This really looks like a proven idea for the United States Postal Service.
Earlier Posts:
Should the Postal Service Close All Post Offices?
Markrting the Packstation
Packstation Vendor
Showing posts with label Deutsche Post. Show all posts
Showing posts with label Deutsche Post. Show all posts
Tuesday, June 7, 2011
Self Service Retail Popular in Germany
This really looks like a proven idea for the United States Postal Service.
Earlier Posts:
Should the Postal Service Close All Post Offices?
Markrting the Packstation
Packstation Vendor
Wednesday, May 25, 2011
Deutsche Post's Strategy for Mail
In response to two questions as part of an interview posted on the company's website, Deutsche Post CEO Frank Appel provides a description of Deutsche Post's strategy for mail.
How do you intend to achieve the stabilization of the traditional letter business?
Of course, in this division we can see far-reaching structural changes that relate to electronic forms of communication. We have reacted to this with a range of e-products, such as the e-Postbrief. Such products are only one element of our strategy to offer innovative solutions in digital and traditional physical communications and, with this approach, to permanently defend our position as THE postal service for Germany. Moreover, one fact is frequently overlooked: we are also one of the big winners of the e-commerce boom because of the strong growth we have achieved in our parcel business. The parcel business now already accounts for around one-fifth of the MAIL division's total revenue and these revenues are seeing highly dynamic growth: 9 percent in the first three months of 2011 alone.
Like I said, we have set ourselves a target of achieving underlying EBIT of around EUR1 billion in the MAIL division. We need this amount to be able to make the necessary investments in an efficient network. The dynamic parcel business will contribute to this goal and help us to achieve it. The extent to which the traditional letter business will be in a position to contribute will depend on a number of external factors that we are unable to influence.
I presume you are referring here to the procedure for setting the price of letters?
This is definitely one important aspect. Consider this: the price for sending a standard letter in Germany has not been raised for 14 years. Our prices are low in European comparison - although the quality of service is extremely high. At the same time, earnings in the letter business have almost halved within only three years.
The discussion about a possible increase in the price of a letter, then, is not about maximizing our profit, but rather about maintaining the current status and a good infrastructure. At the end of the day, the Federal Network Agency will not only be deciding the future procedure for setting letter prices. In fact, it will also be part of the decision on whether or not Germany will still have a modern and efficient postal network in ten years.
His response raises a couple of questions for those thinking about ensuring a self-sufficient United States Postal Service.
How do you intend to achieve the stabilization of the traditional letter business?
Of course, in this division we can see far-reaching structural changes that relate to electronic forms of communication. We have reacted to this with a range of e-products, such as the e-Postbrief. Such products are only one element of our strategy to offer innovative solutions in digital and traditional physical communications and, with this approach, to permanently defend our position as THE postal service for Germany. Moreover, one fact is frequently overlooked: we are also one of the big winners of the e-commerce boom because of the strong growth we have achieved in our parcel business. The parcel business now already accounts for around one-fifth of the MAIL division's total revenue and these revenues are seeing highly dynamic growth: 9 percent in the first three months of 2011 alone.
Like I said, we have set ourselves a target of achieving underlying EBIT of around EUR1 billion in the MAIL division. We need this amount to be able to make the necessary investments in an efficient network. The dynamic parcel business will contribute to this goal and help us to achieve it. The extent to which the traditional letter business will be in a position to contribute will depend on a number of external factors that we are unable to influence.
I presume you are referring here to the procedure for setting the price of letters?
This is definitely one important aspect. Consider this: the price for sending a standard letter in Germany has not been raised for 14 years. Our prices are low in European comparison - although the quality of service is extremely high. At the same time, earnings in the letter business have almost halved within only three years.
The discussion about a possible increase in the price of a letter, then, is not about maximizing our profit, but rather about maintaining the current status and a good infrastructure. At the end of the day, the Federal Network Agency will not only be deciding the future procedure for setting letter prices. In fact, it will also be part of the decision on whether or not Germany will still have a modern and efficient postal network in ten years.
His response raises a couple of questions for those thinking about ensuring a self-sufficient United States Postal Service.
- What should the financial goal of the Postal Service be? Deutsche Post believes that the financial health of its mail business requires $1 billion in EBIT (earnings before interest and taxes.) This is about a 7.8% margin before interest and taxes are determined.
- What is the role of e-Products for the USPS and can it survive delivering only print-communications and parcels? Deutsche Post apparently believes that it has to provide both print and delivery options to survive.
- How much capital does the United States Postal Service need to make the investments necessary to handle restructuring the network to deal with changing levels and mix of volume? Deutsche Post believes it needs $1 Billion Euros EBIT for a much smaller network.
- With declining volume, can the Postal Service continue to hold all rate increases below CPI, or will some rates need to increase at a faster pace to generate the cash needed to cover the transition costs that will be required to shrink the workforce and network as First Class volume decreases? Deutsche Post believes that it can no longer continue to meet its long-term commitments if there is not a change in regulatory pricing policy of the past 14 years.
- What impact does rate changes in any particular year have on the long-term viability of the Postal Service? Deutsche Post looks at rate setting policy having an impact not just on immediate results, balance sheets, and cash flow but also the long-term viability of the enterprise.
Monday, December 28, 2009
Postal Service as Editorial Fodder
A recent editorial by the Washington Times and a columnist in the Los Angeles Times provide illustrations as to how ideological predilections and reporting on a deadline produce more heat and less light about how to solve the problems facing the Postal Service. These commentaries reflect the seasonal interest in the Postal Service use it to ship packages and send correspondence that they rarely send in the other 11 months of the year.
Readers of this blog are more familiar with the problems that the Postal Service faces these writers. They will have no problems identifying how the writers of the two pieces illustrated their minimal knowledge of the postal market or the USPS.
Common to both pieces is a misunderstanding of how limited the competition between the Postal Service and United Parcel Service and FedEx really is. The Postal Service is in the business of delivering documents, small parcels (those under 10 pounds) shipped by all senders, and larger parcels shipped by households and others that ship parcels infrequently. FedEx and UPS focus on business-to-business shipments and household deliveries of larger parcels. FedEx and UPS use the Postal Service to deliver small parcels to households as the revenue generated to drop one small parcel at a household is not equal to the cost of delivery for those two carriers. More of the Postal Service's volumes compete with newspapers like The Los Angeles Times and Washington Times, than with UPS and FedEx.
So why does what is printed now in two newspapers matter to postal stakeholders? They are important because they provide some hint as to what the debate over the future business models will look like. Right now, postal policy is most likely a low level priority of both the Obama Administration and Congress. Postal Policy is not a hot button issue in the blogosphere, talk radio, cable news except when used to illustrate why the financial health of the Postal Service suggests that public option is a bad idea.
This will change when the Government Accounting Office issues its report on potential business models in March or April of 2010 and the issue of postal operating losses and retiree healthcare payment schedules raise the threat of default on payroll next fall, and the risk that debt limit will be hit in 2011. Postal policy will bubble to the top of public discourse in the spring and summer of 2010 because the blogosphere, talk radio, and infotainment programs on the cable news networks will see postal policy as an issue that their readers and listeners can easily understand, or more importantly understand an ideological position relative to future postal business models.
The rise of postal policy in public discourse will be helped by the fact that the "hot button" issues of 2009 will have mostly be dealt with. This includes health care, financial industry reforms, and possibly even energy policy and global warning. At that time, there will be few other "hot button" issues on the plate of Congress that the blogosphere, talk radio, cable news can talk about that every reader, listener, or viewer will easily understand and writers, hosts, or panelists can easily frame the problems of the Postal Service around their ideological perspective.
The Washington Times editorial uses the Postal Service to present a polemic against government provided services. It links together a series of anecdotal stories about poor customer service at retail outlets and the inability of the Postal Service to meet its Priority Mail commitment with references to news stories illustrating evidence that its operating process are breaking down. In conclusion, the Washington Times does not present solution, instead it concludes with a remark suggesting that households abandon the Postal Service for parcel delivery.
The Los Angeles Times piece (reprinted in the Allentown Morning Call) is more thoughtfully written but David Lazarus but illustrates the types of conclusions that are drawn when based on misinformation provided by the Postal Service employees who have a real interest in maintaining the status quo, limited understanding of customers of and competition within the document and parcel delivery markets that results, and limited time to assess the information collected in interviews.
The remainder of this post reflects comments that I sent to Mr. Lazarus and represent my initial reaction to a number of the points that he raised.
The question of privatization is often tied to the question of the monopoly. A privatized Postal Service does not require eliminating the monopoly. Examples of privately owned, legal monopolies exist among regulated utilities serving large territories and unregulated rural retail monopolies selling everything from gasoline to groceries.
"The postal service is asking for a national dialogue on this," Richard Maher, a Postal Service spokesman in Los Angeles said. "What is our role going to be in the future? We need to have a conversation about that."
The dialogue was mandated by Congress and GAO will have a report on the subject that the USPS is trying to influence at the end of March. They wrote a paper on the topic and hired 4 independent thinkers, including myself to look at the question. For more information go to www.postaljournal.com for links to all papers an links to presentations made on the topic at a recent conference in DC.
Who wants the take over the Postal Service's business?
The interviews with FedEx and UPS are reflective of their view. They do not want to get in the “mail” business because it is not a growth business like parcel shipping in Asia. They are being a little disingenuous as FedEx is the USPS’s largest transportation supplier. UPS is a significant supplier. Both use the USPS to deliver parcels under 5 pounds to households and to addresses that FedEx and UPS call “remote” For them, remote means many zip codes in outer suburbs of big cities. They also like having a competitor who is undercapitalized and a bit inefficient as it allows them to charge more for services in the US and use those profits to invest in faster growing markets abroad. They will be major players in policy debate to come.
If not UPS or FedEx who?
The only other US private sector firm who would be a logical buyer would be Pitney Bowes but the USPS might be too big for them to swallow. Similar problems would exist for foreign buyers, including Canada Post, Deutsche Post, and TNT Post Group. Buying the USPS, especially given its current financial position, business model, and restrictions on operations, customer relationships, etc would be not viewed as a viable proposition. Also, these companies, as well as UPS and FedEx have better uses of capital than in investing in the USPS. TNT has specifically indicated it is exiting the mail business outside of the Netherlands.
The big private shippers probably would be happy to cherry-pick profitable urban routes but would want nothing to do with having to schlep mail up and down unprofitable rural roads.
FedEx and UPS already do that with their pricing structure. The private carriers (they are carriers and not shippers; those that send stuff are shippers) have substantial surcharges on home delivery and “remote” delivery, and retail services, (e.g. anyone who does not have a corporate account) All of these surcharges makes the USPS cheaper for individual shippers of parcels and commercial shippers of light weight parcels to homes and remote areas. So they already cherry pick in the parcel business. There is some indication in Europe that entry into the mail delivery market even into the most high-volume high-income neighborhoods is difficult to do profitably Furthermore not all urban carrier routes are profitable as routes in low income urban neighborhoods have much less mail per stop than those in high income neighborhoods and "cream skimmers" may find that the number of routes that could be served profitably are too few to justify investment in a start-up delivery business.
It seems to me that the only privatization scheme that stands even a remote chance of working would be to break the postal service network into hundreds of regions and territories, and then have local companies compete for mail-delivery rights in each area. But you'd still have to wonder how any such private-sector players would be more successful at the game than a long-established heavyweight like the Postal Service.
Breaking up the Postal Service has been suggested before. The problem with this solution is that almost all buyers of mail service want the company that collects / accepts the mail to have the ability to seamlessly deliver to any address in the US. Mailers, and in particular larger mailers, want to maximize their purchasing leverage by buying from one or two transportation sources not 50. That is why both FedEx and UPS have national parcel, express and freight networks and ATT, Sprint, T-mobile, and Verizon all offer nationwide wireless service. The privatization scheme that would have the best chance of working would be an IPO with a significant employee ownership. It could come only after the USPS could show it could operate profitably under private sector business and employment law. This is what happened with Conrail in the 1980’s.
"If the system was privatized, it might cost 44 cents to get a letter across Los Angeles but $5 to get it to Connecticut," said Richard Maher, the postal service spokesman. "When you think about a network that delivers to all homes every day -- it's huge," he said. "Would a private company be able to do that? I don't think so. I think we would lose universal service."
These are canards. Every country uses a uniform rate for single-piece mail and in many cases for Parcels. (look at the rate structure for parcel in Germany where you can send a parcel anyplace in the world and only have to choose among some 20 or so rates based on the size of the box and the destination country.) Business mailers (LL Bean, Bank of America, etc, may see rates that are not uniform. In fact, those advertising mailers that drop their mail at local post offices rather than anyplace in the country already have the distance based rates that Mr. Maher says would be so terrible. If distance based rates are introduced to First Class for commercial mailers, percentage differences between local and distant rate will likely be much less than 100% rather than the 1,136% that the Postal Service spokesman describes.
The percentage difference between local parcels and those shipped cross-country vary with weight. The percentage does not exceed 100% until the parcel exceeds 17 pounds. This suggests that the impact of transportation on rates for items that are sorted at origin and destination would be quite small.
The Universal Service Obligation (USO) argument has been gone over many times. The driver of the USO is commercial mailers, who must mail to every possible address. The rates charged these mailers can be set to cover the total cost of delivering to every address printed on their mail using either a uniform or distance-based rate. The acceptance of remote surcharges by customers or FedEx and UPS illustrate that private sector carriers can devise non-uniform rates that allow them to deliver to all addresses in all 50 states. UPS and FedEx have a common carrier obligation which creates a common law requirement to actually deliver to all points that they say they reach according to advertised service commitments. Similar obligations exist for other trucking, rail, air and telecommunication carriers and are enforced by regulators and courts. In addition, there are lots of publicly traded utilities that provide “universal service” as it is within their charter to offer the service to every potential customer. With a common carrier obligation, the only financial problem for the Postal Service would be developing rates that cover the costs of single-piece mail sent or received by single piece mailers in the nation's most rural areas as defined by the Department of Agriculture.
Moreover, why limit the system's network of post offices to stamps and boxes? Why not have the post office deal in all manner of communications, from book and cell phone sales to DVD rentals? Heck, why not sofas, lattes and Wi-Fi access?
I agree with you that the USPS should be able to do more beyond what it does now. I also believe that just as private health insurers did not want a public option to compete with them, Starbucks, ATT, Amazon, Banes and Nobel, Citibank, and all kinds of other firms in the private sector do not want a government entity competing with them. In the United States we do not have a tradition of having a government entity actively competing with the private sector. Also the employment laws and business laws that apply to the government do not work really well for an entity like the USPS that gets 70% of its revenue now from customers that mail more than 500 pieces at a time. If the Postal Service must expand outside traditional mail business, then the only choice is a corporate private-sector model for the Postal Service.
This brief post illustrates the massive education effort that lies ahead for stakeholders in the mail industry. Editorial writers and business journalists have influence far beyond the few people who buy their papers and contacting them individually or in groups will be critical for stakeholders. But stakeholders can not stop there as the primary source of news and opinion on the future of mail will come from the web, talk radio and cable news. The tea-party movement shows how the internet, talk radio and cable news could drive and amplify a public policy issue that every voter uses, has a personal connection to, and can develop a vision for its future based on their political ideology and personal interests. With the Government Accounting Office report coming out this spring, it is time for stakeholders to begin this effort. Without it, Congressional reaction to the report will be driven by influences whose livelihoods and businesses do not depend on the future of mail.
Readers of this blog are more familiar with the problems that the Postal Service faces these writers. They will have no problems identifying how the writers of the two pieces illustrated their minimal knowledge of the postal market or the USPS.
Common to both pieces is a misunderstanding of how limited the competition between the Postal Service and United Parcel Service and FedEx really is. The Postal Service is in the business of delivering documents, small parcels (those under 10 pounds) shipped by all senders, and larger parcels shipped by households and others that ship parcels infrequently. FedEx and UPS focus on business-to-business shipments and household deliveries of larger parcels. FedEx and UPS use the Postal Service to deliver small parcels to households as the revenue generated to drop one small parcel at a household is not equal to the cost of delivery for those two carriers. More of the Postal Service's volumes compete with newspapers like The Los Angeles Times and Washington Times, than with UPS and FedEx.
So why does what is printed now in two newspapers matter to postal stakeholders? They are important because they provide some hint as to what the debate over the future business models will look like. Right now, postal policy is most likely a low level priority of both the Obama Administration and Congress. Postal Policy is not a hot button issue in the blogosphere, talk radio, cable news except when used to illustrate why the financial health of the Postal Service suggests that public option is a bad idea.
This will change when the Government Accounting Office issues its report on potential business models in March or April of 2010 and the issue of postal operating losses and retiree healthcare payment schedules raise the threat of default on payroll next fall, and the risk that debt limit will be hit in 2011. Postal policy will bubble to the top of public discourse in the spring and summer of 2010 because the blogosphere, talk radio, and infotainment programs on the cable news networks will see postal policy as an issue that their readers and listeners can easily understand, or more importantly understand an ideological position relative to future postal business models.
The rise of postal policy in public discourse will be helped by the fact that the "hot button" issues of 2009 will have mostly be dealt with. This includes health care, financial industry reforms, and possibly even energy policy and global warning. At that time, there will be few other "hot button" issues on the plate of Congress that the blogosphere, talk radio, cable news can talk about that every reader, listener, or viewer will easily understand and writers, hosts, or panelists can easily frame the problems of the Postal Service around their ideological perspective.
The Washington Times editorial uses the Postal Service to present a polemic against government provided services. It links together a series of anecdotal stories about poor customer service at retail outlets and the inability of the Postal Service to meet its Priority Mail commitment with references to news stories illustrating evidence that its operating process are breaking down. In conclusion, the Washington Times does not present solution, instead it concludes with a remark suggesting that households abandon the Postal Service for parcel delivery.
The Los Angeles Times piece (reprinted in the Allentown Morning Call) is more thoughtfully written but David Lazarus but illustrates the types of conclusions that are drawn when based on misinformation provided by the Postal Service employees who have a real interest in maintaining the status quo, limited understanding of customers of and competition within the document and parcel delivery markets that results, and limited time to assess the information collected in interviews.
The remainder of this post reflects comments that I sent to Mr. Lazarus and represent my initial reaction to a number of the points that he raised.
Can this system be saved?
The answer is yes. However, it cannot survive as it does now. It is also clear from other countries that a postal service can provide universal service, even places as remote as the Australian outback and the Arctic areas of Canada at a uniform price. Put another way, is it time we privatized the postal service?I think the answer here is yes as well but not in the manner that you are thinking. By 2020, The Postal Service and mail in general will primarily be a means of delivering advertising. (It is close to that now.) What should the US Government's responsibility for advertising delivery be? Personal Correspondence is less 4% of all mail volume and bill payments by check will likely disappear by around 2030. (There is already no check clearinghouse in Great Britain or Sweden.)The question of privatization is often tied to the question of the monopoly. A privatized Postal Service does not require eliminating the monopoly. Examples of privately owned, legal monopolies exist among regulated utilities serving large territories and unregulated rural retail monopolies selling everything from gasoline to groceries.
"The postal service is asking for a national dialogue on this," Richard Maher, a Postal Service spokesman in Los Angeles said. "What is our role going to be in the future? We need to have a conversation about that."
The dialogue was mandated by Congress and GAO will have a report on the subject that the USPS is trying to influence at the end of March. They wrote a paper on the topic and hired 4 independent thinkers, including myself to look at the question. For more information go to www.postaljournal.com for links to all papers an links to presentations made on the topic at a recent conference in DC.
Who wants the take over the Postal Service's business?
The interviews with FedEx and UPS are reflective of their view. They do not want to get in the “mail” business because it is not a growth business like parcel shipping in Asia. They are being a little disingenuous as FedEx is the USPS’s largest transportation supplier. UPS is a significant supplier. Both use the USPS to deliver parcels under 5 pounds to households and to addresses that FedEx and UPS call “remote” For them, remote means many zip codes in outer suburbs of big cities. They also like having a competitor who is undercapitalized and a bit inefficient as it allows them to charge more for services in the US and use those profits to invest in faster growing markets abroad. They will be major players in policy debate to come.
If not UPS or FedEx who?
The only other US private sector firm who would be a logical buyer would be Pitney Bowes but the USPS might be too big for them to swallow. Similar problems would exist for foreign buyers, including Canada Post, Deutsche Post, and TNT Post Group. Buying the USPS, especially given its current financial position, business model, and restrictions on operations, customer relationships, etc would be not viewed as a viable proposition. Also, these companies, as well as UPS and FedEx have better uses of capital than in investing in the USPS. TNT has specifically indicated it is exiting the mail business outside of the Netherlands.
The big private shippers probably would be happy to cherry-pick profitable urban routes but would want nothing to do with having to schlep mail up and down unprofitable rural roads.
FedEx and UPS already do that with their pricing structure. The private carriers (they are carriers and not shippers; those that send stuff are shippers) have substantial surcharges on home delivery and “remote” delivery, and retail services, (e.g. anyone who does not have a corporate account) All of these surcharges makes the USPS cheaper for individual shippers of parcels and commercial shippers of light weight parcels to homes and remote areas. So they already cherry pick in the parcel business. There is some indication in Europe that entry into the mail delivery market even into the most high-volume high-income neighborhoods is difficult to do profitably Furthermore not all urban carrier routes are profitable as routes in low income urban neighborhoods have much less mail per stop than those in high income neighborhoods and "cream skimmers" may find that the number of routes that could be served profitably are too few to justify investment in a start-up delivery business.
It seems to me that the only privatization scheme that stands even a remote chance of working would be to break the postal service network into hundreds of regions and territories, and then have local companies compete for mail-delivery rights in each area. But you'd still have to wonder how any such private-sector players would be more successful at the game than a long-established heavyweight like the Postal Service.
Breaking up the Postal Service has been suggested before. The problem with this solution is that almost all buyers of mail service want the company that collects / accepts the mail to have the ability to seamlessly deliver to any address in the US. Mailers, and in particular larger mailers, want to maximize their purchasing leverage by buying from one or two transportation sources not 50. That is why both FedEx and UPS have national parcel, express and freight networks and ATT, Sprint, T-mobile, and Verizon all offer nationwide wireless service. The privatization scheme that would have the best chance of working would be an IPO with a significant employee ownership. It could come only after the USPS could show it could operate profitably under private sector business and employment law. This is what happened with Conrail in the 1980’s.
"If the system was privatized, it might cost 44 cents to get a letter across Los Angeles but $5 to get it to Connecticut," said Richard Maher, the postal service spokesman. "When you think about a network that delivers to all homes every day -- it's huge," he said. "Would a private company be able to do that? I don't think so. I think we would lose universal service."
These are canards. Every country uses a uniform rate for single-piece mail and in many cases for Parcels. (look at the rate structure for parcel in Germany where you can send a parcel anyplace in the world and only have to choose among some 20 or so rates based on the size of the box and the destination country.) Business mailers (LL Bean, Bank of America, etc, may see rates that are not uniform. In fact, those advertising mailers that drop their mail at local post offices rather than anyplace in the country already have the distance based rates that Mr. Maher says would be so terrible. If distance based rates are introduced to First Class for commercial mailers, percentage differences between local and distant rate will likely be much less than 100% rather than the 1,136% that the Postal Service spokesman describes.
The percentage difference between local parcels and those shipped cross-country vary with weight. The percentage does not exceed 100% until the parcel exceeds 17 pounds. This suggests that the impact of transportation on rates for items that are sorted at origin and destination would be quite small.
The Universal Service Obligation (USO) argument has been gone over many times. The driver of the USO is commercial mailers, who must mail to every possible address. The rates charged these mailers can be set to cover the total cost of delivering to every address printed on their mail using either a uniform or distance-based rate. The acceptance of remote surcharges by customers or FedEx and UPS illustrate that private sector carriers can devise non-uniform rates that allow them to deliver to all addresses in all 50 states. UPS and FedEx have a common carrier obligation which creates a common law requirement to actually deliver to all points that they say they reach according to advertised service commitments. Similar obligations exist for other trucking, rail, air and telecommunication carriers and are enforced by regulators and courts. In addition, there are lots of publicly traded utilities that provide “universal service” as it is within their charter to offer the service to every potential customer. With a common carrier obligation, the only financial problem for the Postal Service would be developing rates that cover the costs of single-piece mail sent or received by single piece mailers in the nation's most rural areas as defined by the Department of Agriculture.
Moreover, why limit the system's network of post offices to stamps and boxes? Why not have the post office deal in all manner of communications, from book and cell phone sales to DVD rentals? Heck, why not sofas, lattes and Wi-Fi access?
I agree with you that the USPS should be able to do more beyond what it does now. I also believe that just as private health insurers did not want a public option to compete with them, Starbucks, ATT, Amazon, Banes and Nobel, Citibank, and all kinds of other firms in the private sector do not want a government entity competing with them. In the United States we do not have a tradition of having a government entity actively competing with the private sector. Also the employment laws and business laws that apply to the government do not work really well for an entity like the USPS that gets 70% of its revenue now from customers that mail more than 500 pieces at a time. If the Postal Service must expand outside traditional mail business, then the only choice is a corporate private-sector model for the Postal Service.
This brief post illustrates the massive education effort that lies ahead for stakeholders in the mail industry. Editorial writers and business journalists have influence far beyond the few people who buy their papers and contacting them individually or in groups will be critical for stakeholders. But stakeholders can not stop there as the primary source of news and opinion on the future of mail will come from the web, talk radio and cable news. The tea-party movement shows how the internet, talk radio and cable news could drive and amplify a public policy issue that every voter uses, has a personal connection to, and can develop a vision for its future based on their political ideology and personal interests. With the Government Accounting Office report coming out this spring, it is time for stakeholders to begin this effort. Without it, Congressional reaction to the report will be driven by influences whose livelihoods and businesses do not depend on the future of mail.
Thursday, December 17, 2009
Becoming a Multi-modal Postal Company
Today, RR Donnelley announced a new mobile application for broker/dealers and financial advisors. This application is part of a suite of digital products and services that RR Donnelly offers to the financial services industry.
RR Donnelley's significant presence in digital documents may be a surprise to many readers of this blog who only know of the company as the largest printer of documents that are delivered by mail in the United States. Illustrative of this change is how RR Donnelley describes its business.
In this entire description, the word "printing" appears only once. Instead, RR Donnelley sees itself as a communications company and "printing" is only one modality to deliver communication. RR Donnelley clearly envisions a world in which it is multi-modal provider of document delivery, whether by print, the Internet or through a mobile smart-phone.
RR Donnelley is clearly still primarily a printing company. Most of the services described on its website relate to the process of taking communication concepts and turning them into printed documents. In a similar fashion, RR Donnelley does not break out the revenue of its digital document business separately in its quarterly financial statements, suggesting that the revenue in that business is still not large enough to note separately.
The change in its definition of its business suggest that RR Donnelley understands that to continue to serve its print customer needs, it must be capable of providing solutions that allow the delivery and/or storage of documents digitally to reflect the demands of recipients. Other firms that serve parts of the postal supply chain, such as Pitney Bowes, Canada Post, Deutsche Post, and Xerox, are making a similar transition. For all companies in the "postal" business, the changing environment raises three questions:
RR Donnelley's significant presence in digital documents may be a surprise to many readers of this blog who only know of the company as the largest printer of documents that are delivered by mail in the United States. Illustrative of this change is how RR Donnelley describes its business.
RR Donnelley is a global provider of integrated communications. Founded more than 145 years ago, the company works collaboratively with more than 60,000 customers worldwide to develop custom communications solutions that reduce costs, enhance ROI and ensure compliance. Drawing on a range of proprietary and commercially available digital and conventional technologies deployed across four continents, the company employs a suite of leading Internet based capabilities and other resources to provide premedia, printing, logistics and business process outsourcing services to leading clients in virtually every private and public sector. (Emphasis added)
In this entire description, the word "printing" appears only once. Instead, RR Donnelley sees itself as a communications company and "printing" is only one modality to deliver communication. RR Donnelley clearly envisions a world in which it is multi-modal provider of document delivery, whether by print, the Internet or through a mobile smart-phone.
RR Donnelley is clearly still primarily a printing company. Most of the services described on its website relate to the process of taking communication concepts and turning them into printed documents. In a similar fashion, RR Donnelley does not break out the revenue of its digital document business separately in its quarterly financial statements, suggesting that the revenue in that business is still not large enough to note separately.
The change in its definition of its business suggest that RR Donnelley understands that to continue to serve its print customer needs, it must be capable of providing solutions that allow the delivery and/or storage of documents digitally to reflect the demands of recipients. Other firms that serve parts of the postal supply chain, such as Pitney Bowes, Canada Post, Deutsche Post, and Xerox, are making a similar transition. For all companies in the "postal" business, the changing environment raises three questions:
- Is my company prepared to be a competitive multi-modal postal firm?
- What changes does my company need to make to remain relevant in a multi-modal world including acquisitions, divestitures, partnerships and mergers?
- What strategy does my company have to deal with legacy physical-delivery focused assets and divisions so that they can generate an acceptable financial return for as long as customers exist for that portion of our business?
Wednesday, October 14, 2009
Creating a Self Service Footprint
This blog has noted earlier the efforts of Deutsche Post and Post Denmark to automate their acceptance process and solve the problem of delivering parcels to people who are not at home.
Hellmail has just reported that Post Denmark will install an additional 60 of these Døgnposten bringing the total number to 108. To put this in perspective, this Postal Service would need to install nearly 25,000 to have the same level of customer access as will exist in Denmark.
To see how the Danish version of this parcel locker works, I have attached this video.
Hellmail has just reported that Post Denmark will install an additional 60 of these Døgnposten bringing the total number to 108. To put this in perspective, this Postal Service would need to install nearly 25,000 to have the same level of customer access as will exist in Denmark.
To see how the Danish version of this parcel locker works, I have attached this video.
Thursday, October 8, 2009
Interview with Deutsche Post CEO
Forbes has just published an interview with Frank Appel, the CEO of Deutsche Post. While the entire short interview is worth reading, his response to one question is in line with the research that I have conducted on the future of the mail business.
With the imminent end of the mail monopoly in the EU by 2011, what are the new revenue sources you're looking at?
"The monopoly has already gone thanks to the Internet. There's a movement from physical delivery of mail to electronic delivery. People are writing less letters. As you know, we're currently in tough talks with the unions in our mail business. I'm very conscious of the fact that the success of the past doesn't help in the future."
In this answer CEO Appel makes three key points that reflect my recent research on the postal market.
The monopoly has already gone thanks to the Internet.
In this statement, CEO Appel tries to calm the fears of shareholders regarding the impact of eliminating the monopoly. In doing so, he suggests that Deutsche Post has bigger problems in the mail business than removing the monopoly.
The Internet clearly is a problem for national postal operators. Nearly all documents that could be mailed have electronic alternatives that can deliver the same information. Four barriers are holding back senders from using electronic delivery: 1) recipient preference for mail; 2) not knowing or trusting the recipient's e-mail address; 3) difficulty of targeting display, search, and e-mail advertising without violating privacy concerns of Internet users; and 4) lack of a coherent, return-focused document management strategy which includes a coherent approach to transition to a recipient-friendly, electronic content delivery.
The impact of electronic alternatives is different for the United States Postal Service than it is for most foreign postal operators as the United States Postal Service still handles a significant share of all remittances that are easily diverted to the Internet. Foreign postal operators never had as large a share of payments and therefore new payment technologies have less effect on them.
Where the impact of the Internet is similar is in the delivery of information contained in a range of documents including bills, statements, shareholder communications, member communications, acquisitions advertisements, and retention advertisements. Figuring out how to keep mail relevant for transmitting information contained in these documents for as long as possible is critical for national postal operators to manage their transition to a world in which mail is not the primary means of document delivery.
Compared to the problem of dealing with the challenge of the Internet, the removal of the monopoly looks less problematic. Competition from physical delivery competitors is easier to understand and deal with. In fact, it may hasten the changes necessary to keep mail relevant in in an Internet-centered communications world.
We're currently in tough talks with the unions in our mail business.
Current contracts with postal unions worldwide reflect the results of negotiations completed within different market environments that now exist. Previous agreements had to deal with the challenge of introducing new information technology, mail sortation and material handling technology that reduced the need for postal labor. Those national posts that successfully handled the technological transition were able to sign agreement with flexible labor rules that allowed them to operate fewer, larger facilities which operated with short operating windows for sorting originating mail and mail delivered within a sortation facility's delivery area.
Today's negotiations have to deal with challenges from outside the corporation, including competition from electronic and physical delivery. As such, nearly all of the agreements will have to deal with the transition to a smaller, and even more-flexible workforce than current agreements now allow. The labor strife in Belgium, France, Great Britain, and the Netherlands all illustrate that negotiations will not be easy. Finding a way for the national operator's management and postal union leadership to prepare employs for change will be key to minimizing labor conflicts as the postal workplace changes.
Success of the past doesn't help in the future.
This is the clearest statement that nothing is sacrosanct for a postal operator. Every idea for streamlining processes to reduce costs and improve service or developing new products have to be considered. For example, as mail becomes increasingly tied to advertising, national postal operators have to find a way to provide day-certain, low-priced delivery as an advertising campaign is most effective if physical mail arrives on the same day as the e-mail. Without day-certain delivery, advertisers send multiple e-mails to match the actual physical delivery, increasing the cost and reducing the effectiveness of the advertising campaign.
With the imminent end of the mail monopoly in the EU by 2011, what are the new revenue sources you're looking at?
"The monopoly has already gone thanks to the Internet. There's a movement from physical delivery of mail to electronic delivery. People are writing less letters. As you know, we're currently in tough talks with the unions in our mail business. I'm very conscious of the fact that the success of the past doesn't help in the future."
In this answer CEO Appel makes three key points that reflect my recent research on the postal market.
The monopoly has already gone thanks to the Internet.
In this statement, CEO Appel tries to calm the fears of shareholders regarding the impact of eliminating the monopoly. In doing so, he suggests that Deutsche Post has bigger problems in the mail business than removing the monopoly.
The Internet clearly is a problem for national postal operators. Nearly all documents that could be mailed have electronic alternatives that can deliver the same information. Four barriers are holding back senders from using electronic delivery: 1) recipient preference for mail; 2) not knowing or trusting the recipient's e-mail address; 3) difficulty of targeting display, search, and e-mail advertising without violating privacy concerns of Internet users; and 4) lack of a coherent, return-focused document management strategy which includes a coherent approach to transition to a recipient-friendly, electronic content delivery.
The impact of electronic alternatives is different for the United States Postal Service than it is for most foreign postal operators as the United States Postal Service still handles a significant share of all remittances that are easily diverted to the Internet. Foreign postal operators never had as large a share of payments and therefore new payment technologies have less effect on them.
Where the impact of the Internet is similar is in the delivery of information contained in a range of documents including bills, statements, shareholder communications, member communications, acquisitions advertisements, and retention advertisements. Figuring out how to keep mail relevant for transmitting information contained in these documents for as long as possible is critical for national postal operators to manage their transition to a world in which mail is not the primary means of document delivery.
Compared to the problem of dealing with the challenge of the Internet, the removal of the monopoly looks less problematic. Competition from physical delivery competitors is easier to understand and deal with. In fact, it may hasten the changes necessary to keep mail relevant in in an Internet-centered communications world.
We're currently in tough talks with the unions in our mail business.
Current contracts with postal unions worldwide reflect the results of negotiations completed within different market environments that now exist. Previous agreements had to deal with the challenge of introducing new information technology, mail sortation and material handling technology that reduced the need for postal labor. Those national posts that successfully handled the technological transition were able to sign agreement with flexible labor rules that allowed them to operate fewer, larger facilities which operated with short operating windows for sorting originating mail and mail delivered within a sortation facility's delivery area.
Today's negotiations have to deal with challenges from outside the corporation, including competition from electronic and physical delivery. As such, nearly all of the agreements will have to deal with the transition to a smaller, and even more-flexible workforce than current agreements now allow. The labor strife in Belgium, France, Great Britain, and the Netherlands all illustrate that negotiations will not be easy. Finding a way for the national operator's management and postal union leadership to prepare employs for change will be key to minimizing labor conflicts as the postal workplace changes.
Success of the past doesn't help in the future.
This is the clearest statement that nothing is sacrosanct for a postal operator. Every idea for streamlining processes to reduce costs and improve service or developing new products have to be considered. For example, as mail becomes increasingly tied to advertising, national postal operators have to find a way to provide day-certain, low-priced delivery as an advertising campaign is most effective if physical mail arrives on the same day as the e-mail. Without day-certain delivery, advertisers send multiple e-mails to match the actual physical delivery, increasing the cost and reducing the effectiveness of the advertising campaign.
Friday, August 28, 2009
Marketing the Packstation
Deutsche Post did not just have to fund the purchase and installation of pakstations and train employees how to place parcels in them for pick-up by customers and remove parcels for processing but it had to fund a sizable marketing campaign to convince the public to use them. The two videos illustrated that marketing a new process of sending or receiving parcels is not an inexpensive proposition.
This web delivered commericial illustrates the problem of not being home when the delivery happens.
This video of a song was most likely used in shorter bits in commercials on the web, television, and radio. Since the Pakstation was introduced sometime before 2007 with a second order of 1,500 placed that, I am willing to bet that almost as many Germans can sing the chorus as can sing McDonald's big Mac jingle.
Should the Postal Service Close All Post Offices?
Note: This blog post contains my first attempt to include pictures and videos. If you are having trouble viewing the videos they are all on YouTube and can be found by searching DHL and either Packstation or paketbox. I would appreciate feedback on workarounds for readers behind corporate firewalls from the more technically minded to the problem that many are having viewing the videos. For those that cannot see the videos at work, multiple readers have indicated that the blog is readable through virtually all ISP's on home computers. Thank you for your understanding. I will remove this paragraph once a workaround is found.
The Postal Service created a major political storm by proposing to close less than 700 retail locations. In addition to forcing every member of Congress to deal with irate citizens and Postal employees, the Postal Service must go though a laborious regulatory and public outreach process to make a rather small tweak in its retail network.
Deutsche Post, the German post office has just proposed closing its remaining company owned post offices. Does this mean that there is no retail access to postal services? No, in fact Deutsche Post guarantees that every town with greater than 2,000 population have a postal retail facility and in urban areas, no customer would be more than 2 kilometers (1.24 miles) from a retail facility.
How does Deutsche Post do this?
1. Deutsche Post simplified its pricing structure for all letter and parcel products used by retail customers. The prices can be found on two Deutsche Post web pages.
Letters flats, and smaller light weight parcels
Parcels of any weight with size maximums beyond those set for parcels under 2 kilograms (4.4 pounds) with certain size maximums
Deutsche Post's price list for shipments of parcels of any size contains only seven different prices for shipments within Germany and only 20 different prices for shipments anyplace in the world. (If you look at the website, Deutsche Post uses the word "paket" for parcel and "päckchen" for small parcel.) It does this by nearly eliminating a customer's need to weigh the parcel that they are shipping. If a customer does not have the weigh a parcel to get a precise weight, they do not need a retail facility to weigh and price the shipment.
For domestic cards, letters, flats, and flat shaped parcels up to 2" thick there are five total rate levels . Besides the single rate for cards, there are four other rates: standard letters, heavy letters, standard flats and thick/heavy flats. Letters over 2 ounces are priced within one of the two flat categories.
For domestic parcels, customers only need to know the parcel's dimensions and whether the parcel weighs less than one of four weight band maximums. (Most parcels are handled by the DHL subsidiary.)
* 2 kilo (4.4 pounds) and no larger than 23.6" x 11.8" x 5.9" (60cm x 30 cm x15cm)
* 10 kilo (22 pounds) and no larger than 47.2" x 23.6" x 23.6" (120mm x 60mm x 60"
* 20 Kil0 (44 pounds) and no larger than 47.2" x 23.6" x 23.6" (120mm x 60mm x 60"
* 31.5 kilo (69 pounds) and no larger than 47.2" x 23.6" x 23.6" (120mm x 60mm x 60
For international parcel shipments, Deutsche Post has a pricing structure with a similar simple structure that has a total of 18 possible rates. Small parcels (parcels whose dimensions are such that width+ height+ length <= 35.5 inches) have two rates depending on whether they are destined within the European Union (EU) or the rest of the world. Larger parcels have rates within four weight-based price bands that are determined by destination country. Countries are grouped into four categories: the EU; rest of Europe; Middle East; and North America; and the rest of the world. For each country group, the weight based limits within each price bands are:
* 5 kilo (11 pounds)
* 10 kilo (22 pounds)
* 20 kilo (44 pounds)
* 30 kilo (66 pounds)
2.Deutsche Post contracts out all of its retail operations to either its former subsidiary, PostBank, independent providers of mail services or independent sellers of postage. Eliminating the need for precise mail weight simplifies the sale of postage. The simplicity of the transaction allows even the smallest kiosks and convenience stores can sell postage without the need for sophisticated point-of-sale terminals or revenue protection efforts that would be required with a more complicated tariff. Retailers can sell postage with the same level of effort they employ to sell scratch-off lottery tickets. By simplifying the product sold, Deutsche Post also simplifies the record-keeping, and security challenges with ensuring that non-corporate outlets do not pay for the postage sold, using models that work for lottery tickets and consignment items.
to the extent that weighing is necessary, a customer can go to an outlet that has a clerk that weighs the parcel. That is the service that the PostBank outlets can provide. However, the simplified tariff would allow a customer to go to an outlet that only sells stamps to buy the appropriate postage and determine the weight by using a scale the outlet provides for customer use, do the weighing themselves at home, or even just guess the weight prior to purchasing postage. The simplicity of the tariff allow individuals with limited training to determine the Deutsche Post postage stamp that would be appropriate for their letter, flat or parcel.
3.Deutsche Post has a significant technology program for self-service acceptance and delivery of parcels. They have developed two devices: paketboxes that can only accept parcels and packstations that can accept or delivery parcels. A simplified parcel tariff, on-line postage, and independent sellers of postage are clearly critical for the technology program to work. Paketboxes are larger version of the postal drop box and can be used for items that have postage already applied. Pictures on the web indicate that they are located in places not much different than where UPS or FedEx may have their drop boxes in the United States.
The video of the paketbox shows how it is used
Packstations are automated, large parcel lockers that can both collect and deliver parcels. They can deliver parcels to customers that are either not at home when the carrier arrives or for those customers that prefer to use the automated facility. They are located either in stand alone locations like cluster boxes in the United States or within buildings.
The following video shows how the packstation is used to accept parcels. (The process starts at the 20 second mark.)
The following video, most likely created by eBay and Deutsche Post, illustrates not only the use of a paketbox to tender a parcel and a packstation to pick up the parcel but the entire sortation process for parcels. The use of the paketbox by a customer and a Deutsche Post employee can be seen around 40 seconds from the beginning and the use of of the packstation can be seen at the 8 minute mark. All filming appear to have been done at PostBank or DHL facilities.
Could this be duplicated in the United States? Absolutely, but traditional thinking, regulatory processes and financial impediments prevent the Postal Service from doing so.
Traditional thinking prevents the simplification of the mail prices for retail customers to the extent that Deutsche Post has. The traditional approach to postal costing is to develop detailed tariffs with different rates for every characteristic of the item to be delivered that affects its costs. Shape based rates reflect a rationalization of this approach but did not change the complicated traditional weight and distance based tariff significantly. The Postal Service has two products that take a non-traditional approach to pricing: Express Mail envelopes and Priority Mail flat-rate boxes. The forever stamp is an example of a non-traditional way of selling postage for letters. While the market has shown that the success of these products in the retail market, traditional thinking prevent using these successes to expand the simplification of prices for retail customers.
Regulatory processes act to protect existing service locations, ways of serving customers and rate relationships. Changing to a simplified, self-service model would change where postal services are bought and parcels are tendered and would require abandoning any linkage between rates charged to retail customers and business customers of the Postal Service. By moving toward a simplified, self-service model, most traditional post offices would be unnecessary except to protect the jobs of existing employees and the social benefits that they now provide. As the current controversy over closing less than 1,000 post offices shows, both postal employees and citizens seeing changes in cherished routines are quite effective in making their interests known to Congress and the PRC. Similarly, de-linking the rate relationships between retail and business customers of the Postal Service would require overturning nearly forty years of regulatory precedent that has tried to balance the share of overhead that these two types of customers should bear, let alone how the overhead costs should be born among the various types of business customers. De-linking rates charged to retail and business customers would put the PRC in the uncharted territory of choosing market based rates over cost model based rates. The rulemaking on workshare discounts illustrates how wedded customers are to the regulator process, the concept that historical rate relationships matter, and the search for cost theories that would justify new rates and a regulator set advantage over competitors or the Postal Service. Weaning customers off of PRC protection and de-linking the prices of retail and business customers could create a ruckus just as loud as what now exists for closing a few post offices.
The Postal Service weak financial position and near-total lack of capital financing options leave a real retail restructuring beyond the reach of Postal Management. Over the next two years, the Postal Service does not have the cash to pay all of its mandated obligations for retiree benefits and will use most of an expanded borrowing capability to just cover operating losses. The financial requirements of a program that is the magnitude of what Deutsche Post did would dwarf the Postal Service's investment in Automated Postal Centers and would also have to deal with start-up costs of restructuring the concept of retail and covering costs of excessing both employees and facilities. Postal management position is not much different that scene in many Christmas movies where poor children can see the toys in store window but have no hope of seeing them under the tree.
Eliminating all post offices, therefore, is just a fantasy. Unfortunately, so is developing a modern customer-focused model for serving the Postal Service's retail customers.
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