The postal space saw profound shifts in the past five years. Across the world, mail volumes continued to decrease, while parcel volumes steadily climbed—driven in part by the persistent growth of an active, though fluctuating, e-commerce market. Postal companies now inhabit a challenging landscape where large e-commerce marketplaces control a higher share of logistics operations, and where customers have come to value cost-effectiveness and reliability over speed.
If these trends continue, postal companies may find that historical mail-plus-parcel business models are not enough to stay operationally and financially competitive alongside pure parcel companies.
Although some postal operators have developed significant innovations and new adjacent businesses, the combined mail and parcel business remains the backbone of post, and the core of its activity and operations.1 Post can create a lot of value, if managed well. Ensuring that mail and parcel business remains viable is a crucial focus point for postal executives—more so than out-of-the-box product innovation.
This article summarizes the key trends affecting post today and explores initiatives that postal companies could consider as they strive to maintain a strong position in a parcel market.
Key trends in post and parcels
Mail volumes are declining, and at different rates across geographies. For example, postal services in Germany and Switzerland lost 40 percent of their mail volume between 2008 and 2023, while Denmark, Norway, and Spain are at 15 to 25 percent of 2008 mail volume levels (Exhibit 1).
While mail is declining, parcel volumes continue to increase, driven in part by a growing e-commerce market2—even though volatility has become the norm. In many countries, the start of the COVID-19 pandemic coincided with an e-commerce surge. In the 2021 to 2023 period that followed, e-commerce sales increased slightly or remained flat. Now, e-commerce is growing again, and market research companies generally agree that growth may approach pre-COVID-19 rates, reaching 6 to 9 percent CAGR between now and 2028 (Exhibit 2).
With the rise in e-commerce, large online marketplaces such as Amazon, Bol.com, JD.com, and Zalando increased their presence in the logistics value chain. Across regions, these e-commerce giants logistically manage over 80 percent of order volumes (Exhibit 3).
Their involvement includes warehouse fulfillment to last-mile delivery logistics, or, in some instances, handling logistics providers’ volumes in-house. With their expanding presence, their capability improved, too. For example, their enhanced aggregated volumes and advanced data sets on parcel flows could be used in negotiations with parcel carriers to secure better delivery rates for individual marketplace sellers.3
As parcel volumes grow, postal companies are also expected to meet customers’ demand for transparent, on-time delivery. In addition to cost-effective delivery options, today’s customers prefer reliability and convenience over speed. In McKinsey’s survey of e-commerce customers in Germany and in the United States, “on-time and as-promised” delivery was selected as the most relevant delivery feature, with 86 percent of respondents saying they were excited by this feature.4 Thus, postal companies have an opportunity to match these expectations by pursuing excellence in sorting and delivery processes, workforce management, and using granular data to provide real-time, error-free tracking services.
Against some of these challenges, other shifts represent new opportunities for growth.
For instance, cross-border e-commerce parcel volumes continue to grow.5 Postal companies have traditionally been well positioned in these flows, with many established partnerships across borders. What is new, however, is that the share of cross-border postal flows decreased, while the forward-located inventory method emerged in the commercial parcel space.6 The cross-border opportunity is real, if postal companies can shift from being pure last-mile providers to becoming end-to-end orchestrators of the cross-border shipping chain.
C2B2C gained popularity.7 This market—which includes the sale of secondhand goods and new, handcrafted items—also presents new opportunities for postal companies. And in line with this trend, more customers are opting for out-of-home (OOH) delivery services. Postal companies’ existing physical presence and partnerships already stand them in good stead to benefit from OOH opportunities.8
The ubiquity of generative AI (gen AI) has brought the importance of data and technology into focus across all business functions.9 Embracing the productivity and efficiency potential of digital technologies has become a strategic requirement for postal companies rather than a nice-to-have. Technology has also become more accessible, so postal companies could use new digital capabilities, combined with gen AI and advanced analytics, to accelerate some of their operational and commercial transformations.
In this landscape, postal companies can focus on the following five areas to stay operationally and financially competitive:
- Reduce costs further and maximize efficiency
- Build a parcel-first and flexible operating model
- Build capabilities to accommodate new pockets of parcel growth
- Actively shape the postal ecosystem to evolve mail legacy
- Capture the digital transformation unlock
Focus area 1: Reduce costs further and maximize efficiency
With mail and parcel business being core to postal operations, lowering unit costs could lay the groundwork for a shift toward a greater parcel focus. McKinsey analysis shows that there are still efficiency opportunities, more or less, in every organization. Depending on the company’s starting position, adding cost-saving measures could potentially result in 10 to 20 percent savings.10
Postal companies could address direct costs by working toward maximizing the standardization and automation potential in delivery, sorting, and transport operations.
Reducing indirect costs and overheads is another opportunity area. As a starting point, postal companies could consider comparing procurement costs to industry benchmarks and, based on gaps, renegotiate contracts with suppliers. To go even further, companies may review procurement budgets, applying a zero-based budgeting approach. The same methods can apply to support function overheads.
Focus area 2: Build a parcel-first and flexible operating model
Flexible, parcel-first operations may help postal companies adapt to rising parcel volumes whilst supporting profitable mail business. From 2019 to 2023, postal companies continued to see changes in their volume and revenue mix. In the past, mail was the main product, and it provided a volume and revenue baseload against a high unit cost—often higher and more fixed than private peers’ unit costs. Though at varying rates and speeds among countries, all postal companies are moving toward a lower mail-to-parcel volume ratio (Exhibit 4).
McKinsey analysis suggests that postal operators still have up to 30 percent higher parcel unit costs compared to pure-parcel companies. We have seen in recent trends that this cost disadvantage will likely no longer be offset by mail synergies and scale benefits in the near future. Therefore, postal companies are at a turning point to redefine their strategy, considering whether they need to transition from mail-led to parcel-led thinking. This shift would require adjustments across the business—from strategy to operations—to design a parcel-driven model with a cost base that remains competitive against companies that do not carry mail or that have more advanced workforce and technology infrastructures (Exhibit 5).
Very concretely, postal companies can consider four key approaches that, when taken together, could support flexible, parcel-first operations.
Develop a market-led commercial strategy with a simplified product portfolio supported by advanced analytics
Using data and advanced analytics could be key to defining and pricing parcel products in a way that supports profitable growth. Postal companies could thus revise their commercial strategy by injecting granular data—including data on customer needs such as delivery speed expectations, the perceived value of products and features for senders, and senders’ willingness to pay—against the cost of providing each feature.
Instead of maintaining a complex portfolio with numerous individual parcel products, postal companies could have a clear, “easy to read” product message. For instance, in the B2C segment, the core product may be a next-day parcel delivery with a standard cut-off time, accompanied by high quality assurance standards such as 90 percent, or higher, delivery reliability.
Move toward a parcel-driven operations model with a competitive cost base
To remain competitive alongside private parcel companies, postal companies could consider adapting their operations and network toward lower unit costs. Parcel markets vary across countries, so the best-suited adaptations will likely depend on the postal company’s unique context. Enablers may include the following:
- Opting for joint parcel-mail delivery, where operations are optimized for parcel business
- Placing sorting hubs close to the fulfillment centers of customers with the largest outgoing parcel volumes
- Scaling the OOH delivery network and shifting more volumes from home delivery to OOH delivery
- Reducing legacy mail infrastructure and simplifying and centralizing the mail network structure
- Expanding sorting capacity and enhancing processing efficiency with automation
- Optimizing last-mile processes with data and analytics. Amazon, for example, optimizes real-time delivery routes in last-mile operations, taking into account variables such as traffic, weather, and package volume fluctuations, and the splitting of orders into shipments.11
Mail—in all cases—could then be integrated into the parcel system as a “tiny parcel.”
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Build a flexible workforce to match parcel volume fluctuations
Postal companies can aim for a robust staffing model that upholds delivery quality, engages and motivates employees, and is resilient and efficient through volume shifts. How postal companies reimagine their respective workforces will likely be specific to the context of their region and operating model.
First, companies could explore flexible staffing models with the right mix of labor and remuneration to respond to volume fluctuation. For example, in the 2020 peak season, the International Post Corporation (IPC) observed that a sample of five mid-sized postal companies across the world employed between 1,000 and 5,000 additional postal operators to meet the surge in demand.12
Second, working schedules could be adjusted, with planned working hours being adjusted to reflect busier and quieter periods. At PostNL, certain flexible workers—students who complement delivery staff, for instance—are expected to be available to work at least one three-hour morning shift of their choice each week.13
Third, postal companies could reimagine last-mile rounds and routing, from deploying staff to fixed routes to adjusting staffing to accommodate fluctuating parcel volumes. USPS introduced the Dynamic Routing Optimization initiative to manage staffing, involving weekly replanning of morning trips, with afternoon trips operating on a static schedule.14
Build capacity and flexibility in the network to keep up with the out-of-home delivery trend
McKinsey analysis indicates a growing market preference for OOH delivery, which could account for 20 to 30 percent of volumes in the future. To illustrate this shift: in Europe, the combined OOH volume of four large markets—France, Germany, Italy, and Poland—is estimated to grow by 1 billion parcels between 2023 and 2027.
While traditional post offices are becoming less busy, and in some cases almost empty, OOH presents postal companies with a double opportunity: unlocking cost savings compared to home delivery, and creating opportunities for postal companies to broaden their appeal to B2C and C2B2C segments. To realize the value in this opportunity, postal companies could challenge the OOH status quo in three areas: network setup, operations, and commercialization.
In network setup, postal companies may start from a fragmented OOH network interspersed with legacy post office locations and new parcel shops. To optimize the OOH network, postal companies could extract their own data and geospatial analytics to reestimate the optimal network size, capacity requirements, and location of each collection point. Several KPIs can be assessed in parallel, such as the area type (rural or urban, for instance), and what consumers view as acceptable or convenient distances for parcel pickup.
Another network setup challenge is refining the mix of lockers and parcel shop infrastructure to encourage uptake. A main benefit of using parcel shops is the variable costs, which can withstand periods of lower volume. However, they may have limited hours and longer wait times during peak periods. In contrast, lockers provide more flexible delivery and collection times but require higher initial investment and may be underutilized during off-peak seasons. Optimization criteria may include, for example, ownership choices such as rented, owned, or joint ventures, OOH’s role in adherence to universal service obligations (USO) for access, and the quality and capabilities of the OOH points.
In operations, underutilization of lockers is often an issue, due to seasonal fluctuations and/or locker sizes not matching shipment size demand. Postal companies may consider several methods of optimizing operating costs. For example, companies could buy the right types of lockers by calculating the ideal mix of locker sizes and standardizing locker dimensions based on client feedback. Companies could also reduce handovers in sorting, using automatic locker compartment size identification in parcel preparation, and introducing one-time parcel scanning. At parcel shops, optimizing subcontractor management could involve selecting and training partners efficiently, equipping them with digital tools and systems, and adjusting delivery routes to integrate the parcel points into the delivery network—while oversight and technical support could ensure quality and volume management.
Commercially, postal companies can design an OOH product portfolio offering broader scale and scope around flow direction (sending, missed deliveries, and returns) and segments (customer-to-customer shipment, for example). Then, postal companies could think of convenience features including customers’ preferred website or mobile app features, country- or region-specific communication methods, the number of days a parcel is kept in an OOH location, and simplified solutions for return shipping labels. Postal companies could also implement tailored price incentives that encourage customers to use OOH, guided by a granular analysis of the costs involved in providing these services.
Focus area 3: Build capabilities to accommodate new pockets of parcel growth
While navigating the many challenges, postal companies also have the opportunity to expand into nascent high-growth segments, particularly cross-border e-commerce and C2B2C markets.
Capture the opportunity in cross-border e-commerce
Cross-border e-commerce is growing 1.5 times faster than domestic orders.15 McKinsey’s analysis of cross-border flows suggests that China is responsible for approximately 40 percent of cross-border volumes, with active e-commerce companies AliExpress, Amazon, Shein, and Temu accounting for the bulk of it. Supply chain modes from China are, however, shifting away from the Universal Postal Union (UPU)-coordinated postal cross-border product. We estimate that by 2028, 10 percent of global cross-border parcel volumes may be delivered through post, down from 60 percent in 2016. Owing to higher quality for the receiver and competitive price points, commercial parcel and forward-located inventory could be the modes of choice by 2028, comprising approximately 45 percent and 40 percent of the cross-border volume, respectively.
There are, however, potential openings for postal companies to participate in the cross-border e-commerce value chain. The more apparent first step would be to develop a non-UPU product. But, given that a large set of sellers still use UPU postal shipments—AliExpress, for example, ships 60 to 70 percent of its volume via this route16—postal companies could also maintain some of their current volumes if they carefully manage the price setting/volume trade-off.
Build on growth in C2B2C
The growth of e-commerce infrastructure and consumers’ desire to purchase sustainable goods at low prices have converged, sparking a rising trend in C2B2C shipping. McKinsey analysis suggests that in Europe, C2B2C parcel volumes grew from 0.5 billion to 0.9 billion parcels between 2019 and 2022. C2B2C is expected to account for 11 percent of the parcel volume in 2028, expanding at a rate of 14 percent per year.17
Postal companies may find ample opportunities to participate in this space if they successfully address the C2B2C segment’s specific requirements. These specificities include the absence of cost-efficient bulk pick-ups, high shipping cost sensitivity from shippers and shoppers, a demand for reliability over speed, and need for a broad OOH network. Leading C2B2C marketplaces also prioritize seamless IT integration to meet customer expectations. Vinted, for instance, uses digital technologies to optimize its parcel network and provides its customers with detailed delivery tracking.18
Focus area 4: Actively shape the postal ecosystem to evolve mail legacy
In the past, the whole USO construct relied on high volumes of mail. This might not be the case today; in ten years, a sample of European postal operators experienced, on average, a decrease of between 3.5 and 9.0 percentage points in mail business unit profitability (Exhibit 6). Against this backdrop, postal companies have an opportunity to think through ways to sustain the USO, while remaining profitable.
Coshaping a sustainable USO starts with a shared and context-specific vision between postal operators and their stakeholders. Together, for instance, they could envision a ubiquitous USO that offers the same level of service to all citizens across well-placed access points. With this kind of agreement, postal companies could aim to operate without taxpayer funding while fulfilling consumer needs. The vision could guide joint agreements on exact service levers, USO pricing decisions, and sector employment conditions.
Stakeholders can consider the following three enablers of a sustainable USO, taking into account regional nuance.
USO flexibility to reduce cost. Collaboratively, stakeholders can revisit USO service level requirements, looking at speed of delivery, delivery frequency, product coverage, territorial (office) coverage, and quality of USO mail. Several design options for alternative mail distribution models can be explored, combining the density of an area with the desired frequency of delivery.
Pricing. Together, postal companies and regulators could review pricing to compensate for the cost increase associated with mail decline. For instance, stakeholders can explore changes in price cap formulas or differentiated, area-specific USO pricing.
Net cost financing of any structural transition: Reduction of fixed costs. Stakeholders could think through continued yearly or once-off restructuring support and the state’s role in supporting the public service provision.
To define the future of USO, postal companies could obtain broader societal support, for example, through customer surveys and comprehensive consultation with public and private entities. While such an iterative process is often a multiyear engagement, it has the potential to facilitate fact-based and broad alignment over something that could be truly transformative.
Focus area 5: Capture the digital transformation unlock
Before gen AI’s pervasiveness propelled IT onto boardroom agendas, digital interventions were often considered nice-to-haves. Today, modernizing and simplifying legacy IT architecture, reinforcing cybersecurity, and employing skilled tech talent have become crucial for companies’ sustainability, crosscutting all business functions.19
As examples in previous sections have shown, data and advanced analytics are must-haves to inform strategic priorities and drive business value. When moving ahead with any aspect of digital transformation, postal companies would do well to follow tried-and-tested approaches such as making digitization a joint effort by operations and IT, and planning for the long term, for instance by moving away from frequent quick fixes and customizations to a more standardized infrastructure. For some, this might include switching to public cloud and SaaS infrastructure. Finally, scaling AI and introducing gen AI use cases will likely be the next frontier in adding value for the customer and automating and optimizing internal operational and commercial processes.
Capturing the parcel opportunity
With a sharper decline in mail volumes, and a new competitive context, postal companies can consider taking a decisive turn in the new parcel-focused environment. Successful change may require bold, visible leadership buy-in and a mindset shift that empowers all employees to own—not just to understand—the strategy and the more radical changes.
For postal company leaders ready to take the next steps, the following questions may be a useful starting point:
- Do we have a strategic North Star (ten years ahead) and clear buy-in from our leadership team around it?
- Do we have a practical roadmap (18 months ahead) on how to redefine the operating model from mail-focused to parcel-focused, while safeguarding value on both sides?
- Have we committed to applying an agile mindset and way of working across business functions?
- Have we established data- and analytics-driven decision making in all areas of the business and in all functions?
- Are our current conversations with regulators, investors, and partners laying the appropriate groundwork for the future?
- What is our (cultural) change plan through the transformation journey to win hearts and minds across the whole organization?
