Profits in mail for postal tie-up

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WHILE the big express carriers' earnings collapsed last financial year, along with almost everything else involved in international trade and commerce, Kahala Posts Group increased its revenues 8 per cent.

Because KPG is a consortium of national postal services, Australia Post managing director Graeme John doesn't have to, or care to, publicly disclose earnings, though he says it's "hugely" profitable.

Kahala's revenues have grown 61 per cent in six years to top $US1.5 billion ($1.9bn) in 2008-09, but it's invisible to customers.

What they see are new self-trackable, guaranteed-delivery parcel services offered by their post offices -- Express Courier International, in Australia Post's case.

This year, with the postal services of Spain, France, Britain and Singapore newly operating within KGP, its reach will extend to 80 per cent of the world market.

There's a queue of other agencies wanting to join and the group is keen to breach new markets, particularly in South America. The main brake on rapid expansion is a rigorous verification process to ensure aspirants can meet the group's quality assurance and technology standards.

What started operation in 2003 as a Pacific Rim concept involving Australia, Japan, the US, China, Hong Kong and South Korea is now well on the way to becoming fully global.

Kahala was originally John's idea: postal services of the strongest Pacific Rim trading economies combining to provide international express parcel services.

This would claim back a role in a market that once belonged to post offices but had been gnawed down to insignificance by the global delivery operations of UPS, FedEx, DHL and TNT, the so-called integrators.

In a broader sense, the concept arose from the endless quest by managers of "legacy" businesses such as postal services to extract full utility from irreplaceable assets -- in Australia Post's case, a network of 4453 post offices and delivery services -- but whose traditional core activities, such as letter handling, are beginning to wither.

"There's billions of dollars tied up in postal assets around the world; they've just got to be better utilised," John told The Australian after the KPG board met in Kyoto last week.

With almost three decades' experience in transport logistics, John saw an opportunity to reclaim a share of the international fast-parcel market by combining postal services' natural distribution advantages with new technology, to undercut the integrators on price while matching them on reliability.

Postal services already co-operated to deliver parcels, of course, but they were unreliable in time-sensitive situations because an item would pass from one discrete service to another without management along the whole delivery chain. "That was one of the big powerful things in my imagination, at the beginning," John said.

"We've got all this infrastructure but we're stuffing it up because we're not monitoring it properly, we're not promoting it properly, we haven't got the service capabilities to release this potential."

A uniform monitoring and traffic control system, integrating the participating services, would allow them to use passenger jet cargo holds -- rather than dedicated aircraft fleets -- to move parcel freight flexibly and reliably.

There would be a time cost in not delivering by dedicated transport, but also huge operational savings: John characterises this trade-off as "one day later than the integrators and about 40 per cent cheaper".

Most importantly, however, the integrated monitoring and management meant for the first time postal services could offer express customers "date-certain" delivery guarantees.

What emerged within a year of him presenting his concept to a meeting of Pacific Rim postal service chiefs in 2003 was the Kahala alliance.

Because of postal distribution systems at either end of the service, the establishment capital costs were minimal -- less than $US10 million -- focused on developing the monitoring system and ensuring the six foundation partners would meet their joint quality commitments.

"(Since then) I can honestly say I would have taken about three telephone calls in six years in relation to some problem that's happened in the Kahala accord and generally that's been caused by weather or something else we couldn't control," John said.

With the four new entrants, the Kahala group now claims 176,000 postal service front offices and 382 million delivery points in 10 countries; the KPG database consists of 16 billion pairs of postcodes.

The current focus is on consolidating the global operation and developing new services: the partners see large potential in deliveries to online retail customers and even international cash-on-delivery, which is still a major function of domestic postal services.

KPG might in future become a separately owned operation. "Disaggregation" has been discussed, John said, though it is not currently under consideration.

But ultimately, customers' relationships with post offices is a core strength of the Kahala service.

And a valuable additional way of making those 4453 post offices work harder for their keep.