Vol. 3 | Issue 1 | 2015

Rethinking the Parcel Delivery Value Chain

Consumers and businesses change their behavior, have new demands and requirements and society trends will shape the new postal and logistics ecosystem. What are posts supposed to do and how can they succeed in a market, which is defined by rapidly changing business and consumer demands and a high level of competition?

C O N T E N T S

Dossier

3 Transformation and the Postal Business David Williams

5 Rethinking the parcel delivery value chain: strategic implicationsMatthias Finger

6 Rethinking the Parcel Delivery Value ChainBernhard Bukovc

8 Optimization or automation: Which do you need?Arjen Heeres

9 Interview with Etay Oren, CEO CommuniThingsInterview conducted by Bernhard Bukovc

11 The Global E-commerce Explosion:Kindling for A Delivery Revolution...and More?John Callan and Robert Reisner

EditorialWhen you buy something on the

internet you will realize that the ‘old postal world’ is long gone. Maybe your parcel will be delivered by your domestic postal operator, but it is likewise possible that it is delivered by one of its competitors, an express logistics operator, or that it is even delivered by one of your neighbors or another person who comes into play for the last mile through a crowd sourcing platform. Or maybe you can pick it up in a nearby shop or a locker system.

These and many more developments have changed the industry fundamentally, and they are just a few examples. Even eCommerce players have started to enter into the logistics sector trying to control the physical link to their customers.

Needs and demands have changed. People want more convenience, flexibility and choice and in order to provide the solutions responding to these demands postal operators have to keep up with the developments in the digital area, including among others data gathering and management, internet of things or logistics solutions for urban areas.

Postal and logistics experts have gathered early March in Washington, D.C. to discuss strategies and success factors that would position postal operators as market leaders and would help grow their share in the new logistics ecosystem. You can find in this new edition of our Postal Industry Newsletter the views of some of the participants of our PIP/OIG Roundtable on ‘Rethinking the Parcel Delivery Value Chain’ and the PostalVision 2020 Conference.

As usual, share with us your views and let us have your feedback and comments.

Bernhard Bukovc,General Manager and Chairman of the

Postal Innovation Platform<bernhard.bukovc@epfl.ch>

http://postal-innovation.epfl.ch/

the Postal Industry | The Postal Industry newsletter provides original analysis, information and opinions on current

issues. The editor establishes caps, headings, sub-headings, introductory abstract and inserts in articles. He also edits

the articles. Opinions are the sole responsibility of the author(s).

the Postal Innovation Platform (PIP) is a unique open platform and forum that focuses on innovative postal services

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and research platform that is unique in the postal world and shall ease the implementation of new and innovative

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Subscription | The subscription is free. Please do register at <http://mir.epfl.ch/newsletter> to be alerted upon

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(maximum 450 words) to the editor-in-chief. Letters may be edited.

Publication director | Matthias Finger

Editor in chief | Bernhard Bukovc

Co-editor | Nandkumar Kollara

Founding editor | Matthias Finger

Publisher | Chair MIR, Matthias Finger, director, EPFL-CDM, Building Odyssea, Station 5, CH-1015 Lausanne,

Switzerland (phone: +41.21.693.00.02; fax: +41.21.693. 00.80)

email: <postal-innovation@epfl.ch>

Website: <http://postal-innovation.epfl.ch/>

Published in Switzerland

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The growth in e-commerce is only an early warning sig-nal for the coming forces that threaten to upend patterns of commerce and logistics. We are in a period of unprec-edented change.• Supply chain links are becoming increasingly digital,

raising questions about the remaining value of humans and brick and mortar store fronts. No matter how low the cost, physical stores risk becoming interruptions to an efficient, people-less process. Traditional mid-dlemen are now merely getting in the way.

• People and industries are becoming tightly mapped to Internet data streams. When you can be notified the instant something arrives, you no longer want day-certain delivery; you want minute-certain delivery.

• As part of the Internet of Things, sensor nets and de-vices will increasingly alert us to risk and opportunity and co-exist with us on the Internet. We can map the warning and opportunity alerts to ourselves, anytime and anyplace, but disturbingly, others can also map our information without our knowledge. This web of alerts is entangling every stage in the value chain, from when and where we purchase the product to receiving the final shipment with dashboards about the condi-tion of the parcel’s contents.

• Augmented reality provides real-time information overlays to support our decisions, whether buying a couch from the IKEA catalog or deciding which item to find next in a busy warehouse.

• Just-in-time inventory practices are already being re-placed with predictive logistics.

• Big data analytics allow us to abandon statistical sam-pling and extrapolation with brute-force analysis of massive datasets that can yield surprising conclusions and correlations. Big data gives us the ability to drill

into tiny differences that cannot be observed when information is summarized or simplified. It is un-leashing new insights about customers, suppliers, and recipients. Yet even though data intake is unlimited, our ability to understand is not. Our next challenge is to manage the data flows in a way that makes the best use of very limited resources — our attention and understanding.

• Production is increasingly about the customer as creator. Traditional manufacturing involving assem-bly lines and the mass production of one-size-fits-all items is being replaced by customizable options like 3D printing, empowering point-of-use manufactur-ing and customer innovation. Not just low transport costs, but no transport costs. Low cost logistics can-not compete with no cost logistics.

• Financial transactions are increasingly becoming information-stream transfers and currency instru-ment exchanges. Mobile applications give everyone bank services in the palm of their hands, making bank branches increasingly unnecessary for financial services.

• The powerful combination of smart phones, sophis-ticated computer algorithms, and flexible workforces has the potential to unseat traditional business en-terprises as a means of organizing human effort, cre-ating significant implications for logistics and the workforce.

• Machine learning and other automation advances are triggering an invasion of robots, drones, and even driverless/pilotless vehicles into the value chain. All will have important implications for delivery — a function that has been traditionally regarded as the last refuge for human labor at posts. For processing

Transformation and the Postal BusinessDavid Williams*

The postal business is transforming as posts learn how to adjust to the rapid parcel growth accompanying the e-commerce revolution. Like most revolutions, this e commerce revolution is threatening to go far beyond the initial flashpoint. It could remake the entire value chain and cause yet another wave of creative destruction to crash over an already traumatized industry. New entrants with automated systems are upsetting traditional, fragmented niches along the entire value chain, from manufacturing and selling to transporting and delivering.

* Inspector General, U.S. Postal Service. The views expressed are those of the author alone.

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plants, long experienced with automation, the day of dark plants may have arrived — turn out the lights and let everything run without human intervention.

We are only in the first, early awkward stages of these transformations, and like with many previous innova-tions, we are still force-fitting new technologies into fa-miliar paradigms. Back in the early days of electricity, all the newly electrified machines clustered at the center of the factory because that’s where the steam engine used to sit. It took a while for the more efficient production line to develop.The strategies best suited to the new paradigm are only now becoming apparent. Accenture has recommended that high-achieving posts become lean, smart, and en-trepreneurial. They need regular mail services to provide income and product diversification to enable growth and resilience. What can posts provide to citizens and businesses? When essential systems of society are new and rapidly chang-ing, infrastructures such as postal systems should bring simplicity and enable ease of use. They can shorten ad-aptation curves for users, assuring uninterrupted societal advances. The great world posts have constantly adapted in order to serve. They can again.Postal systems certainly have rich physical networks that can be used in any adaptation, connecting citizens to e-commerce. One potential area is the Internet of Things. The U.S. Postal Service has 211,000 vehicles; 230,000 car-riers; 154 million delivery points; and 31,000 post offices. In theory, each component of physical infrastructure —whether a mailbox, a vehicle, a machine, or a letter carrier equipped with sensors — could connect to the Internet of Things. At a minimum, this digitally-enabled network could provide a much more detailed level of notification, alerting customers not only when a package has arrived but when a carrier is nearby, while at the same time pro-viding important operational information such as when it is time for vehicle maintenance. This information-rich system could also provide a platform for automated com-

merce. Run out of diapers, sensors tell the postal system and it delivers more. This platform could also be useful to local governments, utilities, and smart city initiatives. As postal vehicles pass through each neighborhood, they could read meters automatically, test Wi-Fi and other sig-nal strength, report congestion and road conditions, and measure air quality.Posts can also experiment with services to satisfy the grow-ing needs around fulfillment, particularly in the area of cross-border commerce. These services can include mail and parcel forwarding using virtual PO Boxes. Your vir-tual address can deliver to your house one day and your vacation residence the next. Combined with micro-ware-housing and returns supports, virtual PO Boxes could also help start-up businesses and expanding retailers from other countries that may need a local business address. Another area is providing residual physical connectivity as many physical networks retreat to the digital space. Posts can adapt their brick and mortar infrastructure to offer physical services that other providers may no longer be able to support. Many services, such as branch banking, are retreating from physical to digital footprints. Other new possibilities will emerge as the revolution continues to evolve.It’s not easy being a traditional infrastructure in an era of innovation and rapid change. People might have trouble seeing past the customary roles. But history has shown us that postal services can readily adapt as they identify better ways to serve. Just look at the last great disruptive era, which was the near simultaneous development of the railroads and the telegraph. The U.S. Postal Service didn’t continue plodding along in wagons on postal roads, be-cause that’s who it literally was 5 minutes ago. It was the first to the railroads, and the first to air carriers, greatly helping both those infant industries as the value of mail increased. It was also the first to the new highway system. I see no reason posts can’t adapt now to serve emergent human and commercial needs. Indeed, adaptation has been the essence of postal DNA since the beginning.

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Rethinking the parcel delivery value chain: strategic implicationsMatthias Finger*

Historically postal operators have always assumed that they must be present along the entire postal value chain, from collection to distribution. As competitive pressure started to emerge, they concluded that it would be good insurance to further extend this value chain, upstream into the mail and parcel generating processes of their customers and, downstream, into document management. It may be time to rethink this very assumption.

Indeed, in the age of ubiquous information and communications (ICTs) and the internet it may no longer be necessary and probably not value-generating for posts to be present along the entire postal value chain. To recall, the ICTs allow for an integral duplication of the physical value chain, from upstream to downstream. It may therefore well be sufficient to control the so-duplicated information chain in order to also be able to control the physical chain. It is well known by know that the real value-added is actually in the information chain and no longer in the physical chain.

But let us be more precise: at the beginning and at the end of the value chain lies the contact with the customer, i.e., the one who will ultimately pay for the (postal) services, be they physical or electronic. And that is precisely where the historical strengths of postal operators has been, i.e., the so-called “last mile”, to be complemented by the “first mile”. The first and the last miles, together, are so-to-speak the unique selling propositions (USPs) of postal operators. It is imperative, not to give these up, meaning that the physical contact with the customer is actually what is most precious for postal operators.

So what does this mean concretely? Let me formulate my thinking in terms of a series of recommendations:

• Be physically present, up- and downstream, as closely to the customer as possible: collect the mail and the parcels where they are generated, not when they are ready to be collected (by a competitor). For example, can Posts help e-retailers install and manage their webshops? Offer customized webshop solutions directly to the customers. This also means not to sell things via Posts; rather, help e-retailers sell things.

• Being present in this way upstream means that postal operators will directly possess the relevant data: what is produced and where is it mailed to? Once in control of these data, once the mail

and parcels collected, postal operator can then systematically and rigorously apply “make-or-buy” decisions: shall they produce the physical items themselves or shall they rather outsource, so as to save money?

• However, at the end of the value chain, items must be delivered to concrete and living customers. In the case delivery is physical, I strongly recommend to, again, keep control of the physical last mile. This is the only way to learn from the customer and its evolving needs. In any case, a delivery customer may well turn out to be the next upstream sender

• The main challenges for postal operators will not be the management of the first and the last mile. This is what postal operators know how to do and have perfected over their century-long history. What is new and challenging is what lies between the first and the last mile, i.e., the management of the huge amounts of information (big data). Postal operators need to learn how to make sense of these data and exploit them for further business growth in novel ways and areas. And this is what I would recommend postal operators to focus upon most urgently.

* Professor Chair MIR, EPFL

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Rethinking the Parcel Delivery Value ChainBernhard Bukovc*

Consumers and businesses change their behavior, have new demands and requirements and society trends will shape the new postal and logistics ecosystem. Providing a physical link between sender and receiver as the basic postal service function is - for a long time already - not enough anymore. However, trends tend to change quickly when we look back at the developments of the past five to ten years and investments in the logistics chain and changes in the operations are expensive. So what are posts supposed to do and how can they succeed in a market which is defined by rapidly changing business and consumer demands and a high level of competition?

Ideally, posts need to anticipate these new developments, but more realistically they must follow these trends and new customer demands and at least, in case they don’t respond to those changing needs, they need to master their traditional business. These are more or less the three options posts have.

Let’s start from bottom up. Posts have traditionally been defined (or define themselves) as physical intermediaries, i.e. bringing a letter or a parcel, a physical item, from a sender to a receiver. This role they have played for very long and their network on the domestic and as well on the global level is unique. It’s based on the principle that there is a sender who wishes to ship or mail something and the post takes care of it. There should not be any real issues with this service and posts will, usually, master it.

However, as mentioned above, this service alone is not enough anymore. Posts face fierce competition in the parcel and logistics sector and they must do more if they want to be successful. They realized that their customers want flexibility, value-added services such as track & trace and, in particular due to the rise of eCommerce, predictability, speed and returns solutions. All these topics have been on the table for many years and if posts wanted to keep their market shares and capture new revenue streams they already adapted their service portfolio to include these new customer demands. In most cases track & trace has become a standard feature and several posts have already or are in the process of bringing their processes closer to their customers, e.g. by offering choice in delivery (post office, pick-up points, parcel lockers etc.), choice and flexibility when mailing or shipping (automated post offices, often in combination with parcel locker systems), or in providing early morning, evening or weekend deliveries. Things become more complicated when it comes to cross-border shipments. Returns are one

of these never ending stories where posts try to develop, implement and provide their solutions for many years already , but, although a true core business area, have to overcome substantial difficulties. The technical side is no problem, but operational and payment model wise this step turned out to be quite a challenge. However, posts have no choice. They need to follow their customers’ wishes and offer the services and solutions their customers ask for. If they don’t, others will - competition is strong in this market. We can also see another development which should be an eye-opener for reluctant posts. Postal customers, here in particular customers that have grown in the eCommerce world, enter the logistics market through their own operations or through partnerships because they want to influence or rather control the transport link. Transport and shipping is part of their business model and they have a strong interest in the services offered by the postal and logistics sector. Having them as partners and on board can be a real opportunity. However, if posts don’t respond to their needs they may take over part of the business and the opportunity becomes a threat. It’s up to the posts whether they are willing to adapt their business to the new customer demands.

Ideally, posts do not only master their core business and follow their customers’ demands and requirements, but they rather anticipate market changes and trends. By anticipating developments posts can shape the market and eventually even orchestrate it. Posts are ideally positioned as intermediaries. They are the link between the seller and the buyer, they bring the ordered goods to the buyer and they are in contact with both sellers and buyers. This position makes them extremely strong and by anticipating needs and future demands they can offer services and solutions early on and thus bind their customers to them. It’s all about becoming partners with a service portfolio that is indispensable for the market and unique in its

* bernhard.bukovc@epfl.ch

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complexity. This complexity can combine the best of the physical and the digital world and it mirrors the different layers of consumer behavior and customer demands. It reflects the 3D postal value chain including the traditional physical transport link and the new layers consisting of the customers’ value chain(s) and the ICT services along these value chains.

Let’s take a look at the trends that the postal and logistics sector needs to anticipate and develop services and solutions for. One of the major forces driving change is the changing buying behavior with eCommerce being one of its main elements. There will still be brick and mortar shops, but their role might be changing. People might want to try on things, but they might prefer not to carry but instead to have it shipped home. Or they order online and return the good if it does not fit. In any case, most of this is not new, but it will change shop concepts and city centers even more dramatically. Omni-channel business models offer posts many opportunities along these new value chains in a B2B2C environment. Another trend that is already in the air for quite some time is the move of manufacturing back to the regional levels. Internet has opened new possibilities to small producers who suddenly found the global market in front of their door step. In addition, robotics and technology advancements enable manufacturers to produce again closer to their customers (and cheaper) and not in countries where production costs are lower. Posts can help in this new manufacturing environment by providing the necessary supply chain management, upstream manufacturing to downstream distribution, including warehouse management, inventory tracking, fulfillment, multichannel distribution management, web-shop and payment services and data management. Posts can thus become the main hub for local production empowerment and one of its main enablers. This does not mean that posts do everything themselves (e.g. web-shop and payment solutions), but that they have partners who can provide these services. It’s not necessary

to re-invent the wheel, there are companies that know perfectly well how to set up web-shops (including do-it-yourself kits with a small fee, e.g. Weebly) and provide eCommerce payment solutions.

These are just a few areas where new trends will change how things are produced, sold and transported. Posts can play a very relevant role in all of these and technology will provide the basis for it. Big data and the internet of things (or ‘internet of everything’) are areas where posts are ideally positioned. They are the link to the producer, the seller and the buyer. They have the last mile and know a lot about the first mile. But they can increase their presence in the first mile and position themselves as partners and, as mentioned above, offer a unique service that makes them indispensable. Owning the physical parts of the 3D value chain is only the starting point. Add to that the data gathering and management and posts are becoming a key digital player with a knowledge of markets, movements of things and people and being able to predict market and sales scenarios. This will not only allow a completely new view on supply-chain and omni-channel sales and distribution management, with a postal and logistics service provider who becomes an orchestrator, it will also allow posts to predict needs and market shifts, making their services and partnership unique.

One can conclude that the future looks bright. Posts have choices and face many opportunities. The developments and trends that we see today do not come as a surprise and many things take time to evolve. However, it is important to think and decide on the strategic approach with regard to the changing needs towards the parcel delivery value chains. The alternatives range from being a physical intermediary to a postal operator which understands its customers and follows their demands, up to an operator that orchestrates the market and becomes a hub for a new manufacturing, supply chain and distribution management. Which role would you like to play?

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Optimization or automation: Which do you need?Arjen Heeres*

At the last PIP roundtable event in Arlington, VA, we were discussing the topic “Rethinking the parcel delivery value chain” and were sharing strategies and best practice stories. One strategy of setting your business apart from the competition is to use optimization for planning your operations in a more agile and efficient way. .

It’s easy enough to confuse automation with optimization. In both cases, you press a button, wait a few seconds, and whoops… there’s your result. But while the external actions look alike, the results are very different.

What automation really automatesAutomation automates what human planners do. So what do planners do?

Planners oversimplify.

To cope with the overwhelming complexity of supply chain planning, planners base their decisions on simple rules of thumb or heuristics. For example, a planner who is assigning shipments to trucks is probably going to follow a rule such as ‘nearest next delivery’. When picking the next shipment to be assigned, the planner will look for the nearest delivery address to the previously assigned shipment.

It’s easy enough to automate such a rule, but the results will be disappointing for at least three reasons:

1. The real world isn’t simple: The rule has ignored a whole host of constraints, rules and regulations, customers preferences – and the list goes on.

2. It’s not the best plan because many options (in this case, better routes) have not been considered.

3. You have no idea how the plan affects your KPIs.

The advantages – and limitations – of optimizationOptimization considers a huge array of possible combinations to arrive at a result that no human planner could ever hope to achieve. It incorporates all constraints, business rules, regulations and preferences; and enables planners to optimize plans based on the KPIs that need improving.

In an ideal world, optimization would be enough. In the real world of changing circumstances and constant disruptions, optimization needs to be supplemented with something else.

Suppose a driver is delayed for 30 minutes and is going to be late for the next delivery. What should be done? Should the driver skip the next delivery? Or should he or she make the next delivery in spite of the knock-on effect this will have on subsequent deliveries?

In situations where the disruption is relatively small, global or even local re-optimization would be an overkill. Any small improvement in KPIs would be outweighed by the pain of re-optimizing the original plan.

What planners need is an intelligent system that will help them grasp the impact of the disruption, and offer suggestions on how to solve any problems that arise.

This kind of decision support helps planners respond effectively to changing circumstances by:

• Calculating all the consequences of a disruption or change of plan

• Flagging problems that need to be resolved• Suggesting solutions• Highlighting how the decisions will affect KPIs

Optimization and decision support: the combination that’s ‘real-world ready’It’s no surprise then that combining optimization with decision support produces the best results. You get the advantages of optimization, while ensuring that planners can step in and tweak plans when necessary.

After all, the best way to ensure that an optimized plan can be implemented is to make sure it can be revised.

*Chief Operating Officer, Quintiq, www.quintiq.com

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Interview with Etay Oren*, CEO CommuniThingsInterview conducted by Bernhard Bukovc

Etay, before we start, can you perhaps explain CommuniThings activities in the postal domain?

CommuniThings is an enabler of Internet of Things (IoT) solutions with main emphasis on collection of data from the street and its communication to key stakeholders. CommuniThings leverages Postal carriers’ core value: presence in every street, every day!

You mention “Internet of Things”, and recently we even heard of “Internet of Postal Things”. Can you perhaps put all this in the right context for the postal sector?

In the emerging Internet of Postal Things, Postal operators will be adding sensors to IoT devices in their vehicles, to collect more data in each street. Such sensors range from Can-bus information from the car through air-quality sensors, alongside Bluetooth, Wi-Fi, RFID, NFC and other telco technologies (2G, 3G, 4G/LTE, Lora). Once deployed, a whole range of solutions can be offered by the post towards improvement of internal operational efficiency, and introduction of new services to the cities, enterprises and residents. Equipped with the right technological platform, and leveraging their core competence of ubiquitous presence, we believe the post is poised to become an active player in this emerging market.

It sounds ambitious, but postal carriers are focused on mail & parcel delivery. How does “Internet of Postal Things” help them achieve their objectives in that area, for example quality, track & trace etc.?

Well, the initial services offered to the post are aimed at operational efficiency and cost reduction towards optimized parcel delivery.Among these services, we can name some prominent ones:• Track & trace – for geo-localization of each vehicle.• Eco driving – engaging drivers towards increased

safety, a reduction of CO2 footprint and fuel consumption, and more operational efficiencies.

• Asset management - tracking the movement and location of physical assets and parcels.

• Dynamic routing – allocation of routes based on

location and tasks completion, allowing optimization of vehicle utilization

Each of these services may be valid on their own, but how many of these can you run from a postal vehicle?

That is indeed a key point. To date, each service arrives traditionally with its own dedicated HW on which it resides along with specific sets of sensors and SW logic. Yet, with the multitude of services introduced to market, accompanied by as many sensor solutions, there is a need to centralize them under one platform to ensure efficiencies and costs optimization.Such approach will allow the post to introduce, not only operational solutions for their parcel delivery business, but also new applications and associated revenue streams.

Can you give us some examples of such new revenue-generating services?

Many of these solutions fall in the domain of “Smart-City” services. The first one, illustrating Postal core competence and making use of Telco sensors affixed to the IoT platform, is the measurement of Telco Quality of Service.Such service draws its need from the growing use of smartphones and mobile applications, combined with Telco networks migration from 3G to 4G. With such abundance of solutions, users are looking for impeccable service across Voice, data, SMS and network coverage. In order to optimize mobile coverage there is a need to collect and report customer experience in a structured format, at each street as often as possible.The Telco Quality of Service solution collects measurements on mobile coverage and service quality across voice, data and SMS for 2G, 3G and 4G networks. As opposed to other crowd sourcing solutions, which lack the national coverage and granularity, the post will generate the data frequently, so as to ensure fine-grained data is provided consistently in each street throughout the country. Telco QoS can then be offered as a B2C tool for the post, targeting end users (see sample illustration – not in commercial use), or as a B2B tool targeting mobile operators and enterprises, aiming to optimize network quality in the area.

CEO CommuniThings, www.communithings.com, etay.oren@communithings.com

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Other than Telco related services, any other examples?

Of course. The same measurement approach applied for Telco QoS can be replicated for other city services such as Air Quality and Gas Leakage. Up until the emergence of IoT low-cost sensors, cities lacked tools to collect fine-grained air pollution data from the street. As a result, municipality mobility plans could not assess which mobility measure will generate highest impact, and were unable to raise awareness among residents to pollution in their streets.The post is uniquely positioned to address the above constraints through the use of air quality sensors affixed to its IoT platform in their vehicles. The measurement of air pollutants in each street combines to a regional heat-map, magnified granularity to street level, and updated daily by the post.See sample illustration below:

The same is applied to gas leakage, thereby preventing hazardous risks to residents and contributing to costs optimization in the city.

Any other examples of Smart-city solutions leveraging presence in every street?

I think there is a myriad of other applications we can envisage using postal fleets. After all, the same vehicle

measuring air-quality and gas leakage, can also add an accelerometer and a camera, to report daily on potholes or broken street lights in the streets. And while we are at it, why not combine low-energy Bluetooth sensors and tags to report on stolen bikes, lost pets, and even on real time fill-level data of smart-bins across the city. I can go on, but I think the message is clear. Presence in every street is a unique capability which opens up new streams of revenues for the post. Thank-you Etay. Surely, you have been speaking to postal operators and cities on these offerings. What has been the feedback received to date?Feedback to date has been very positive and cooperative. Postal operators sense that IoT can considerably invigorate their conventional business model, and are looking forward to trial new services. Cities and postal service providers already embark on tenders for some of these services, and others are willing to pilot and deploy them as well.

What are the main challenges you face with postal operators in embracing Internet of Things?

The main challenge is rather the “change management” across postal stakeholders. It is natural, as IoT deployment implies adding sensors and introducing new services which fall outside core business. The overall perception is that IoT will shift daily resources to new and unfamiliar activities, baring financial risks and requiring adaptation from internal personnel. However, this perception is only partially true. Indeed, these activities are new and its financial contribution to the Post is yet to be tested. Nonetheless, it is important to highlight that Internet of Postal Things is not going to change the daily course of the postal personnel in any way or form, as the sensors reside in the platform, and the platform is connected to the car from day one.

What is the main takeaway you wish the post to consider when evaluating Internet of Things?

Postal operators are undergoing investments in operational solutions (e.g. Track & Trace, Eco-driving) which require on board units in the cars. We believe their investment is best served by extending the platform capabilities to additional services in the likes of the above, making way to new business models in the future. The post is not required to launch IoT applications from day one, yet such platforms should maintain the technological capabilities to host such services (or others) in the future. Platform openness is key for the postal success.To conclude, Internet of Things is gaining ground. Postal Operators should therefore leverage this momentum to become a leading user and provider of “Internet of Postal Things” solutions addressing cities, residents and B2B customers.

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In 2014, at a meeting of the U. S. Department of State’s International Postal Advisory Committee, on which we both serve, the discussion suddenly took a surprising turn. Multiple members of the committee expressed strong views about the need to make global e-commerce fulfillment and cross-border trade seamless and evenhanded. Some of the largest, most successful carriers declared that customs barriers and traditional postal pricing were significant, anti-competitive obstacles to their business future. Their representatives argued that the traditional customs procedures were inefficient, unfair and potentially dangerous in an era of security threats. Traditional international postal pricing violated the spirit of a variety of U.S. laws, they argued. These are themes that have been heard before. But the force of the presentation was new. To understand this new growing interest in making global trade more seamless, it’s not necessary to look further than the numbers that describe the expected growth in e-commerce throughout the world.

As the Chairman of FedEx wrote in his company’s Annual Report in 2014, “online shopping has exploded around the world. Forrester Research predicts that worldwide B2C online sales will reach $1.33 trillion in 2017, up from $656 billion in 2012.3” Indeed, the numbers from Forrester Research4 are amazing as the USPS and those of us who have been watching the growth of online commerce for more than a decade will readily acknowledge.

In the US, e-commerce sales are projected by Forrester to grow from $294 billion to $414 billion in 2017. In China, ecommerce sales are already estimated to be $440 billion and they are projected to grow to $990 billion during this

same period. And significant growth is forecast for Japan, India, Latin America and Europe. As Forrester notes, “ecommerce has gone global.”

At UPS, there has been a similar interest in the potential that the era offers for growth. In the UPS 2014 Annual Report titled ”Networked for Growth” the company described the importance of creating networks that can better facilitate connections on behalf of its customers. The CEO wrote that advances in the science of managing networks and analytics leads his company to believe that we are at the beginning of a new age of progress5.

Not surprisingly, with this outlook, competitors, collaborators and customers of the USPS – the postal ecosystem - are all looking to e-commerce to become a driver of business success. At the USPS, parcel growth has been the most important bright spot in postal performance.

In spite of the size and complexity of the organization, USPS services still focus on the relatively simple proposition of moving letters and parcels.

The letter mail business basically has two parts. First Class mail, the traditional core product, is still used throughout the US economy to send bills to consumers and then by a dwindling number of consumers to pay bills. Unfortunately for the USPS, First Class Mail has been declining at almost 4% per year as more and more bills are paid online. Advertising mail, known as Standard Mail, actually showed a small increase in volume in the past year. But the pricing of Standard Mail means that it cannot

The Global E-commerce Explosion:Kindling for A Delivery Revolution...and More?John Callan1 and Robert Reisner2

The widely recognized e-commerce explosion that can be seen throughout the world is creating a revolution in delivery services that will ultimately redefine the postal ecosystem. Not only has the e-commerce explosion been surprising in terms of the speed of its growth and the scope of its impact, but also the secondary effects that can be seen in delivery sector innovations will define the future of the postal world. If the posts can be agile, innovative and resilient, their competitive advantages as the traditional delivery infrastructure may offer them a path to new vitality.

1 John Callan, Managing Director jcallan@ursamajorassociates.com 2 Robert Reisner, rreisner@ursamajorassociates.com3 FedEx 2014 Annual Report, Chairman’s letter. www.FedEx.com4 “Seizing the Cross Border Opportunity” How Small and Medium-Size Businesses Can Go Global. Forrester Research, Dec 2014.5 UPS 2014 Annual Report, CEO’s letter. www.UPS.com

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replace the losses in First Class Mail (in fact, it takes three pieces of Standard Mail to replace a First Class Mail piece.) Other types of letter mail and postal services (periodicals, catalogues etc.) represent comparatively small volumes.

This leaves parcels. The growth in parcels makes this the one bright spot in the USPS’s past several years. In 2014 the revenue growth in parcel shipping was 9.1% over 2013. In the Integrated Financial Plan for 20156, the USPS is planning on revenue growth for parcels of 14.1%. This compares with a plan for revenue growth of 2.7% for the USPS overall. In short, parcel growth is crucial to the USPS today and to its future plans.

One interesting aspect of USPS parcel growth has been the importance of a service that’s called “Parcel Select” where other carriers such as FedEx and UPS give their parcels to the USPS for delivery. Parcel select services grew at 26%7. So these parcels (often e-commerce parcels) that the USPS is carrying on behalf of its traditional competitors – FedEx and UPS – have been critical to USPS growth.

The Implications of GrowthNot surprisingly, with the prospect of exceptional growth in the global parcel markets, some of the biggest players in this marketplace have been acquiring companies to enhance their competitive capabilities so that they can play a major role in this expanding market.

Among a long list of UPS acquisitions has been iParcel. UPS i-parcel is described by the company as offering e-commerce retailers shipping and transaction solutions that reduce cost, eliminate barriers and make selling and shipping internationally far easier8.

FedEx acquired Bongo International to add services that enable international e-commerce orders and shipments. Later in 2014, FedEx acquired Genco, a third party logistics firm that had built a role in fulfillment of e-Commerce orders. Then in 2015 FedEx acquired TNT Express9.

Still another major announcement in April 2015 by one of the traditional players seeking to build a bigger role in the global e-commerce business was the announcement by Pitney Bowes that it had acquired Borderfree for $395 million. Borderfree’s cross-border ecommerce solutions

complement and expand Pitney Bowes’ existing ecommerce capabilities. Borderfree helps clients grow their businesses internationally by reducing the complexity of cross-border ecommerce. They give e-commerce sites the ability to advise potential buyers of landed costs and other important regulations on a country by country basis10.

Will continued growth mean a continuation of consolidation, as the big companies get bigger? Certainly, that will happen. But the rate of growth is such that the story would be incomplete without noting that new players will be appearing in this seemingly staid market. Alibaba, the consortium of Chinese e-commerce sites, went public in the largest IPO ever in September 2014. And many of the most interesting e-commerce stories of 2014 came from Amazon that is beginning to experiment with delivery alternatives. The delivery and logistics sector is becoming an increasingly fertile source of disruptive innovation.

A Note on the Character of this e-commerce MarketWhile this discussion of growing demand began with a discussion of global markets, e-commerce has also been growing inside the US. In the US, on-line sales are outpacing retail sales at a year-on-year growth rate of 3-1111.

Yet the carriers have found has been that this growth has not been without challenges. In the U.S., e-commerce sales in the 2013 five-day period from Thanksgiving through Cyber Monday jumped 26 percent year over year and comparable growth was seen in 2014. And half of the sales today are coming from mobile devices, a distinctly new mode of retail with major implications for sellers requiring coordination between the on-line and traditional value chains. What’s more sales to the mobile market – where the screens are different and marketing must be context-appropriate – requires a new style of marketing.

In 2013 the volatility of on-line sales made it difficult for some traditional carriers to meet service commitments and to their great embarrassment Christmas presents were not delivered by Christmas. In 2014 they managed the growth in sales and the volatility of the Christmas peak to protect their brands, but 2014 was more challenging to profitability. While the customers may have had fewer complaints, Wall Street had new ones.

6 USPS Integrated Financial Plan, www.USPS.gov7 Revenue, Piece, Weight analysis. www.USPS.gov 8 www.UPS.com9 www.FedEx.com10 www.pb.com 11 FedEx Road Show, www.FedEx.com

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With this volatile growth today and projections for the near future, there is little surprise that we are watching the beginning of a delivery revolution that will encourage “asset free” shipping – that is, shipping services where the carrier doesn’t own airplanes and trucks. Perhaps of even more interest, the new era will demand continuous innovation from shippers and carriers.

The Delivery RevolutionToday there are innovators, entrepreneurs and disrupters experimenting with alternative delivery modes at an unprecedented rate. There are experiments with same day delivery at the USPS in partnership with Amazon. At Uber and Lyft, there are experiments with adding package delivery to more traditional taxi/limousine type services.

While the preceding examples concern new competitors in the traditional delivery space, there may be even greater numbers who have been creating innovations that will compete with conventional postal delivery, in other words innovators who are rethinking the postal delivery value chain. New providers of smart boxes are seeking to reroute delivery modes. Click and collect, already a major force in European retail where it is reported to comprise nearly half of e-commerce deliveries in some countries, is growing now in the US as well. And DHL recently announced a service with Volvo to deliver to the trunk of parked cars.

There are some who are exploring even more radical alternatives to the traditional value chain. We could have discussed the entrepreneurs who are focused on other technologies of the future such as drone delivery, 3D Printing, the Internet of Things and there are others. They are not only shifting the place where delivery takes place and how it will be controlled, they are seeking to transform the traditional delivery system.

At Postal Vision 2020 in March of 2015, John Callan and Ursa colleagues led the 5th year of discussion to bring entrepreneurs and innovators together with traditional mailing industry service providers to explore the future of the postal ecosystem. EVP and CIO of the USPS Jim Cochrane provided the keynote address in which he described the way that analytics fueled by data from the relatively new Intelligent Mail parcel barcode (IMpb) will continue to offer new opportunities for USPS customers to create new value in this rapidly changing market.

Rather than trying to draw up plans for a new value chain, it’s this joining of entrepreneurs with the traditional business models and the exploration of new partnerships that we believe is one of the transformational opportunities of our time. The possibilities that will be realized through cross border trade and a delivery revolution led John Callan and Bob Reisner to partner to offer market analysis and strategic counsel to traditional service providers and entrepreneurs alike. We believe this is a unique time of innovation for customers and mail service providers. Creating forums where the new alchemy can take place will a critical contribution to innovation for all.

The concept of creating learning platforms that can help bring the traditional and the non-traditional participants in the fast changing e-commerce and delivery market together is only beginning to emerge. But for those who come to understand the way that the revolution in delivery is going to create new opportunities for sellers of services to connect with one another and with customers (Peer2Peer & B2Me and more) and to optimize individual digital supply chains, there will be new opportunities to rethink the parcel delivery value chain and this is the path to a new co-creation of value.

Ursa Major Associates is a consulting firm specializing in providing market analysis and strategic counsel to private firms, innovators and public institutions in the e-commerce, postal and delivery market space. John Callan, the Managing Director of Ursa Major, is the creator of Postal Vision 2020 that will have its sixth annual meeting March 15-16, 2016. Robert Reisner is the former USPS VP for Strategic Planning and Technology Applications and the author of the Leader’s Guide to Transformation.

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M A R K T H E D AT E S

Register now for the

PIP Conference 2015

which will take place

from 10 - 11 September

at the

Hotel Warwick | 14, rue de Lausanne | 1201 Geneva, Switzerland

You can find all information on the PIP Conference, this year’s themes, registration, partnership– and sponsorship opportunities at

http://postal-innovation.epfl.ch/

Main themes of the PIP Conference 2015

Rethinking the Parcel Delivery Value Chain eCommerce Addressing

Postal Services in the Digital Age Internet of Things / Big Data / City Logistics

Managing Innovation