“A Network for Leftovers”? Supply-Chain and Postal

Cross-Border E-commerce Delivery

Tim Walsh

Vice-President

Corporate Affairs

Pitney Bowes Inc.

Rutgers University Postal Economics Workshop

Voulagmeni, Greece, 5th June 2015

First Rutgers Conference: Rugby July 1990

Two Postal E-commerce Gauntlets Thrown Down In Geneva, 13th April 2015

Are we satisfied being a

network for leftovers? Mr Deepak Chopra

CEO Canada Post

“Nothing should be off limits, not even our

governing conventions, treaties and

regulations. Let us step out of our comfort

zone and test new ideas upon which we can

build the future of the posts” Mr Bishir Hussein

UPU Director General

Themes

Cross-Border Postal

E-commerce Delivery

Networks

Retailers and marketplaces who view

delivery as a core competence

Retailers and marketplaces who view

delivery as a commodity

Supply-Chain

Heuristics

Analytic-

based

Intermediaries

Wider Ecommerce Value-Chain

Cross-border Ecommerce Issues

Shippers want reliable, predictable, transparent and affordable cross-border

postal delivery services; recipients require convenience and choice – with

willingness to pay and required product attributes dependent on SKU category

Wider eco-system include

the regulatory rules

Internet of

Processes

Internet of

Things

Internet of

People

Internet of

Data

Integrating The Physical With the Digital, And Fulfilment With Delivery

Fulfil/Deliver Retrieve/Receive

Transaction Pay

Agreement Trust

Information

Find After Sales

Returns

Consumer/

Recipient

Physical

Classified ads

Direct Mail Phone

Physical

Stores

Credit Card

offline

Cash

On Delivery Standard , VA &

alternate delivery

Click&

Collect

Content Management

Apps

E-shop Social media

Trusted portals

Cross-border

Pricing tools

eg landed

costs

E-fulfilment Returns:

• Data

• Fiscal

Payments

E-payment, credit cards

Digital

Catalogues/

directories

Showrooming

Search

Buyer Reviews

Pricing Tools

comparison sites;

CRM

Address Management

• Virtual Addresses Shipping APIs,

SaaS &barcodes

Service

Logistics

Online

Support

Customer

Contact

Centres Packing

Order Mgt Systems

Warehouse Location

Carrier library,

management

and analytics

SKU Classification,

mix and quantities

Data Protection

Order Processing Tools

Customs Clearance

Market-

places

E-Retail

Stores

SME and

Peer-To-

Peer

Integrated

Supply-Chains

EDI messaging eg

custom pre-advice

Signature capture

HS Classification

and Prohibited

Goods

Physical Inventory

Intelligent Inventory

Returns:

• Physical

Physical Address

Re- Packing

Fulfilment, Delivery and The Wider E-commerce Value-Chain

Efficient e-commerce depends on optimising the interactions between physical streams and digital systems, and the interactions within both the physical and the digital realms;

Delivery is a sub-set of a wider systems question around efficient fulfilment: profitability = throughput + operational expense + inventory + delivery/return costs;

Efficiency challenge is thus two-fold: optimise within and between:

Fulfilment: optimise as between batch production (episodic picking, sorting and packing) and continuous & predictable fulfilment processes (Amazon sort and distribute product);

Delivery: procure delivery services which optimise for the needs of the SKU category, and the proximity of the merchandise to the recipient (Buy.com takes orders but products dropped shipped from manufacturers and distributors);

Key metric: reduce per unit cost of sourcing, picking, packing and shipping, without violating due shipment date;

But decisions around customer order assignment are myopic: cannot account for

subsequent downstream events - other orders, inventory replenishment, delivery delays etc.: each orders merchandise combinations is unique; real-time order-assignment decisions are thus continuously reviewed to minimise total

number shipments, optimise routing and delivery based on both goods & recipient location;

e-commerce is more “factory physics” than retail, Jeff Wilke; Source: Ping, J. X.; Allgor, R. and Graves, S. (2004).

Supply-Chain Economics: Methodological Advancement

Supply-chains and delivery procurement are informed by data, technical innovation, analytics and real-time learning;

Driven by heuristic modelling, simulation and algorithms: mathematics answer questions around: Location and number of fulfilment centres to minimise inventory (better margin) and

optimise in-stock (improved customer experience);

From where should a single order be fulfilled to free up inventory to avoid a subsequent split order? Own fulfilment centres, stores etc., or other sources (“single view of stock”)

How to combine the various items of a customer’s order within a single box, against the weight, volumetric and other tariff characteristics of transport and carrier providers;

Delivery selection by geography, lane and by SKU based on carrier performance, network functionalities and tariffs;

Source: Stone, B. (2013).

Delivery networks should be re-imagined as an extension of

the supply chain for the efficient flow of inventory, including

“supply-chain integrity” at borders;

Supply-Chain Developments: Relatively Simple Traditional Retail

Manufacturer Suppliers/

Wholesalers

Stores 1970s Direct store

replenishment

1980s Centralisation via

RDCs Manufacturer Stores Regional

Distribution

Centre(s)

Suppliers/

Wholesalers

Shopper Goes

to Store

Shopper Goes

to Store

Source: Adapted ted from Jones Lang Lasalle (2013), Ecommerce Boom Triggers Transformation in

Retail Logisitcs

Supply-Chain Developments: E-Commerce Delivery

Manufacturer Retailer Web Store Suppliers/

Wholesalers

Retailer Fulfilment

Centres

Click&Collect

PUDO Network

Locker Network

Shopper

Collects at

Store

Shopper Collects at

PUDO or locker site

B2B Freight dropshipment

Illustrative. Plus variations on these structures

Distributed order

Management

messaging

Courier Same Day

Parcel Hub

Home Delivery

Distributed Retailer

Fulfilment Centres

Digital message

Physical movement

Returns

E-tailer Delivery

Data Analytics and Technology-Based Intermediaries

Sensors, “internet of everything” and analytics enable physical objects to

collect and communicate data via the web in real time, and brings visibility

to delivery network performance;

Retailers of all sizes have the tools to select delivery networks, or parts

thereof, based on particular SKU requirements (tracking, signature,

insurance etc.), tariffs and carrier performance, at the postcode level:

Large Retail: Software matches each online order with a carrier,

where the algorithm assesses the customer’s location and the nature

of the parcel to the delivery options available, calculating the best value

carrier from a catalogue of 250+ carriers;

SME Retail: Solutions which aggregate domestic parcels to the

networks (drop-off), or bring the networks to the parcel (pick-up) for

price savings (some 30+% of posts’ parcel revenue/profitability will be

generated among SMEs);

Growth of “digital concierges” for easy, cross-border ecommerce with:

virtual or suite number address;

physical services (e.g. re-packing) to access best dimensional tariffs;

consolidated freight shipment to minimise base-weight air costs and

expedite clearance; and

centralised customer service, irrespective of carrier used;

Network Visibility Likely To Drive Different Network Structures

Zero concentration Zone concentration Lane concentration

• Success in B2C delivery requires a greater understanding of the trade off between the

network’s value to shippers or parts thereof and network costs which can be highly

concentrated in specific geographies.

• Network strategy (Who are you targeting, What’s the value-proposition, how does

operations support this) and competitive advantage understood with reference to SKU

product categories: apparel, books, white goods etc. as needs (e-merchant and recipient)

and costs vary significantly;

• Merchants increasingly streaming volume between two or more operators depending on

the nature of item and delivery destination, and not just the origin of the goods: shift from

zero concentration to zone or lane based delivery procurement, driven by digital big

data;

In the old world of high per capita letter volumes, there was no serious trade off between the ubiquitous

nature of the network (everything, everywhere, everyday) and the value of specific outlets or

geographies. Scale and delivery drop density obviated the need for such a choice

Cross-Border Postal E-commerce Services

Parcel

Post

Regs Letter

Post

Regs

Post*Net

Gateway

IATA,

WCO, ISO

ICAO

MoUs

GMS 113 country

RFID

IPS

Standard

Labels

Customs

Declaration

System

Inter-DO

TDs and

Land

Rates

M.R.S. Supplementary

Service

EDI

message

protocols

Airline

Conveyance

Rates and

Security

Global postal cross-border networks are brokered multilaterally between DOs, based

on various components and with layered sets of standards and performance controls,

depending on the particular service/ network configuration;

UPU created in 1874 to tackle the “many embarrassments” at borders;

Common processes and documentation; shared use of technology and project

management support; tracking event and measurement standards;

Rules historically designed for communications, not cross-border trade, and tendency to

think leg 1 (posting to despatch), leg 2 (OE to OE), leg 3 (arrival to delivery);

Use of bilaterals between DOs (quality standards, TDs, reciprocal tracking) and with other

partners (customs, airlines, agents);

Pipeline

Tracking

Events

UPU Postal Technology Centre; Telematics Co-op 151 members;

UPU

Convention

Cross-Border Postal E-commerce Services

Letter Post

192 members,

1874

130 members

Value-added letter

services

Int’l Parcel Post

192 members, 1874

177 members

Founded 1998

“Premium Economy”

10 members,

Founded 2002

Date Certain

31 members,

Founded 1996

Priority Parcels

<2kg:

• L.C.; A.O

• P, G, E

• Registered

360bn global

Priority and

non-priority –

2% x-border

Av pckt

weight:350g

- strong light-

weight growth

Delivery

standard from

inward OE -

TDs, not cost-

based

No signature or

tracking – but

registers, used

by AP posts for

ecommerce

include

signature and

liability at low

inbound

remuneration

(TDs+0.6 SDR)

<2kg:

• Exprés, Insured,

Registered

166m items; 2013/14:

+61%

Proven, cost-effective

and expanding network

Delivery standard from

inward OE

Standard barcode

c. 4 tracking events

IPC item monitoring and

customer service

system

Web-based customer

care solution

TDs + per item

payment. Pay for

performance

0-20kg

20-30kg optional

J+9: just 23% of corridors

meet 9-day target –

customs & transport

Focus on Legs 1, 2, 3

Inward Land rates in

excess of market prices

Ecompro July (optional):

0-30kg

J+5: Integrated network

with tracking events,

including returns

No insurance or signature

– “de-featured air parcel”

CDS pre-advice from 2016

Limted capex and opex for

posts

Product spec emerging but

not lower inward land rates

to ensure competitiveness

and consistent events

tracking

Risk of cannabilisation of

EMS….

0-30kg:

• Signature, Insured,

Tracked

• 55m items: growth Europe

and Arab only

90.7% on time delivery (2014)

Re-positioning for B2C

Growing “Express deferred”

segment

J+3; Std barcode;

c. 7 tracking events: delivery

scanning 98%

Co-operative; IB secretariat;

IPC CSS

Audit, measurement,

standards, monthly reporting -

cargo mgt control and pre-

advice; CDS pilot

Pay for performance (550

bilaterals); heavy penalties

Plans for uplift in network’s

standards and performance

Integrated cross-

border express

IPC item

monitoring;

own secretariat/

executive

Strong AP focus

Tracked,

automated

service system

Easy Returns

Solution

Additional

controls and

standards over

and above EMS

Multi-lateral

commercial

contract

Road-based

“enhanced” B2B;

B2C growth

IPC secretariat

and project mgt,

CSS, item tracking

etc

Draws on UPU

standards for

tracking etc

Own executive

authority

Stronger

disciplines than

int’l parcel post

EPG-set

Performance

based payment

IPC Interconnect E-commerce Network

EC’s 2012 parcels Green Paper identified high costs (30-50% > benchmarked equivalent

rates*), and low quality issues for cross-border postal packets & parcels;

Aims to create seamless network based on shipper needs and common standards -

integrate E2E processes, including customs, with tracking and harmonised labelling: Vision of high reliability network: cross-border service as good as domestic;

High quality infrastructure: GXS postal exchange, UNEX QofS, Customer Service System;

Effective Easy Returns (26 members), etc.

33 members, European focus (Canada, Italy and Belgium not joined);

Interconnect product set, ≤ 20kg: Premium ~ $500 Fully tracked, signature, day certain

Standard ~ $50, predictability, tracking

Economy ~ $10, untracked, pre-defined transit time

Other Issues Affordability - risk of regulatory intervention if “price dimension” is not to the fore (EC Digital Single

Market Review, 6th May 2015);

Payment model to give effect to consistent and affordable implementation of standards to be put in

place;

Tangible national launch plans not yet in place;

Will posts’ integrated networks (DPD, GLS, DHL) have access to Interconnect? Implications for

non-discriminatory access to non-postal integrators (Fedex, UPS etc);

Does agreement cover inward flows only meaning Royal Mail, La Poste, DP and others with own

options only use Interconnect as a fall back in those markets where they need the DO to deliver for

them;

Will Interconnect grow volumes at lower unit costs or cannibalize streams in other networks?;

Interconnect

Alignment Issues?

Express (EMS, KPG, EPG)

Prime, Ecompro

LCAO Packets

IPC easy returns

*FTI Report, 2011

Cross-Border Ecommerce Distorted by Terminal Dues System

ICs domestic services subsidising their cross-border service;

Net importing ICs are subsidising net exporter ICs;

ICs subsidising DC posts by under pricing inbound flows;

Suppression of outbound competition (private operators excluded from TDs);

Distortions in location of e-commerce fulfilment;

Costs are significant: estimated USPS loss $30m on inbound Chinese packets, 2014 (PRC);

Sustainability of poorly addressed, badly wrapped and poorly presented low value

small packets on inbound IC posts sortation and delivery systems;

Registered mail used by AP Posts for e-commerce with signature and liability

represents unsustainable cost for inbound post;

Retailers split orders over 2kg to gain access to lower TDs;

“The United Nations is helping

subsidize Chinese shipping.”

March 11th 2015

Growth of e-commerce changing TDs into a trade issue,

rather than a USO letter mail issue;

TDs: not cost-based, restricted to designated operators

and distort cross-border e-commerce fulfilment, first and

last mile services*:

China Post complain that foreign posts are aggregating Chinese outbound

packets through partners, under CN22 forms and foreign indicia, “hiding”

packets in large parcels; consolidating for cargo; bulk breaking and delivering

domestically overseas; *Copenhagen Economics, 2014

Conclusions: Avoiding A Network for “Leftovers”

•APPU to be congratulated for recognising how value-chain partners can support posts’ e-commerce strategies;

•The challenge for posts is to create value for both sides of the market: e-merchants and recipients, through the integration of technology with posts’ historic sources of competitive advantage, namely the physical aspects of the supply chain, from the B to the C, and at the delivery point (which may not be limited to the doorstep);

•Successful B2C delivery strategies will be those based on a good understanding of the underlying economics of distribution in respect of the various categories of goods: apparel, books, white goods etc. where needs and costs vary significantly;

•Closer integration with retailers in information, payment and physical flows relating to the transaction can not only optimise costs on the downstream and better network planning, but also enhance the richness of the network: customisation, interactivity and assurance, including the elimination of cross-border frictions that currently exist;

• Reliability of e-commerce delivery services, in peaks as well as troughs, critical to brand, reputation and trust;

Holistic: avoid unhealthy postal network replication; integration for reliability, security, predictability and

affordability; quality domestic delivery necessary to complete the cross-border exchange;

Product Portfolio: from siloed products, to menu-based matrix for services, features and differentiated

and competitive tariffs; same processes, forms etc. whether item is 1.9kg or 2.1kg;

End-to-End: focus, including supply-chain needs and recipient preferences, not legs 1, 2, 3;

Technology: the packet/parcel cannot travel faster than the information (customs, transport providers,

inbound post); improve the digital data flow, improves the physical flow;

Returns Logistics: fiscal and physical – more effective Merchandise Return Service;

TDs for Merchandise: distinguish letters from merchandise; incentivise high quality domestic delivery

of inbound items; sustainable finances to deliver sustainable service quality for inbound parcels;

Customs and Trade Facilitation: at borders; HS coding to at least 4 digits; electronic pre-advice (eg

EU Customs Code, 2016); leverage customs’ relationships to raise de minimis levels;

Governance: flexible and market-oriented decision-making, balanced by necessary regulatory

oversight – currently 2 years within POC and 6 years in CA to make changes;

“… Let us step out of our comfort zone and test new

ideas upon which we can build the future of the posts” Mr Bishir Hussein

UPU Director General

Geneva, 13th April 2015

Thank you

Tim.walsh@pb.com

Telephone: 00 44 7743 840 396