8/04/14

Postal parties

Dealing with declining demand for mail, postal services turn to e-commerce shipments for new life.

Paul Demery , Managing Editor, B2B E-commerce

When there’s a party in California, Aaron Hall wants to be invited. More often than not, his ticket in is the U.S. Postal Service.

Hall is vice president and head of merchandising at Michigan-based e-retailer PartySuppliesDelivered.com, where timing can mean everything for winning sales. “In my industry getting your order delivered quickly can make or break someone’s event,” he says. “With the size of the West Coast market, particularly California, I can ship an order with the USPS as late as Wednesday and still have it delivered the same week.”

For that and other reasons, like the ability to offer online customers later shipping cutoff times at lower rates for holiday deliveries, Party Supplies Direct often chooses the USPS over other carriers, Hall says.

In Canada, Stephen Gordon often relies on Canada Post, the country’s national postal service, for similar reasons, he says. “The collaboration Canada Post brings helps us improve our business,” says Gordon, director of logistics at Best Buy Canada Ltd. for sister retail chains Future Shop and Best Buy. Canada Post, for example, enabled his retail chains to offer same-day delivery for some online orders during 2013’s peak holiday shopping periods.

From North America to Asia, postal services are responding to the rising demand for e-commerce shipments by expanding the range of services they offer e-retailers for international and domestic deliveries. These services include additional shipping options, including new ones like same-day and Sunday delivery, which are aimed at helping them compete for small parcel deliveries—the bread-and-butter shipping business of retail e-commerce. They hope e-commerce will help them compensate for declining letter mail volumes.

With few exceptions, many national postal services worldwide have experienced declines in letter mail volume in recent years, according to a study of 19 postal services by Accenture, a global management consulting firm. Since peaking in 2007, the annual mail volumes across 19 national postal services declined by a compound annual rate of 5% through 2012, Accenture says. Earnings (before interest and taxes) as a percent of revenue for mail services also declined over the same period, to 6.4% from 7.9%, it adds.

Shipments of small parcels, however, rose in recent years among the same postal services. The Accenture study notes that the postal services showed an average growth rate of 5.8% from 2011 to 2012 in parcel shipping volume, and that parcel-related earnings (before interest and taxes) as a percent of revenue increased to 6.3% in 2012 from 5.5% in 2007. (The study doesn’t provide parcel shipping figures for years earlier than 2011.)

The main growth driver in parcel shipments, the study says, is e-commerce, “which is typically growing in double digits in most countries” studied in the report. The report covers 19 postal services in Australia, Austria, Canada, Finland, France, Germany, India, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Switzerland, the United Kingdom, the United States, and the Nordic region of Denmark and Sweden.

“As high performers realize they can become a part of the broader e-commerce ecosystem, a new breed of digital postal businesses is born—with the potential to be first in line for the next wave of revenues,” says Brody Buhler, global managing director of Accenture’s postal industry group.

Indeed, a review by Internet Retailer of several postal services found them all sharpening their focus on e-commerce. For online retailers based in the United States and abroad, the expanded services are offering new shipping and delivery options, and offering shippers alternatives to commercial carriers like United Parcel Service Inc. and FedEx Corp. At the same time, however, expanded services and cooperation among the postal services of multiple countries are also raising new challenges for some merchants who feel they’re on the wrong end of these arrangements.

Because the USPS delivers to every residential address in the United States without the delivery surcharges often levied by commercial carriers—and because it now offers services like the parcel shipment-tracking that were once only offered by its commercial carrier competitors—it has positioned itself to appear more attractive to online retailers and to benefit from the increase in e-commerce shipping, says Paula Rosenblum, managing partner with research and advisory firm Retail Systems Research LLC. Moreover, she says, it appears unlikely that the USPS would ignite a rate war with the commercial carriers because there is enough demand in the market for it to absorb first.

However, the USPS still lags behind UPS and FedEx in the number of retailers who list it as a carrier among Internet Retailer Top 1000 merchants—with 296, compared with 316 for FedEx and 409 for UPS. Some retailers say that UPS and FedEx are known for providing more reliable shipping and delivery times, though often at higher rates than the USPS. “We find a carrier like UPS or FedEx is still necessary to ensure a guaranteed two-day or one-day service,” says Derek Gaskins, president of Aleva Stores, an e-retailer of health-related products.

But in many cases the USPS offers comparable service at lower rates, he adds, noting that surcharges from UPS and FedEx can quickly add up, such as those charged to deliver packages to rural addresses.

The USPS, meanwhile, is trying to make the most of the upswing in shipments driven by e-commerce, a major source of recent increases in revenue. For its fiscal year ended Sept. 30, 2013, Postal Service revenue from package shipping increased by $923 million, up 8% year over year, to $12.52 billion—an increase that the USPS attributed largely to its ability to capitalize on the increase in e-commerce shipments.

“We built upon that success and met the growing demand for our package delivery services by introducing a compelling new Priority Mail offering that includes free insurance, improved USPS Tracking and day-specified delivery,” wrote USPS CEO Patrick Donahoe and chairman Mickey Barnett in their December report to the U.S. Congress. “As a result of the immediate popularity of this new offering, we expect to continue building upon the momentum in this product category in 2014.”

Extra services from the USPS and other postal services also present challenges along with opportunities for some merchants who face increasing competition from certain online retailers better positioned to benefit from some of the new shipping services. For instance, Amazon.com Inc., the world’s largest retailer by web sales, has signed an agreement with the USPS to deliver on Sundays in several U.S. metropolitan areas—a deal the USPS says it has not extended to other retailers.

The USPS delivers Amazon’s online orders on Sundays to consumers in Los Angeles, New York and 15 other cities across seven states—Indiana, Kentucky, Louisiana, Ohio, Oklahoma, Pennsylvania and Texas. Amazon provides Sunday delivery at no extra charge to members of its Amazon Prime loyalty program, for which customers pay $99 per year for free two-day shipping, plus free access to e-books and digital movies and music.

Expanding postal services are also creating new challenges as well as opportunities internationally.

Hongkong Post extended its e-Express service, which is called ePacket in the United States and offers a standard shipping rate of 215 Hong Kong dollars (US$27.74) to ship a 2-kilogram package (about 4.4 pounds) from Hong Kong to a residential address in the United States, a spokeswoman for Hongkong Post says. Shippers who use the service, including China-based e-marketplace DHGate.com, say it can cost less than $5 to ship a lighter weight package using the service.

Some U.S.-based retailers, have complained about this service. They argue that manufacturers and online retailers based in China or Hong Kong can take advantage of low international shipping rates from services jointly offered by the USPS with Hongkong Post and China Post, to sell products to U.S.-based consumers, with the full cost shipping cost included, at lower prices than U.S.-based merchants.

Jose Calero, the owner of LapWorks Inc., which sells stands and other accessories for laptops and tablet computers through eBay.com, Amazon.com and two of his own e-commerce sites, Heldtite.com and Laptopdesk.net, says he has seen suppliers from China list online some of the same products he sells at wholesale prices and with lower shipping fees.

In addition to more shipping and delivery options, some postal services are working to minimize operating costs for e-retailers so they can more easily offer free or low-cost shipping.

At Future Shop and Best Buy Canada, for example, Canada Post and the retailer’s logistics provider, Ingram Micro Logistics, collaborate to help the merchant continue to offer free shipping on orders of $20 or more—an expensive proposition, Gordon says. Ingram Micro Logistics, a division of computer hardware and software distributor Ingram Micro Inc., provides customer service and fulfillment services to online retailers.

The retailer works closely with Canada Post and Ingram Micro to keep costs under control. For example, the retailer shares shipping volume forecasts to help Canada Post and Ingram Micro better prepare necessary levels of warehousing and trucking resources.

Ingram Micro warehouses the retailer’s e-commerce inventory. As orders come into Future Shop and Best Buy Canada’s online order management systems, they’re automatically forwarded to Ingram Micro’s warehouse management system and Ingram Micro prepares them for shipping by Canada Post. With advanced notice of expected shipping volumes, both Ingram Micro and Canada Post are better able to schedule the right number of warehouse workers and delivery trucks to expedite order processing and deliveries, Gordon says. “We know by the hour our number of orders,” he says. Best Buy Canada ships 90% of its online orders through Canada Post.

The Canadian retailer relies on this coordination for orders placed multiple ways, including orders placed in stores at kiosks for products not immediately available. Although the retailer operates its own distribution centers for its stores, it still uses Ingram Micro’s warehouse management technology integrated with Canada Post to coordinate orders for delivery.

The retailer’s work with Canada Post and Ingram Micro, he adds, has helped make delivery times more consistent, he adds. Customers now often get next-day delivery at no extra fee in major metropolitan areas including Toronto, Montreal and Vancouver, British Columbia, when ordering online as late as 6 p.m. That compares with average delivery times of three to four days a few years ago. “Because of our improved time to delivery, the customer has confidence in using endless aisle and other programs,” Gordon says.

Canada Post launched same-day delivery last fall at Future Shop and Best Buy stores in the Toronto metropolitan area, offering delivery between 6 p.m. and 9 p.m. for orders placed by noon. Customers pay about 40% more than the cost of standard delivery.

“It wasn’t a massive amount of volume, but the customers who used it were happy with it,” Gordon says. “It helped make the holidays a tremendous success.”

The retailer was still operating that program this spring, and was considering offering it in Vancouver. It’s another part of Best Buy’s efforts to increase its level of service to customers—while relying on Canada Post and Ingram Micro to come through with new and unusual services.

Another example of that occurred during last year’s holiday shopping season, when Ingram Micro arranged for some warehouse employees who don’t celebrate Christmas to process online orders and load trucks on Dec. 25 so that Canada Post could make deliveries of orders placed on Christmas on Dec. 27.

“Canada Post has evolved from a mail carrier to an e-commerce player,” Gordon says. “And they have to keep pushing forward.”

The postal service innovations that appeal to Party Supplies Delivered are the ones that offer more flexible delivery policies combined with rates that come in under the prices of other carriers, Hall says.

Party Supplies Delivered, a division of web retailer Mattress USA, ships 75% of its orders from warehouses located in its home state of Michigan, with the rest shipped from warehouses in New York, Utah and California. But with its largest market in California, that means it must ship many orders from the Michigan facilities to meet customer demand.

It relies largely on the USPS, Hall says, because it will ship from the Midwest to the West Coast in three days at rates that beat the competition. “The U.S. Post Office has allowed businesses in the Midwest and even the East Coast to be more competitive in California with businesses located farther west,” he says.

Although rates can vary widely based on a particular shipper’s volume and terms negotiated with individual carriers, a review of standard rates for a 5-pound package shipped from the Midwest to California revealed the following: UPS, $18.94; FedEx, $13.45; and USPS, $12.35.

“There is a lot of value in using the USPS as opposed to other carriers,” Hall says. “Besides being cheaper, the USPS is also a lot more determined to improve its business. Its tracking services have come a long way—in years past you could hardly track a single shipment with them—but now shipments can be tracked with multiple scans, not just for pickup and delivery.”

With that level of service, the USPS as other postal services worldwide can be expected to continue growing their parcel shipping business along with e-commerce. l

paul@verticalwebmedia.com

@pdemery

 

 


FEATURED RESOURCE PROVIDERS OF FULFILLMENT

a2b Fulfillment (www.a2bf.com)
a2b Fulfillment provides Order Fulfillment, Contact Center Solutions and Value-Add services supporting direct-to-consumer and b2b platforms. Facilities in Greensboro, GA, and Toronto total over 450,000 square feet of warehouse and call center space.

NEWS CATEGORIES Back to Top...