How are the company’s new superhubs changing its operations? Kevin Rozario finds out
Royal Mail’s largest automated parcel facility launched in July 2023 and is said to be transforming the way the company does business.
The so-called superhub is near Daventry, UK and was an essential build because of continually rising parcel volumes and consumer demand for rapidly delivery. In the three months to December 2023, the volumes handled by Royal Mail were up by 21% to 387 million year-on-year, of which 53 million were international (Royal Mail and Parcelforce Worldwide), up 36%.
The quarter was important as Royal Mail claims to have “won back” customers lost during industrial action last year. The company was also under investigation by regulator Ofcom for failing to meet its delivery targets in the letters division of its business.
Parcels look to be performing much better. The segment is the bigger part of Royal Mail’s revenue: £3.06bn (US$3.92bn) versus £2.76bn (US$3.53bn) for letters in the nine months to December 2023, respectively. The parcel business has therefore seen a lot of investment focus and superhubs are one outcome.
The Daventry plant is an essential part of Royal Mail’s parcel ecosystem and the second large-scale automated parcel facility to open after Warrington the year before in June 2022. Since opening, the vast Daventry unit – on 53 acres, the equivalent of 30 football pitches – already receives 40% of the postal operator’s parcel traffic.
90,000 parcels an hour
The facility is designed to handle this without a hint of stress or strain thanks to incredibly fast processing speeds. On opening, Royal Mail said that the Daventry unit could handle 90,000 parcels an hour but the company declined to say whether it was achieving those speeds almost 10 months on. For comparison, the Warrington superhub could sort up to 40,000 items an hour on launch.
A spokesperson said, “The opening of these superhubs has revolutionized our parcels network, bringing in advanced technology and automation and securing quality jobs. This is our second superhub after Warrington. Together, they create an interconnected, market-leading parcels network that stretches across the UK.”
Royal Mail is keen to stress it is the only business in a competitive industry that delivers door to door across the entirety of the country. But that competition stiffened in January when the Post Office – mired in a long-running Horizon IT-system scandal that led to the false conviction of many postmasters – took the decision to break Royal Mail’s 360-year-old parcel monopoly at its more than 11,000 branches.
The Post Office and Royal Mail were a single, government-owned unit until 2012 when the latter was privatized. More than a decade later, the two entities retain a close relationship but the opening up of the parcel business this year is an indicator that the ties have weakened.
Post Office parcel services have, since January 2024, been offered by rivals Evri and DPD to give customers more choice, flexibility and possibly pricing variation. The Post Office said that in a survey, 48% of people who send parcels wanted to have the option to shop around for different providers.
Losing the monopoly could dent Royal Mail’s revenues but it is under more than financial pressure. Last October, the UK communications regulator Ofcom fined the company £5.6m (US$71.m) for failing to meet its first and second class delivery targets in the 2022/23 financial year.
In January this year, the regulator also called for a national debate on future of the UK’s postal service, as letter volumes had halved since 2011. It said in a statement, “The universal postal service risks becoming unsustainable as people send fewer letters and receive more parcels.”
Before the pandemic, UK parcel volumes were 2.8 billion (2019/2020) but shot up to 5.4 billion in 2021. Then they dropped back somewhat to 3.6 billion in 2022/2023 as normal life resumed. But the general trend is up as more online retailers enter the fray.
While Royal Mail’s superhubs are one answer to this surge in parcel demand, Ofcom’s annual Post Monitoring Report released in December shone an unfavorable light on the company in terms of satisfaction surveys with the public. In terms of contact processes related to parcels, the regulator ranked Royal Mail sixth among nine operators, with only 44% satisfied with the service they got. At the top of the list was Fedex with 58% followed by Amazon with 56%.
Seven-minute sorting
Nevertheless, Royal Mail retains an advantage in being such a dominant parcel processor and its two superhubs should extend this lead. Once parcels are delivered to the hub, an intelligent network of cameras, conveyor belts and scanning technology automatically sort them. The cameras capture a six-sided image of each parcel before scanning its barcode, reading its address and recording its size and weight.
The whole process takes just seven minutes for each package to pass through the site’s sorting machines. They can then be sent out for dispatch across Royal Mail’s network on one of 1,600 vehicles that are coming in and out of the facility daily.
This highly automated processing means that 235 million parcels a year can pass through the hub. “We then use the transport links at the site to ship items across the UK, fulfilling the needs of our customers for a reliable parcels business that will deliver for them the next day, every day of the week,” the spokesperson said.
Today’s consumers remain addicted to online shopping with growing expectations of faster product deliveries, a model that Amazon has honed through its Prime next-day service. In the UK, Amazon Logistics generated US$2.4bn in 2020 according to Statista, a 60% increase compared to the previous year.
However, Royal Mail remains the leader with a market share of parcel courier services at 25% in 2022, well ahead of Amazon’s 17%. The postal operator sees speedier service as an inevitability and becoming routinely demanded by the public.
“Our customers are increasingly moving toward next-day delivery and achieving this requires substantial infrastructure in key locations,” the spokesperson explained. “Locating this superhub in Daventry adjacent to the warehouses and fulfillment centers of several major online retailers has the benefits of providing a quick, organized and more environmentally efficient movement of parcels.”
Scottish link via a dedicated Royal Mail train
As well as 1,600 vehicles using the Daventry superhub daily, the site also includes an integrated rail link which has the potential to deliver north-south benefits and a slightly less damaging environmental footprint.
Royal Mail’s spokesperson commented, “The train leaving from the dedicated rail link can carry enough parcels to take up to 16 trucks a day off the road, which is over 3,000 truckloads a year.” In the grand scheme of things this is a small fraction of the vehicles that will be coming and going from the plant.
However, the rail terminal offers direct access to the West Coast Main Line, the UK’s primary rail freight route, so it should strengthen Royal Mail services to Scotland by connecting to Royal Mail’s Scottish distribution center near Glasgow. The company said in a statement “It’s another stride in our work to reduce our reliance on domestic flights in favor of rail and road.”
All of this will contribute to Royal Mail’s Steps to Zero campaign, whose aim is to reduce the company’s carbon emissions to net zero by 2040.
Will parcels take priority?
Royal Mail is managing to drive the operational efficiency of its parcel business but is still working to improve its contact services. Superhubs offer a strategic way forward as Royal Mail becomes increasingly reliant on parcel delivery as letters continue to decline in volume.
However, the company has a universal service obligation (USO) to deliver letters six days a week and parcels five days a week and this has not changed since 2011. Ofcom’s latest call for a review and modernization could bring Royal Mail some flexibility to skew more toward parcels and much hangs on how the USO will be revised (as seems likely).
Royal Mail did not comment on whether more superhubs were pipelined to futureproof its parcel business. However, forecasts suggest that parcel demand in the UK will continue to increase so the need for better processing will only increase. Pitney Bowes has forecast that global parcel volumes will reach 225 billion by 2028 (a 6% CAGR from 2023-2028) with the UK having a share of up to 5.6 billion of the global market.
Royal Mail is therefore preparing for the future. Its spokesperson said, “Both of Royal Mail’s superhubs represent a significant investment that are laying the foundations for the operator’s future network. They have been created in the context of next-day deliveries.”
