Here are 5 risks that could hamper SingPost's growth outlook

Its e-commerce venture could face tight competition.

According to CIMB, in response to declining mail volumes and an increasingly tough operating environment, SingPost is undergoing a major transformation to become a leading e-commerce logistics player in Asia. CIMB noted five possible risks that could threaten SingPost's

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1 M&A and execution risks
SingPost is still pursuing M&As, as it strives to expand its capabilities and presence in the region. With these deals come M&A and execution risks, especially when entering a new business or market.

SingPost may encounter problems running its acquired businesses without prior knowledge or expertise in the area, and may also face difficulties integrating them with its existing business.

2 Rising delivery costs
While SingPost enjoys low postal-to-postal rates, these rates have been increasing since 2008, and are set to rise further in the near future. UPU’s 192 member countries are grouped as developed countries and developing countries. Developing countries enjoy higher concessions on postal-to-postal rates than developed countries.

Singapore was previously grouped under developing countries along with Hong Kong and Korea, but has been placed in the transition category since 2008. It will eventually be grouped as a developed country in the next few years, which entitles it to lower concessions. This may put pressure on SingPost’s margins and increase its volume-related expenses. 

3 Talent drain and rising labour costs

In addition to rising delivery costs, margins in the mail business have also been affected by rising labour costs. SingPost is investing in mail-sorting equipment to reduce its manpower costs but still needs to employ mailmen to deliver mail to recipients. Costlier labour, especially at the lower end of the spectrum, is a concern in Singapore and other Asian countries, given rising minimum wages.

4 Competition
SingPost is in a unique position to fill the gap in e-commerce logistics, by providing a whole spectrum of e-commerce logistics solutions at low costs. SingPost’s main competitors would be other postal providers with access to low postal-to-postal rates or have signed bilateral agreements with other countries on lower rates.

5 Slowdown in Asian economies
SingPost has been focusing its expansion on ASEAN and Asia to take advantage of the health of the economies in these countries. Although an economic slowdown in China will not bode well for consumer sentiment in the region, this can be countered by the Chinese government’s efforts to spur domestic consumption, which should boost retail and e-commerce volumes.