SA Post Office turnaround staked on e-commerce and drone deliveries

The South African Post Office, which faces ongoing criticism from the public over delays in mail and parcel deliveries, wants to revive its long-stated plan of becoming an online shopping delivery player.

The difference this time is that the Post Office wants to enhance its outdated and manual delivery system to become a technology player that even incorporates the use of drones for speedy mail and parcel deliveries across SA.

Having lost its monopoly on package deliveries given the proliferation of faster courier companies such as DHL, Aramex and PostNet – which can also reach small towns with red post boxes on street corners – the Post Office plans to regain its crown jewel status through technology investments of an undisclosed sum.

The first investment will see the state-owned enterprise (SOE) launch an e-commerce platform in April 2019 in collaboration with the Universal Postal Union as well as local and international online retail players.

The idea is for the Post Office to be the preferred parcel delivery partner for online retailers using its extensive reach across SA and infrastructure that includes more than 800 branches and 26 mailing centres.

In other words, the Post Office wants a bigger share of the South African online shopping logistics market.

Another feature of the Post Office’s e-commerce plan is the use of drones for parcel deliveries in SA, which would see the SOE join its international counterparts such as Japan Post and France’s La Poste, which have begun test deliveries using drones.

Post Office CEO Mark Barnes says the use of drones for deliveries is still at the investigation stage and such deliveries might only be commissioned in the long-term. “Drones are a complicated,” he told Moneyweb last week on the sidelines of his Post Office turnaround plan presentation at the Gordon Institute of Business Science. “This will take some time to launch.”

Herculean task

Barnes has been the driver of the Post Office’s move to the e-commerce space since he was roped in from the private sector three years ago to take on the herculean task of saving the financially distressed SOE.

In the early days when Barnes took over as CEO, the Post Office was so broke that it couldn’t afford to buy toilet paper at its branches or repair bicycles for its postmen to deliver mail. And long before the phenomenon of state capture become a popular fixture in SA’s lexicon, the Post Office’s going concern status – like many other SOEs – was weakened by corruption, mismanagement and bad procurement decisions.

Barnes’s turnaround plan, which will continue until 2030, has included, among other things: cutting costs and wasteful expenditure (his first task was moving the Post Office’s head office from swanky Centurion to the Pretoria CBD, saving R4 million per month in lease expenses); receiving funding from National Treasury (it has received more than R3 billion in recapitalisation funding since 2016); and winning the contract to distribute a portion of social grants to 18 million beneficiaries.

Although the Post Office is still loss-making, recording losses of R908 million in its 2018 financial year, Barnes says the SOE has been stabilised as it has R9 billion of cash on hand.

The next phase of the turnaround plan is to invest in technology; the Post Office has suffered from 15 years of no capital investment. The technology investments will likely be funded from the Post Office’s recapitalisation funding from Treasury, its own financial resources and private capital as well as technological partners.

Mail and parcel backlog

Barnes said e-commerce will be a big revenue driver for the company in the future. Today, mail delivery is a declining and loss-making business, which makes up 70% of the Post Office’s total revenue.

Technology can also improve the Post Office’s efficiency in delivering mail and parcels, said Barnes. The Post Office handles 2.8 million pieces of post per day and 80% of this is sorted manually. Meanwhile, the handling of mail is 90% computerised by the Post Office’s international peers. “They have scanners and technology to process post faster. We will get to this level after we invest in technology.”

The Post Office suffered a mail and parcel delivery backlog that was exacerbated by a two-week strike in July 2018. At the height of the backlog, the Post Office accumulated a backlog of 48-million domestic parcels and letters. Barnes said this backlog has been cleared.

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