PARCEL MACHINE AS THE BEST THING SINCE SLICED BREAD

Kristi Unt, Omniva member of the management board and head of parcel business

Eesti Pank recently published statistics according to which e-commerce turnover increased less than 1% in a comparison between 2020 and 2019 internationally. How can that be, if all e-shops and logistics companies have reported boosting volumes? 

In addition to goods, the report by Eesti Pank includes turnover from services. Due to COVID-19, the latter fell significantly (concert tickets, accommodation, etc. dropped almost to zero). Purchases from Estonia, i.e. e-commerce turnover inside Estonia (including both goods and services) increased by 15%, regardless of the drop in e-services.

To get a picture of the volume of goods, the Estonian E-Commerce Association monitors the volumes in parcel machines. According to this, 54% more parcels moved in Estonia in 2020 (orders from companies by private persons). Additionally, courier services, parcel movement in post offices and via mailboxes are also included. The latter two are nevertheless have a smaller impact in terms of goods traffic in Estonia, because the post offices or mailboxes usually receive parcels arriving from abroad without a telephone number.

Estonians, and increasingly also Latvians and Lithuanians, are the number one parcel machine nations in the world. According to PostEurop, an organisation that gathers postal and logistics companies, people in other European countries mostly prefer to have their parcels brought to their home by the courier (although everyone highlights the negative aspects such as having to plan your day according to the delivery time and often the advance notice time is short), Estonia has long been standing out in this regard. According to various surveys, 70-80% of Estonians prefer parcel machines for receiving parcels.

Network expansion is the grounds for success

Although other countries have started to consider parcel machines more, especially in light of the corona situation, Estonia is evidently far ahead already. In recent years, Estonia has been hit by a significant boom in the installation of parcel machines. In 2018, Omniva made the first serious spurt by installing 100 parcel machines in Estonia during the country’s 100th anniversary year and thus ensured its position as market leader and increased its lead over the other market players. And not only in Estonia, because the network grew even more in the Baltic states. This also provided a result: According to the Estonian E-Commerce Association, Omniva’s parcel volume comprised 57% of the entire parcel market in Estonia in 2020. “Omniva’s major market share and growth is thanks to the well-developed parcel machine network and its presence and cooperation across the Baltic states, as well as the mediation of the parcels of several international e-giant’s in large volumes,” said the E-Commerce Association in its report.  

Naturally, the growing demand for parcel machines was not missed by others. Itella and DPD in 2020 indicated their plans to have similarly powerful network expansions, both in Estonia and the Baltics, and the majority of instalments have already been completed with some remaining scheduled for 2021.

Of course, Omniva will not take a break here. Especially if we consider that Omniva owns 43% of the parcel machines in Estonia but 57% of the parcel volume. On the one hand, this indicates high network efficiency, but on the other hand, it is clear that the expectations of current and new clients do not fit with the existing network. Thus, this year’s first supervisory board meeting approved an investment into expanding the parcel machine network of the entire Baltic states. This expansion will be similar in scale to the one made during the previous expansion and that the competitors have now been forced to keep up. Network optimisation, expansion and movement towards rural areas has already begun as well.

Network size is crucial in serving growing volumes – and even outside of major cities. This was especially highlighted by the first corona wave in spring, where people left the cities to country homes and cottages and e-commerce orders to these areas skyrocketed. This is so for conventional goods but especially for food – the expansion of food delivery outside of cities (and even to smaller towns) would have likely taken a couple of more years had it not been for the coronavirus.

Innovative solutions and bold ideas

The need to provide automatic service that runs 24/7 in smaller settlements and rural areas has also brought about new solutions. Omniva is experimenting with post machines in 12 villages, where the client can currently order parcels, and the next step is to open up the network to local entrepreneurs so they can use the post machine as a delivery point for their goods. Itella is installing so-called white parcel machines with different functions from regular machines to smaller settlements. Similar to post machines, it is not yet possible to send a parcel, only to receive them, but for a private client, receiving a parcel is already the most poplar service.

Itella is also launching new parcel buildings where the parcel machines are installed into special containers with glass facade. This is an excellent solution if Itella continues to see indoor parcel machines as their strategy and finding suitable rooms for this (especially in smaller areas) has proven difficult. Here it is worth mentioning that the corona-age has completely changed the clients’ preference in favour of outdoor parcel machines with 24/7 access (“Parcel machine located outdoors is the best thing since sliced bread,” wrote a client, applying for an Omniva parcel machine for their community), but a container that is not dependent on the opening hours of a mall or another establishment at least provides 24/7 access to the client.  

There are other bold ideas. Cleveron has applied for a 30 million euro loan from KredEx to install 4500 parcel machines in Estonia. These would be partly village centres and partly machines for personal use. Previously, they also had an idea concerning 20,000 parcel machines.

Installation of parcel machines establishes a network, but it is just as important that there is someone to also fill and empty the machines. And that all of this would not be expensive or leave a significant footprint – CO2 emission from vehicles is one of the largest factors in the footprints of logistics companies. Indeed, DPD deliveries have become carbon neutral with purchased emission quotas, but for Estonia, adopting electric vans is much more important in practice. DPD Estonia has made an excellent start here and others have made the same plans. As a side note, this does not only concern transport – Omniva for instance already sorts parcels in an environmentally friendly manner because the logistics centre is largely powered by solar energy.

Of course, electric vans also have some kind of impact and their use has its own complexities. But even if we leave the environmental impact aspect aside, the cost aspect remains – if each company starts driving between its thousands or tens of thousands points with the parcels, it will be unreasonably expensive for the client, or the network payback period will be unreasonably long.

Step by step towards local service

Omniva has calculated that Estonia would be reasonably covered and logistics would be backed with reasonable expenses if each Estonian village with at least 150 residents would have a machine. This would mean installing a thousand machines across Estonia as an open network, which could be used by local entrepreneurs and other courier companies. But even this (considering also the logistics component the Cleveron investment application does not have) would cost several million euros which the company simply does not have, regardless of the record-breaking year.

To approach the local service step by step, Omniva is reaching settlements with approximately 900 inhabitants and even to settlements with 700 or less residents. And these numbers are not set in stone – Omniva parcel machines can already be found in smaller places where parcel traffic is significant and demand for service is great.

Omniva’s financial condition has been a topic recently, so let us comment on that as well. Since the company ended 2019 with a loss, 2020 was characterised by finding a greater efficiency in operations. In the course of this, we came to the need for a greater strategic change: the need to offer a common and integral service from the client’s perspective, without separating it in terms of postal and parcel services. And the aim here is not just efficiency, but also turning towards the clients’ needs: bringing the service closer to the client and making the service more available for the client, including those in rural and remote areas.

All this means focusing on the client experience. Just like it was important for e-merchants in spring to establish an online store, today simply having an online store is not enough. The one with the most convenient e-store, the strongest and most client-oriented, i.e. nearest shipping partner wins. We need to work on becoming that partner.

Thus, Omniva’s strategic development aim for the future is combining postal and parcel services into one service. In light of this, we also see the need to move from the current requirements describing postal network (which, by the way, do not include a word about parcel machines!) to requirements describing service availability and quality. This is also a topic that needs to be resolved quickly in light of growing e-commerce. As it is said – the client wants to receive their parcel quickly, at a suitable time and near their home.