News Extra: Yodel - tough at the top

Last month MT exclusively revealed that Yodel chief executive Jonathan Smith is to leave the parcels firm after two years in charge of the combined DHL Express Domestic UK and HDNL (not to mention 18 months in charge of the DHL business alone).

Smith’s CV shows more than 20 years’ experience in parcels, including a spell as chief executive of City Link – before its problematic take-over of Target Express – and a regional director role at British Rail’s parcels business Red Star in the 1990s.

Tough few years

It has been a tough few years for Smith, at the helm of the biggest network integration in the UK before the spectre of UPS and TNT loomed.

The creation of Yodel has been a painful process of slimming the merged network from more than 100 to 57 sites, resulting in losses running at £2m a week at one point.

However, Smith did not hide from the spotlight. He spoke to MT in August and was frank about the issues he faced and the difficult decisions that have had to be taken to bring Yodel back into the black.

“Both [HNDL and DHL Domestic] had suffered from failing to respond quickly enough to the change in the market to B2C. HDNL was a traditional catalogue delivery business with some online coming in, while DHL Domestic was mainly B2B but suddenly saw its world changing around it.”

Economies of scale

Despite its difficult childhood, Yodel does have a lot going for it, Smith claims.

“We have got large volumes and economies of scale,” he says. “We have created a big player alongside the Royal

Mail – this is a scale business and I’m not sure there is room for a niche player in this market.”

Shrinking the merged network to reduce costs without losing volumes has been a crucial part of Smith’s job.

“We have shrunk our service network to half its previous size and amalgamated clients who perhaps were trading on B2B with DHL and on home delivery with HDNL,” he says. “We now have 57 sites, which is not dissimilar to Parcelforce.”

However, maintaining a network capable of handling double the average volume just for a two-week Christmas peak makes it very difficult to realise a profit over the rest of the year.

“One of the things we have seen change substantially in recent years is that the Christmas peak is getting much bigger,” says Smith.

“A couple of years ago we ramped up by a factor of maybe one or one-and-a-half times average volumes; now it is two- and-a-half.

“Why we didn’t see this coming is because we didn’t realise there was no ceiling to an online Christmas. There is to a high street Christmas – car parking, stock availability etc – but online the ceiling is the number of times shoppers can click.

“What was hurting Yodel was the difference between the peak and non-peak volumes and that is why we made the changes.”

As well as changing consumer expectations, Yodel is having to re-educate its retail customers on what is achievable in the run up to Christmas.

The bad weather of winter 2010/11 and the backlogs experienced by some B2C carriers was a wake-up call to the delivery sector, which has been far warier of over-promising and under-delivering since.

“We have a number of clients who trade up six times in December compared with the rest of the year,” says Smith.

“We have changed our commercial model, with phase one [of three] starting on 1 August, to charge in line with that ratio so those clients who are peakier will take more of the cost at Christmas than those who are not so peaky. In the past we have taken on accounts and not even thought about the Christmas peak.”

Prioritising clients

With Christmas delivery capacity being outstripped by demand, Yodel will prioritise clients who sign up to this new pricing model. They will be guaranteed 98.5% on-time deliveries, six days a week, with no extra charge for Saturday deliveries, free SMS text notifications and no surcharge for Northern Ireland or Scotland.

Yodel accepts it will see its Christmas volumes fall but expects to see revenues rise to more acceptable levels.

“Retailers haven’t seen this change coming, but in December no one in the home delivery market has enough space and we are trying to put too much volume in too small a pot,” says Smith.

“We are telling clients that if they accept this pricing ratio we will save space for them at Christmas. Having to reserve space in August for Christmas is quite a new concept for retailers.”

Saying no to retailers

Online retailers who have not signed up with a delivery firm soon might have difficulty finding a carrier willing to guarantee Christmas deliveries. Saying no to a retailer is something no carrier likes to do, but that is what Yodel will do rather than exceed its capacity to deliver on time.

“We are getting to the point where unless a client’s ratio fits our network capacity we will have to turn them down,” says Smith. “Delivery capacity will ultimately limit online shopping in the UK.”

Clearly this is not in the consumers’, retailers’ or carriers’ best interests, but running out of space for the Christmas peak is a real possibility until delivery rates rise to the point where profits justify investing in new capacity.

“The biggest pinch point for us at Christmas isn’t sortation or transport but the last mile,” says Smith.

“If we can get the right rate we will bring in staff a month earlier to train them better and get them on sites. But with the margins we are working on that isn’t possible.”

Whoever fills Smith’s shoes has a challenge, and an opportunity, on their hands

Last month MT exclusively revealed that Yodel chief executive Jonathan Smith is to leave the parcels firm after two years in charge of the combined DHL Express Domestic UK and HDNL (not to mention 18 months in charge of the DHL business alone).

Smith’s CV shows more than 20 years’ experience in parcels, including a spell as chief executive of City Link – before its problematic take-over of Target Express – and a regional director role at British Rail’s parcels business Red Star in the 1990s.

Tough few years

It has been a tough few years for Smith, at the helm of the biggest network integration in the UK before the spectre of UPS and TNT loomed.

The creation of Yodel has been a painful process of slimming the merged network from more than 100 to 57 sites, resulting in losses running at £2m a week at one point.

However, Smith did not hide from the spotlight. He spoke to MT in August and was frank about the issues he faced and the difficult decisions that have had to be taken to bring Yodel back into the black.

“Both [HNDL and DHL Domestic] had suffered from failing to respond quickly enough to the change in the market to B2C. HDNL was a traditional catalogue delivery business with some online coming in, while DHL Domestic was mainly B2B but suddenly saw its world changing around it.”

Economies of scale

Despite its difficult childhood, Yodel does have a lot going for it, Smith claims.

“We have got large volumes and economies of scale,” he says. “We have created a big player alongside the Royal

Mail – this is a scale business and I’m not sure there is room for a niche player in this market.”

Shrinking the merged network to reduce costs without losing volumes has been a crucial part of Smith’s job.

“We have shrunk our service network to half its previous size and amalgamated clients who perhaps were trading on B2B with DHL and on home delivery with HDNL,” he says. “We now have 57 sites, which is not dissimilar to Parcelforce.”

However, maintaining a network capable of handling double the average volume just for a two-week Christmas peak makes it very difficult to realise a profit over the rest of the year.

“One of the things we have seen change substantially in recent years is that the Christmas peak is getting much bigger,” says Smith.

“A couple of years ago we ramped up by a factor of maybe one or one-and-a-half times average volumes; now it is two- and-a-half.

“Why we didn’t see this coming is because we didn’t realise there was no ceiling to an online Christmas. There is to a high street Christmas – car parking, stock availability etc – but online the ceiling is the number of times shoppers can click.

“What was hurting Yodel was the difference between the peak and non-peak volumes and that is why we made the changes.”

As well as changing consumer expectations, Yodel is having to re-educate its retail customers on what is achievable in the run up to Christmas.

The bad weather of winter 2010/11 and the backlogs experienced by some B2C carriers was a wake-up call to the delivery sector, which has been far warier of over-promising and under-delivering since.

“We have a number of clients who trade up six times in December compared with the rest of the year,” says Smith.

“We have changed our commercial model, with phase one [of three] starting on 1 August, to charge in line with that ratio so those clients who are peakier will take more of the cost at Christmas than those who are not so peaky. In the past we have taken on accounts and not even thought about the Christmas peak.”

Prioritising clients

With Christmas delivery capacity being outstripped by demand, Yodel will prioritise clients who sign up to this new pricing model. They will be guaranteed 98.5% on-time deliveries, six days a week, with no extra charge for Saturday deliveries, free SMS text notifications and no surcharge for Northern Ireland or Scotland.

Yodel accepts it will see its Christmas volumes fall but expects to see revenues rise to more acceptable levels.

“Retailers haven’t seen this change coming, but in December no one in the home delivery market has enough space and we are trying to put too much volume in too small a pot,” says Smith.

“We are telling clients that if they accept this pricing ratio we will save space for them at Christmas. Having to reserve space in August for Christmas is quite a new concept for retailers.”

Saying no to retailers

Online retailers who have not signed up with a delivery firm soon might have difficulty finding a carrier willing to guarantee Christmas deliveries. Saying no to a retailer is something no carrier likes to do, but that is what Yodel will do rather than exceed its capacity to deliver on time.

“We are getting to the point where unless a client’s ratio fits our network capacity we will have to turn them down,” says Smith. “Delivery capacity will ultimately limit online shopping in the UK.”

Clearly this is not in the consumers’, retailers’ or carriers’ best interests, but running out of space for the Christmas peak is a real possibility until delivery rates rise to the point where profits justify investing in new capacity.

“The biggest pinch point for us at Christmas isn’t sortation or transport but the last mile,” says Smith.

“If we can get the right rate we will bring in staff a month earlier to train them better and get them on sites. But with the margins we are working on that isn’t possible.”

Whoever fills Smith’s shoes has a challenge, and an opportunity, on their hands.