Aramex rolls out an ambitious new business plan to tackle its courier challenge and strengthen its B2C model.
Aramex turns 34 this year. For the greater part of its life, it was a regular courier company that was always known for adapting fast to changing market conditions, making some smart expansion decisions and investing in just the right markets. With this in mind, last month the company unveiled an overhaul to its business model to catch up with fast-moving technology.
The new business plan mainly tackled the courier system, moving from a fixed cost model to a variable cost one, while launching a new app that allows for a better interaction with customers.
“A lot of what we’re doing now revolves around technology. It’s a new business model and there’s a lot of technical tools involved,” explained Aramex COO Iyad Kamal.
The new model includes a variety of components, noted Kamal, but first and foremost will be converting Aramex’s last mile delivery infrastructure from a fixed-cost model to a more variable cost version. In practice, this means that instead of paying an Aramex courier team a fixed salary per month, the new model will guarantee them a minimum wage according to each country they operate in, while extra payments will be made on a per package basis. “If I pay the fixed salary, whether they deliver 500 shipments or 1,500, it’s the same salary. This new model will guarantee them a minimum wage with payments per package. The more you deliver the more you make money,” he explained.
At the same time, Aramex is looking at outsourcing more, particularly in its B2C business, or e-commerce, which makes up the majority of their business. Outsourcing instead of having couriers within Aramex means that Aramex seeks the services of other delivery companies, such as laundry or food delivery firms, to deliver part of their packages, said Kamal.
A third model Aramex is also working to develop is the ‘Uberization’ of its business, which would allow anyone wanting to pick up packages to join the Aramex virtual network and start delivering.
These solutions will help the company tackle e-commerce’s seasonality and slowdown. “As we know, it is more seasonal and has spikes linked to certain promotions launched for a period of time by e-tailers,” Kamal said. “We can’t employ a set number of couriers waiting for shipments to come based on expectations.”
To achieve all this, the logistics company has invested heavily in new technology. For example, instead of the device that the company’s couriers used for customers to sign the delivery receipts, each costing approximately $1,500, this same application was further developed and fitted in smartphones, including a Lumia, iOS, and an Android version of it.
With this new app, said Kamal, the speed of on-boarding new couriers—whether it’s getting more on the variable models within Aramex, outsourcing, or even crowdsourcing—can be done through the mobile. “It is more convenient and cost efficient,” he said.
In parallel with this new courier plan, the company has also been investing in a consumer app that makes communicating with customers an easier process. Through this app, a customer gets notified when a shipment is coming, they can specify the address where they want it delivered, the timeframe, and they also have the option to pay electronically. And as the shipment gets closer, the customer can start tracking it live, and then once the delivery is done, they can also rate the service.
According to Kamal, one of the elements of incentivizing the couriers is going to be based on the rating of the clients. Aramex has already started the trials in Egypt, and currently in Dubai. The first phase will also include India, South Africa, and Jordan.
All of these plans will be rolled out throughout this year and 2017. Moving from a fixed cost model to a variable cost one has already been implemented, so has converting the internal couriers and then outsourcing. Implementing the crowd sourcing model will most probably take place at the end of this year or even before, he said.
But why did Aramex feel the need to move into this new model?
“E-commerce is the main contributor to our revenues every quarter and every year. However, it has spikes,” Kamal said, citing Ramadan as an example when e-commerce sales surge, only to fall flat again soon after. The same scenario repeats itself during Eid al Adha, New Year’s, and Christmas. “On the other hand, we can’t have a set of crews waiting for business to come just to manage these peak times. That’s why the variable model is more efficient.”
Besides the change in the way it does business, Aramex is also expanding geographically. Recently, the company announced its biggest acquisition to date, acquiring Fastway Couriers’ full operations in New Zealand and Australia for $81 million. Kamal said this acquisition will play a major role in expanding their reach and services to more customers worldwide.
This is Aramex’s second acquisition in Australia over recent years following Mail Call, which they bought in 2014. “Australia as a destination is very important when it comes to e-commerce. They’re the fourth largest after the United States, China, and the UK. We are capitalizing on that. That’s where we will start selling B2C solutions into Australia,” said Kamal.
The company has been quite active at acquisitions, carrying out two to three a year mostly to enhance their B2C business. They recently bought a 25 percent stake in WS One General Trading LLC (WS1), a UAE cross-border parcel consolidation service provider operating out the United States.
Last year, Aramex’s revenues were up by 5 percent reaching $1.044 billion, compared to $992 million in 2014. However, the company’s net profits fell by 2 percent to $84 million.
Kamal said as e-commerce is growing worldwide—and is expected to grow even further—and as many global e-tailers are tapping into the region, it remains a sector worth investing in.
“Everyone is feeling it, from Jordan to Saudi Arabia, which is a huge market, Egypt, and up to Australia. E-commerce, shop and ship are growing at healthy rates,” he said. “Numbers reveal that e-commerce currently only represents 7 percent of retail globally, it’s still a small percentage, so we can all imagine the opportunity and potential. It’s going to grow.”