramatic increase in volume over the past years should actually mean efficiency gains and an improvement in the economic situation of employees and companies. However, this is not the case, and the situation will worsen further with the stronger growth in parcel volume.

Especially outside of DPAG/DHL, the revenue-strong large companies often work with subcontractors as network operators. They provide the actual services on the first mile, main run, and last mile and employ the majority of the workforce. The often low compensation of subcontractors by network providers is reflected in the income situation of employees and entrepreneurs. It is one of the main reasons for the low wage level that subcontractors can offer their employees.

Two approaches to improve this situation

To increase the wage level, there are two approaches. Reducing costs by increasing efficiency in delivery. This means that more shipments must be delivered per stop or time unit. Secondly, increasing revenues. This means that for the same services, higher revenues must be generated (price increase) or additional revenues can be achieved for new service offerings.

Real efficiency and revenue increases – excluded!

Both paths are currently closed to subcontractors in the market structure. 80% of the market is generated by 26 of the approximately 16,100 companies (=0.2%). These are primarily internationally operating parcel corporations as network providers for subcontractors. The process flows are fixed, clients insist on exclusive delivery of their shipments, reject the bundling of shipments, have complex and inflexible software landscapes and sorting technologies that have developed over decades. Significant efficiency gains and thus increasing contribution margins as a basis for better remuneration are therefore not possible.

Additional revenues cannot be achieved for subcontractors. The service portfolio is determined by the client. The bargaining power of subcontractors for higher compensation is not given.

Currently, every additional B2C parcel makes things worse

With the current market structures, the situation will significantly worsen in the coming years. B2C shipment volumes are increasing disproportionately compared to B2B shipments. In these shipments, unlike B2B shipments, usually only one shipment is delivered per stop. This means significantly less contribution margin per stop than with B2B shipments. Every additional B2C parcel that reduces the share of B2B parcels in delivery for subcontractors worsens the overall contribution margin of subcontractors. Thus, with increasing delivery volumes, there are no opportunities for wage increases. The industry is thus falling further behind the general wage development.

Revenue and cost pressure will radically reshape the market

The situation can only improve if the market conditions change substantially. Efficiency increases for subcontractors are possible when the number of delivered shipments per stop can be significantly increased. This can only be achieved by bundling the now isolated shipments. An optimized route planning for exclusively delivered shipments is far from sufficient and rather cements the existing market structures.

Scenario A: Shippers feed shipments directly into the last mile

The existing system providers do not allow this bundling, which is why subcontractors need direct access to the shipment volumes. One way to achieve this is for shippers to feed their shipments directly into the last mile with regionally operating KEP services. These shift from the role of subcontractor to the role of contractor for shippers. Another way is for shipments to be consolidated in regional micro-depots on the very last mile. Then, unlike before, shipments can be bundled and delivered efficiently. Revenues per stop increase, and deliverers can be compensated better.

At the same time, this system creates the opportunity for regionally operating KEP to develop new service offerings for shippers or recipients. This provides the opportunity to generate additional revenues. Value creation and design options for municipalities are thus preserved.

Scenario B: Coexistence of the (two – three) large players

The same effect occurs if a few large providers manage to combine efficient delivery with additional revenues. These companies realize value creation at their tax corporate headquarters. The regions miss out, losing value creation and design options for delivery systems. Other industries demonstrate this scenario impressively.

The KEP market gets a new operating system

Through the developments in these two scenarios, the current cycle will be broken. Increasing efficiency and additional revenues improve contribution margins. This can absorb and overcompensate the cost-intensive increase in B2C shipments. Wage increases become possible. A prerequisite for this is virtually a new operating system for the KEP market.

Initiative Open KEP Standards – Opportunities for medium-sized decentralized KEP networks

Open, non-discriminatory accessible standards and regulations are an important key to a medium-sized friendly and economically sensible future for the KEP markets. Entrepreneurs in the industry are therefore driving the initiative Open KEP Standards kep-os.de under the umbrella of BdKEP. The initiative for open KEP standards works under the motto Cooperation. Simple. Do it! Its goal is to create the prerequisites for open and provider-independent platforms in the courier, express, and parcel business.

Photo: © Adobe Stock

Andreas Schumann, Berlin, is the Chairman of the Federal Association of KURIER-EXPRESS-POST-DIENSTE e.V. Since 1990, BdKEP has represented the business policy interests of entrepreneurs and companies in the courier, express, parcel, and letter services. The association advocates for liberalized open postal markets and initiated the Open Postal Alliance in May 2014. Since 1998, Andreas Schumann has been involved in various postal companies as an owner or in management positions, including at TNT Post GmbH & Co. KG, now PostCon, and internetPost AG. As an entrepreneur, he is a link between traditional KEP companies, logistics start-ups, and innovative logistics services as well as associations and institutions. His main concerns are to leverage the opportunities of digitization for traditional postal companies and to position the industry in the new digital alliances. www.bdkep.de