Making Post Offices Relevant again: Aramex

Aramex is using technology to enable post offices to compete with global courier giants, but is the approach feasible and sustainable?

Aramex is a global provider of logistics and transportation services, based in the Middle East. It is unique in the industry as it is an asset-light provider of delivery services that relies on partnerships and technology to compete with global giants in the industry such as FedEx and DHL. It employees 18,000 people and now has 567 offices in 69 countries. It has grown to annual revenues of USD 1.2 billion and a market cap of USD 2.0 billion (listed in Dubai). Very recently Aramex has launched a hybrid delivery product which aims to make post offices relevant again by disrupting conventional delivery systems!

Redefining Last Mile

Digitalization is completely transforming the courier / logistics industry and existing mega supply side systems are ripe for disruption by agile smaller players such as Aramex. However, Aramex must constantly innovate and improve its digital supply chain solutions to have any chance at surviving the likely onslaught from the big players who will defend their turf. Most of delivery system optimization is focused on the setting up and cost minimization of the last mile. It is easy enough to bulk shipments together at the air freight or shipping stage, but at the end of the chain are usually individual addresses and delivery items which need extensive delivery networks. Research on hub & spoke distribution systems [1] has combined in recent years with reception and delivery boxes [2] [3].

To address these trends, in the short-term Aramex has adopted digitalization in its home region by installing central collection boxes that are integrated with their downloadable app for both delivery staff as well as consumers.

Their central data system optimizes delivery routes and groups packages so that staff just follow instructions on an app and face minimal delays with directions and/or end consumers not being present to receive packages. The end users can opt to receive packages at home or at a nearby delivery box, and get automatic notifications and geo-tracking data of their delivery person.

Video of Aramex App in use : Video

Making Post Offices Relevant Again

The real breakthrough for Aramex last year has been their partnership with Australia Post. Mega players in the global delivery space rely on significant capital expenditure in every new geography they want to service to build out warehouses and delivery networks. Aramex realized that this capex is unnecessary as underutilized local post offices exist everywhere in the world and usually have the best delivery coverage and last mile dynamics. The only obstacle has always been that outsourcing last mile to post offices is expensive and inefficient as inter-government laws for most countries require the entire journey to be covered by the post office’s global alliance partners. Aramex has teamed up with Australia Post to combine their respective strengths. Aramex brings in international courier strengths of bulk shipping, preferred air rates, full control over line haul speed, no weight restrictions, and state of the art digital tracking and notification systems. Australia Post brings its global alliance network which delivers to every address in the world at minimal inter-government rates. The hybrid product is cheaper than courier, faster than mail and easily scalable with zero up-front capex. This is a very viable medium-term solution that leverages the power of digitalization by applying it to existing brick & mortar post offices that individually do not find it feasible to develop advanced tracking and app based solutions and had seen declining utility and usage.   

 

Challenges

Whilst Aramex is banking on digitalization to disrupt existing delivery practices, this is a double-edged sword and reduces barriers to entry for competitors as well. Traditional delivery networks relied on warehouses and in-house delivery vehicles and personnel. The future increasingly looks to be more digital and banks on shared economy. Aramex has rolled out an Uber style delivery app and excess storage space in homes can also be pooled and monetized perhaps. The challenge then is to stay at the forefront of technological advances and to make sure digitalization is a friend not foe.


Open Questions

Will competitors also follow suit and look to set up partnerships with Royal Mail, La Poste and the likes? How sustainable is a business model that depends on partnerships and digitalization as its only value proposition?

Word Count: 700

 

Citations:

1)     McKinsey & Company, Knut Alicke, Daniel Rexhausen, and Andreas Seyfert. Supply Chain 4.0 in consumer goods

2)     Greasley, A. & Assi, A. 2012, “Improving “last mile” delivery performance to retailers in hub and spoke distribution systems”, Journal of Manufacturing Technology Management, vol. 23, no. 6, pp. 794-805.

3)     Punakivi, M., Yrjola, H. & Holmstrom, J. 2001, “Solving the last mile issue: Reception box or delivery box?”, International Journal of Physical Distribution & Logistics Management, vol. 31, no. 6, pp. 427.

4)     PWC, Stefan Schrauf and Philipp Berttram, “Industry 4.0 – How digitization makes the supply chain  more efficient, agile, and customer-focused”

5)     Financial Times, Tara Gally, June 28 2015, “Aramex aims to disrupt the logistics industry”

6)     Lee, H. L., & Whang, S. (2001). Winning the last mile of E-commerce. MIT Sloan Management Review, 42(4), 54-62. Retrieved from http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/224963621?accountid=11311

7)     Aramex Investor Presentation Q3 2017, Company website

Previous:

All Digital at ALDI: Fast Times in Supermarket Tech

3 thoughts on “Making Post Offices Relevant again: Aramex

  1. Oosman,

    Thanks for your article. It is encouraging to see a potential private sector solution to declining post office performance. However, I have concerns regarding Amarex’s scalability for two reasons. My first concern is the competitive question you raised. Aramex’s competitors are not only global courier giants, but also, and perhaps more threatening, Amazon. As Amazon begins to expand its own delivery service, it is arguably surpassing local post offices in their ability to maintain the best delivery coverage and last mile dynamics [1]. For this reason, I could easily envision Amazon making Aramex irrelevant in the near future. My second concern is the degree to which Aramex can convince other national postal services to partner with Aramex. I fear that many post offices will see Aramex as a potential foe rather than friend and be loath to share their most competitive assets–their delivery networks–with Aramex. Rather than seeing Aramex as enabling them to compete with global courier giants, post offices may view Aramex as just another courier giant seeking to squeeze them out of the networks they built.

    [1] Spencer Soper, “Amazon Is Testing Its Own Delivery Service to Rival FedEx and UPS,” Bloomberg, October 5, 2017, https://www.bloomberg.com/news/articles/2017-10-05/amazon-is-said-to-test-own-delivery-service-to-rival-fedex-ups, accessed November 2017.

  2. I think sustainability of this value proposition will depend on how the revenue is shared between the partners. I think another obstacle will be convincing local postal services to create a partnership, as they are usually government funded/run like the United States Postal Service (USPS). With the government being involved there is usually a lot more red tape to create a partnership. It seems as though this model is not a copy and paste structure since each country and partnership will have its own nuances and terms for delivery of product. It does seem like the barriers to entry are low so many competitors can implement and expand this idea quickly unless Aramex can create a clear differentiating point for their service.

  3. Thanks for an interesting article on how an innovative company is trying to solve last mile logistics. To answer your questions about barriers to entry, I’d be curious to know more about the geographical footprint of Aramex’s operations. In the Zalora Philippines case in marketing, we were introduced to some of the huge last mile logistical challenges facing companies in emerging markets. Aramex’s website says that their goal is to create ‘greater trade in and between emerging markets.’ (source: https://www.aramex.com/about/about-aramex). If they stay focused on emerging markets, I would be less concerned about competition from companies like Amazon that have primarily focused to date on more mature markets. In the meantime, they can establish market dominance and may be harder to disrupt.

    I share the concerns of the other commenters about the challenges of partnering with large bureaucratic organizations like post offices. Given the pressure for highly innovative companies to disrupt and move fast, I’m skeptical that even if they can secure partnerships they will be able to effectively work together.

Leave a comment