In his white paper, ‘Competition and cooperation in the cross-border e-commerce ecosystem’, Tom Forbes draws similarities between Charles Darwin’s theory of evolution and how postal operators have adapted thus far to the rise in e-commerce and challenges of cross-border deliveries.
Introduction
Global e-commerce is growing at 15% per annum with the cross-border component significantly in excess of this, while most postal parcel volumes are only growing around 3-7% per annum (1). Posts are losing market share. The explosive growth in cross border e-commerce is bringing all actors in the supply chain into direct contact with one another and challenging the status quo.
In this context no carrier, post or express can afford to act as an island species in splendid isolation from all forms of competition. Evolutionary biology offers a rich vocabulary for the characteristics of island species: island gigantism, the tendency of island species without competition to grow larger than their mainland counterparts; adaptive radiation, the tendency for a single species to colonize a territory and diversify to fill all the available niches; reduced sexual selection, which results in the lowering of reproductive fitness of the species. Here, we review the relevance of postal solutions for cross border e-commerce while drawing on some insights from evolutionary biology.
In the e-commerce ecosystem, posts offer shippers and consumers competitive advantages such as: dense final-mile networks; a broad range of services; the ease of opening an account; universal service obligation; postal customs clearance channels; and competitive pricing for small packets. Posts also have challenges in responding to e-commerce shippers’ and consumers’ concerns, such as: slow international transit times; a lack of tracking data; high prices for larger parcels; inflexible tariff structures for larger shippers; and the lack of personalized delivery options.
Cross border e-commerce ecosystem
When e-commerce first looked to ship cross-border, the competitive landscape was relatively simple. On one hand, there was the postal system fronted by the domestic postal operator which was cost effective for small packages but offered slow transit times and very little tracking data. On the other hand, there were the networks built by the integrators which could deliver short and guaranteed transit times with full tracking, but at a higher cost than what the typical e-commerce order generates in margin. How much has changed?
Since, 2010 most online retailers and marketplace sellers have followed the leaders like ASOS and Amazon into cross-border selling, or have active plans to do so. Typically they start with postal solutions purchased directly from their domestic post office. In response to consumer demand and growth in sales, they offer an express option using the global coverage of one of the integrators. However, this combination does not satisfy their needs for cost control or the consumer’s demand for convenience and choice.
Consumers are clear and consistent about their desires: 83% want a clear indication of when their items will arrive; only 44% are happy with the speed of cross-border delivery; and only 48% are happy with the cost of cross-border delivery; while 69% want the freedom to choose a different delivery option for every purchase. Consumers are equally clear about their intention to increase their online purchases from overseas. Depending on the country, 60-90% of consumers say they intend to make cross-border shipments in the future (2).
Competitiveness of posts
Retailers and marketplaces are busy educating themselves in the intricacies of cross-border trade to find solutions which give them the best of both worlds. They seek solutions which unbundle the postal and express offerings and allow them to reconfigure them in a way which is consistent with their brand proposition and profit imperative.
End-to-end tracking is a non-negotiable requirement. It fosters trust between the buyer and the seller to the extent that most marketplaces give preferential terms to sellers who provide tracking on all their shipments. It reduces the potential for fraud and wasted time in answering ‘where is my order’ (WISMO) enquires, which can run to millions of dollars in costs for large retailers.
Postal pricing offers advantages to those who are knowledgeable and who are prepared to do the research to identify the optimum injection mechanisms. The combination of the terminal dues system negotiated through the Universal Postal Union (UPU) every four years and the bi-lateral agreements struck between individual posts means that the same packet will attract a different cost for the same delivery address depending on where in the world it is sent from, independent of distance. At the national level, many posts offer a zone skipping tariff for injection downstream nearer the final delivery location with the one from USPS being one of the most comprehensive and complex examples. The existence of pricing anomalies is not new but the number of shippers seeking to exploit them is.
Another advantage that posts can offer e-commerce is postal customs clearance channels which can extend to: higher minimal values before shipments attract duty payments than in express clearance channels; faster clearance due to tighter integration with other government agencies; and less rigorous checking of manifest data both from the point of view of hazardous goods and duty payments. No two countries’ postal clearance regimes are the same and in some countries the variation even extends to the sub-national level. Retailers are seeking this domain knowledge to improve their competitiveness and their customers’ buying experience.
The very best services offered by a destination post are rarely accessible via the origin post. Retailers are realizing that they must present their parcels in the destination country already customs-cleared if they want to be able to access the full range of postal services. Marketplaces are using their leverage to bring two posts together to create services which are only available to their sellers, such as eBay’s ePacket service from China to Russia. Similarly, Alibaba has invested in Singapore Post (SingPost) to ensure it has influence in this area.
Retailers also seek visibility on where in the chain additional days are added to transit times. Some, including fashion retailers, describe their products as perishable and are coming to the realization that the only way to give consumers delivery certainty with international shipments is to inject directly into the destination post on a time-definite service. The airfreight industry is subject to the same scrutiny from e-commerce retailers in pursuit of customer satisfaction. In short, retailers are active in ensuring that they can secure the best of postal services without any downside. They are turning to anyone with the expertise and tools to help them deploy solutions quickly: consultants, technology vendors, consolidators, postal wholesalers, freight forwarders, customs brokers, the commercial arms of posts, regulators, lobbyists and more.
Can posts secure their future through competition?Domestic e-commerce has been instructive. E-commerce has opened up new niches such as: time slotted delivery in residential areas; same-day delivery; pick-up/drop-off (PUDO) locations; Sunday deliveries; and more. In evolutionary biological terms, the weaker posts have exhibited relaxed anti-predator behavior and have lost out significantly to new entrants, such as in Russia. Conversely, the stronger posts in the USA or Germany have continued to show adaptive variation in entering new niches as they emerge. Will these trends continue into cross-border e-commerce?
There is no doubt that there is much that postal operators can do to compete. The response to e-commerce is firmly on the agenda at the UPU, the International Postal Corporation (IPC), and other inter-postal bodies which seek to set fair tariffs and to solve ‘interoperability’ issues – to use the lingua franca of the postal regulatory world.
Some of these bodies date back to that very communications revolution triggered by mail, which allowed Charles Darwin to assemble the data from around the world to give him sufficient confidence to publish the theory which has been used to provide a framework for this paper. The question is whether these institutions can enable post to adapt quickly enough for the speed of e-commerce?
Cooperation must be the answer
The companies that are currently gaining market share in cross border e-commerce shipments are: privately owned, sales driven, asset lite, not unionized, and technology savvy. They do not seek to improve post or express – they seek to pick and choose the best and to discard the rest.
Their investment is in domain knowledge and software to create the solutions that consumers tell retailers they want: fast, economical, fully tracked, and with choice. These companies are taking the technique of direct injection to new levels by un-bundling the major components of collection, line haul, clearance and final-mile delivery, and re-assembling them to create superior solutions in weeks. They are using platform style software to overcome the translation challenges in processing labels, manifests and tracking data in the specific formats of each post and express company.
The most innovative posts are seeking multiple collaborators from the private sector for mutual benefit. Japan Post has bought Toll, the logistics company. Bpost’s international division has looked for leadership from an acquisition in this emerging space, Landmark Global. China Post has numerous agency agreements with companies specializing in cross border e-commerce such as UCS through to the joint venture Sai Cheng with Australia Post. La Poste is an investor in cross border specialist wnDirect and the Ascendia joint venture with Swiss Post. The list of who is working with who is very long and very encouraging. In biological terms the increase in the size of the gene pool is the best strategy to ensure survival in the long run in such a dynamic environment.
Conclusion
Cross-border e-commerce will continue to challenge postal operators’ ability to adapt at the same pace. Posts should outsource this adaptation to numerous and smaller private partners while concentrating on the core. The constitution of the core will vary from post to post but has to be focused on a dense final-mile delivery network which is easily accessible to shippers and which provides some, but certainly not all, of the services that consumers prefer for receipt of their e-commerce orders. The fittest will survive.
References:
1: E-commerce growth forecast of 12.9% from 2014 to 2015 – Capgemini and Royal Bank of Scotland (RBS) ‘World Payments Report 2014’, Oct 15, 2014, and global e-commerce growth of 15.6% from eMarketer, July 2014
2: 83% from eMarketer, Jan 2014; 44%, 48% and 69% from MetaPack 2014 consumer research; and 60-90% from DHL e-commerce Shop the World, 2014
Acknowledgments:
‘Competition and cooperation in the cross-border e-commerce ecosystem’ by Tom Forbes was first published by LIBRI Publishing in September 2015 in ‘Reinventing the Post – Building a Sustainable Future’ by Derek Osborn. The book explores how the postal sector is changing in order to meet the new challenges that lie ahead. It is also a call to action for the whole sector to play a major global leadership role as they are vulnerable to extinction.
To find out more information about the book click here.
November 13, 2015