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Delivering For The Changing
World of Commerce: Economic and Network Considerations
Tim Walsh
Vice-President
Corporate Affairs
Pitney Bowes Inc.
Conference of Commonwealth Postal Administrations
London
25th October 2014
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• Huge diversity of 53 universal postal services providers spanning Africa, Asia,
Caribbean, Americas and Europe – fully 25% of all UPU members;
• Commonwealth Posts range from the very largest (Royal Mail, Canada Post,
Australia, New Zealand…) to the smallest (St Lucia, Tuvalu, Malta… ) with per
capita mail volumes varying from fewer than 10 to around 300 items p.a.;
• The 53 Posts serve the needs of business (micro, SME and large), government and
citizens, providing services to 2.2 billion people in developed and developing
economies valued at over $12 trillion;
• Over last 50 years The Commonwealth has transformed from a group of former
colonies into a modern international association of states with a focus on a joint
political, economic and social development agenda – CCPA, too, has modernised
under the leadership of David Roberts and Royal Mail to address current postal
challenges and opportunities;
A Commonwealth of Diverse Posts
How do posts remain relevant in the new world of digital
commerce and continue to contribute to the economic and
social development of the countries that they serve?
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Agenda
Economics of Commerce
The Changing Face of Postal Commerce:
Letters Commerce: 11th - 20th Century;
Parcel Commerce: 19th Century;
Automating Postal Commerce;
Digital Commerce and Network Implications
Conclusion
Key focus is how networks were shaped, and reshaped, as the
nature of commerce changed and the challenge that digital
commerce represents for future network evolution functionalities;
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Economics of Commerce
Industry is about the production of goods, commerce about their exchange (“the
superfluous for the necessary”);
There is profit in production, and in commerce or exchange:
efficient matching of units to needs in timely manner (also, in use e.g. water);
Business and trade is determined by costs of production and the costs of exchange:
bringing goods to right place, time and person in the market:
Postal services are intermediate inputs to production and any reduction in the cost of these
will increase the effectiveness and efficiency of commerce overall;
Economists characterize commerce as operating in “two-sided markets”: where the
volume of transactions is sensitive to the distribution of value (costs) between the two
sides of the exchange: merchant/sender and buyer/recipient (Rochet and Tirole, 2004);
Commerce serves two distinct types of customers whose joint participation both forms
the exchange, and makes the platform on which the exchange takes place, valuable:
Posts now compete with multiple platforms for commerce;
Commerce: “exchange of merchandise or services, especially on a large scale” (Oxford
English Dictionary), informed by common principles irrespective of the nature platform that
commerce is forged….
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Principles of Commerce: Customer and Merchant Perspectives
Dimension Customer Perspective Merchant Perspective
Integrity Has information I transmitted or
received been altered? Is the
information correct up to date? Can I
trade based on this information?
Is my data on the network (post, website)
unalterable, without authorisation? Is data
being received from customer valid? Is the
information current?
Non-
repudiation
Can a party to an action with me deny
having taking that action?
Can a customer deny ordering products?
Authenticity Who am I dealing with? How can I be
assured that the person or entity is who
they claim to be?
What is the real identify of the customer?
Confidentiality Is the transaction safe. Can someone,
other than the intended recipient, read
my messages? Inviolability principle
Are messages or confidential data accessible
to anyone other than those authorised to
view them?
Privacy Can I control the use of information
about myself transmitted to a merchant?
What use, if any, can be made of personal
data collected as part of the transaction? Is
the personal information of customers being
used in an unauthorised manner?
Availability Can I get predictable access to the
goods, domestic and cross-border
Is my information available to customers
(postal QofS, operational website)?
End-to-end Are all steps of the transaction
controlled. Am I assured that I will
receive the order in a timely and
affordable manner?
How do I integrate physical delivery options
to my offer and what other solutions to I need
to support despatch and receipt processes?
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Communications
Goods (Parcels)
Payment (Funds)
Business Household/
Delivery
Point
Postal Infrastructure Services and Physical Commerce
• Postal networks opened under pressure from merchants to access the intermediary
functions performed by letter mail services, linking businesses to consumers;
• Over time, posts evolved to match the changing needs of physical commerce – local,
national, cross-border; mail and parcels; payments and basic financial services;
• As the nature of commerce evolved so too did the shape and functionality of postal
networks - where state networks didn’t perform in terms of reliability or efficiency
policy-makers typically intervened to set standards and drive up performance;
• As a platform for commerce, focus was historically only on one-side of the market
(senders or the paying customer only);
Origin of modern postal networks lie in its state-sponsored
communications and intelligence functions;
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Geniza Letters: Commerce Across 11th Century Medieval Islam
30,000 Geniza letters record the dependence of 11th century
Medieval Islamic commerce upon mail across the Mediterreran
and modern-day Egypt, Israel, Palestine, Syria and the Levant
Letters, were “ephemeral but central” to intra-regional
commerce;
Projected merchant’s authority over goods and money that travelled
independently across geographies;
Functions of commerce on the face of the letters: maintaining
relationships, building trust, access to market information, selling,
record of commitments, agent management, and payment;
While the “broad boundaries” of commerce were defined by the
letter, its effectiveness was limited by distribution (shipping)
constraints - commerce was only as vibrant as the networks on
which it operated (2012:91) ;
Merchants had more confidence that their letter would arrive
than their goods – and preferred parcel networks characterised
by direct despatch and receipt;
Goldberg, J.L. (2012). Trade and Institutions in the Medieval Mediterreran, CUP
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Waves of Network Innovation to Support Letters Commerce
*In 1702 merchants were advised to cut bank notes in half with each half sent by a separate post. Only one robbery was
attempted on the new mail coaches.** The regularity of despatch ensured that economic news was never delayed, preventing
abusive arbitrage by merchants trading at old prices.
1500s: commercial news letters for inland trade used the mail; Dover became a key
post-road for international reach as trade with Europe grew;
1635: Charles I opened Royal Mail to the public, stimulating commerce but also driving
change to the network on which it depended:
1660: media distribution spread economic news at high speed, including exchange
rate and commodity prices (Starr, 2004:31);
1661: First date stamp to assure that mails were passed on promptly;
1680: Dockwra Penny Post grew in the major towns such was demand from
business - mail had become a key channel for remittances;
1720s: More frequent despatches; better reliability by removing errant “postboys”;
Ralph Allen’s 1720 “cross-post” reform to enhance network ubiquity & standards;
1760s: Regular packet service between England and USA for cross-border trade;
1784: When highway robbery threatened the security of commerce* mail coaches were
introduced to increase speed/security (including an armed guard):
Merchants’ trust in the network was critical to its growth (John, 1995:84)**;
1794: Bulk business mail growth: on one day in Oct 100,000 bankers’ letters passed
through the London PO – putting pressure on revenue collection….
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The Emergence of Parcel Commerce
Outdated payment methods impeded trade and business (Hey, 1989:68) leading to
1840 Penny Black, and introduction of PPI for commercial mail in 1850s:
Hill’s Penny Black stimulated advertising by merchants in the post (circulars)
such that by 1883 there was strong demand for a Parcel service;
Blind PMG of the British Post Office, Henry Fawcett saw that Royal Mail could be
an engine for “expanding trade” through mail order, not just correspondence:
fierce resistance from those who viewed the Post Office’s “honourable” role in
delivering letters threatened by “puffing tradesmen”, and feared he was converting The Post Office into “… a kind of flying bazaar”;
Fawcett made operational investments to compete with the balkanised railway
companies:
• improve delivery service levels;
• focused on the needs of merchants;
• adapted operational networks to support the upstream dispatching businesses;
• As a result, in the UK (though not in USA where UPS created Parcel commerce in
1907) “letter carriers” became “postmen”;
• Throughout 20th century posts moved to “hub and spoke” networks allowing the
automation of concentrated volumes, and approval of technology to aid mail
preparation/payment by mailers;
• Posts were early adopters of computers - but it was US companies which
exploited jet engine developments in 1960s to create express segment ;
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Scale of Digital Globally:
3.7bn people have access to the internet; 1 billion e-shoppers globally, spending
$1.5 tr in digital purchases of goods physically shipped; $140bn digital advertising
spend (Google 30% share);
Commerce is Mobile:
75% of mobile users shop with their mobile device; 15% of all online sales is m-commerce;
74% of smartphone owners use location-based services;
Physical and Digital Are Complementary:
86% of marketers say that online combined with offline as part of one integrated campaign is
critical to long term success; Top 2 actions consumers take after receiving DM from a brand
they’re interested in: 44% visit a brand’s website; 34% search online for more information;
28% more spend on websites by those customers who have received a catalogue than those
who did not; globally, each day customs’ officers clear 1 bn international mail items;
Physical Processes Remains a Constraint:
68% of shopping baskets abandoned due to delivery related concerns (price, choice, security);
22% average returns across all e-commerce merchandise categories; Only 9% of EU
consumers and 18% of retailers use cross-border e-commerce; Only 35% of cross-border
postal parcel services are tracked (premium products only)
Today: Growth of Digital Commerce
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Digital Commerce Technologies and Implications
Technology Dimensions Significance and Issues
Ubiquity – internet/web and mobile
technologies available everywhere, anytime:
work/home;
Market extended beyond traditional boundaries, temporal,
geographic, cultural, enhancing customer convenience
and reducing shopping costs. Location critical commerce
manage friction at border issues e.g. taxes;
Global Reach – across national boundaries; Seamless shopping worldwide; enabled
Universal Standards – internet standards
Common, inexpensive and global technology platform for
businesses; cyber-security, crime…
Richness – video, audio, text; social
technology enabling user content generation
and social networking
Formats integrated to provide single marketing message
and powerful customer experience; profiling and
targeting;
Interactivity – user can interact through
technology;
Consumer dialogue enhances their engagement and
makes them a co-participant in the process;
Information Density – technology reduces
information costs and raise quality;
Information processing, storage and communications
costs reduced while relevance, accuracy and timeliness
improved. Information plentiful, cheap and accurate;
Information overload; automate
Personalisation/Customisation – technology
allows targeted message to specific
groups/individuals;
Personalisation of marketing message and customisation
of products/services based on individual characteristics;
Fair use and privacy issues;
Logistics and distribution technologies to
support transaction integrity to the point of
delivery
Physical process effectively integrated to digital
technologies from the point(s) of despatch to the point(s)
of delivery; GPS, mapping etc. to optimise delivery
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Digital Commerce and Physical Integration: Five Principles To
Guide Postal Services
• View the postal service as a platform, with interfaces/access for
complementary components, to add-value to exchanges on the core
platform;
• Recognise the stronger dependency between supply and physical
distribution via deeper collaboration/integration with shippers (than ever
happened with mailers): posts as solution-providers to shippers, not
sellers of transport services;
• Greater integration across and between physical, data and payment
processes (on both outbound, inbound and returns) from shipper,
through post and their agents/partners to the recipient;
• Investment in each side of the market: Ask: what additional partners do
I need to solve sender and recipient needs?
• Competitive advantage understood product by product: apparel, books,
white goods etc. as needs (e-merchant and recipient) and costs vary
significantly – lane-based network competitiveness…;
It may not be the best network that wins, but rather the
network with the best eco-system that will win;
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Digital Commerce Likely to Shape Different Network Economics
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
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Big Digital Data Creates Real Time Network Visibility
Sensors and “internet of things” enable physical objects to collect and
communicate data via the web in real time: e-retailers have the tools to
manage carrier performance at the postcode level
Source: Metapack
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Supply Chain Innovation Is Further Driving Different Ways of
Shopping and Greater Network Competition For B2C Delivery
Ship to recipient (e.g. home delivery, PO
collection point)
Downstream Ship to
recipient (e.g. home delivery, PO
collection point)
Freight To Store (Click&Collect/BOPS)
Freight to Store (local delivery; same day)
Ship/Freight
To New Outlets
Merchant’s
Warehouse
Warehouse
Warehouse
Supplier’s
Warehouse
Message to store holding merchandise
(same day)
Store
Store
Locker or
PUDO
network
Customer
Doorstep or
delivery box
Customer
Doorstep or
delivery box
Customer
Pick Up
Customer
Doorstep
Customer
Postal routing
Best carrier service by SKU, region and lane based on
retailers’ preferences
All warehouses and drop shippers in system
Recipient collect Best option to store
B2B-Supply route (overnight)
Courier pick-up at
store (same day)
RFID enabled order management systems Message
Plus variations on the structures Message drives
pick-up
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Volume v Volatility Planning
• Unanticipated spikes in volume drive costs for the operator and risks
negative quality impacts;
• Commercial strategy and e-merchant relationships to smooth
demand and increase predictability:
• High volume, low volatility;
• High volume, high volatility;
• Low volume, low volatility;
• Low volume, high volatility;
• More effective parcel volume forecasting, including operational links
to base-load customers, and strict rules about accepting one-off peak
volumes: partnership, not a blame game;
• On both outbound and returns the coupling of IT and real-time information
to physical processes can reduce volatility and enhance the richness
(customisation, interactivity, reliability and trust) of the networks for
merchants, partners and buyers – DPD’s Predict service originally
designed as a route optimisation tool;
• Value resides in the richness of the network, not the reach/size;
How Many of These
Customers Can Your
Network Manage?
Avoid These
Flows or find
eco-system
partners which
can efficiently
consolidate
these flows for
your network
Low
High
Volatility Low High
Vo
lum
e
::::::::
::::::::
::::::::
:::::::.
: .
. .
.
. . .
Fundamental differences in economic characteristics
between mail and parcels-commerce must drive different
behaviours and mind sets;
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How Should Posts Evolve To Serve Commerce Today?
Postal/Parcel Networks Sender/
Shipper Collection Delivery Recipient
Fir
st M
ile
Bro
kers
Postal/Parcel Networks
Sorting
Delivery:
• Address availability
• Options/choice: PUDO,
boxes, doorstep;
safedrop;
• Cost variability
• GPS and data services
to merchants
Value-added delivery:
• Signature/ tracked products
• SMS pre-alert
• Confirmation
• Place
Cross-Border Frictions:
• Solutions to mitigate cross-
border barriers: customs,
info, landed costs,
Product innovation for
ecommerce streams:
• Speed
• Reliability
• Item coding for
downstream value-add
Pricing
• Pricing in elastic
markets
IT integration To Shipper Supply-Chains:
• Flexibility in collection services
• Control status/data;
• Returns management
• Open APIs, RFID, EDI messaging
Data and Predictive Analytics
• Network control
• Sender/recipient advice
Returns
• Physical item
• Data services to shippers
Demand Management
• Understand shippers’ usage
patterns, by zone, by lane;
• Network needs by SKU
categories Partnerships
• With eco-system participants
e.g. parcel brokers
Pricing Products
Physical processes integrated to ICT and real-time information from the point(s) of
despatch to the point(s) of delivery - enhance network’s richness (customisation,
interactivity, reliability and trust)
Security
Returns
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Conclusion: The Changing Face of Commerce and Postal Networks
Physical
Direct
Despatch
Electronic and
Digital Options Physical & Digital
Integration: Lane
Based
17th/ 19th Century Early 20th Century Today and Tomorrow
Hub and Spoke:
Automating The
Physical
11th Century Geniza
Cross Road
Network
and Standards
Late 20th century
Posts provide essential two-way platforms that bring buyers and sellers together to facilitate and
complete transactions, embracing a variety of physical flows – items, information and funds:
Throughout history posts have built and re-configured networks, and the functions provided to
merchants, to satisfy the key principles for effective commerce: security; regularity and
predictability of services; reach, including cross-border; trust and inviobility;
The world of commerce is changing again: Digital Commerce and its integration to physical
processes bring new challenges and opportunities:
If posts missed commerce’s need for express services in the late 1960s - losing that market
almost entirely - how should posts respond to the growth of digital commerce and its
convergence with physical processes;
Think “richness” of the network for particular SKU categories and eco-system partners;
As important as the economic issues are so to is the ability of posts to continue to fulfil the wider
social role in terms of employment, rural areas, training and development;