Spotlight on cross-border mail

John Modd, Editor
Mail & Express Review August 2009 Four senior industry figures recently engaged in a virtual debate on the state of the industry with Mail & Express Review Editor John Modd.

Our protagonists were:

• Daniel Baettig: Head of International Mail, Swiss Post International
• Iain McLure: Chief Executive Officer, Spring Global Mail
• Martin Seidenberg: Senior Vice President, DHL Global Mail Cross Border
• Peter Somers: Managing Director, Belgian Post International and Member of the Executive Committee of Belgian Post.

Volume trends

We began by talking about volume trends for cross-border mail in the current downturn. There was an overwhelming consensus about the continued decline in transactional mail volumes due to electronic substitution. There were different views about the speed of decline and the impact of the current recession on the downward curve. For instance, Iain talked of declines of 20-30% per year in developed markets. Peter’s perspective was that decline in the US was much steeper than in Europe.

All our executives remained positive about the long term opportunities for direct mail, although in the short term the discretionary nature of marketing expenditure was hitting budgets. As Martin put it “we actually foresee a long term growth, but package solutions will dominate the market, for example, physical and electronic elements of direct marketing communication combined”.  The others expressed a similar view, although Iain voiced concern about the potential for unreliable and inflexible postal delivery systems to impact volumes: “The reality is that cross border direct mail is a minefield of confusion and rules and there is a real chance that this channel will be killed, not just by e-substitution or other alternatives, but by the posts themselves.”

The publishing sector was generally seen as showing at best static volumes, with some reduction in weight per item. Martin explained that his organisation saw a real opportunity to move to remote printing, quoting as an example a UK publishing company looking at printing in AsPac and the US.  Daniel also saw opportunities for Swiss Post to offer additional services as an outsourcing partner.

Turning to geographies, the consensus was that AsPac in particular offered attractive opportunities. However, as Peter pointed out, there can be a distinction between domestic and cross-border: “Domestic volumes seem to be less impacted … probably because companies refocus on their domestic markets … In some Asian countries exports show a significant decrease, meaning that domestic mail volumes are keeping up whereas cross border volumes show a sharp drop.”

Market developments

Our executives saw trends to outsourcing in billing, printing and distribution; and consolidation of printing in a more limited number of locations. The desire on the part of customers to look at centralised full service cross-border mail and packet solutions reflected these wider trends. “The key to succeeding and retaining … business is continuous improvement … Ultimately customers use mail for a reason-usually to sell more. Helping them to do this with measurable results, acting as a trusted partner, and in some cases their formal outsource supplier, has been the main trend of the last three years,” was how Iain summed up Spring’s view of market trends.

Cross border mail has many of the elements of a commodity market. To avoid this trap, everyone in the discussion group was looking at ways to add value: strategic advice and consultancy; database management; printing and production; response handling and fulfilment; scanning; integration of web-based and mail based services. All these and more were mentioned, whether offered directly or through partners and sister companies.

However, it remains necessary to get the basics right.  Daniel expressed it this way: “But there is also … a big potential to increase the value in the core activities as the traditional ‘quality’ definition of transit times only partly corresponds to our clients’ needs. We still transport a letter with a wrong address around the world, and check locally if the address exists.  If not we send it back. We must get better at learning from such developments, rather than every time we go to check again physically.”  Martin added, “we need to make sure that our quality is excellent and our prices are competitive”. He emphasised the benefits of co-opetition, where companies compete and co-operate with each other at the same time. “Those who have a similar understanding and value proposition are welcome to seek closer co-operation with us.”

The group discussed various alternatives to the traditional postal Terminal Dues systems. One example is direct entry into the receiving post’s operational system.  This was seen as an increasingly common way of handling international mail. Iain felt that the ability to access bulk or work share discounts meant that “so called direct entry is significantly cheaper than cross border traffic at terminal dues or REIMS rates”.

The other big development our executives had views on was hybrid mail. This is very difficult to define to everyone’s satisfaction, but in an international context means essentially keeping the communication in digital form until it arrives in the destination country, where it is then created as a physical item. Martin outlined some of the advantages: up to 80% reduction in CO2; improved speed; cost savings; shared data centres for customers having one source for their global and regional data. He saw DHL Global Mail’s ‘Hybrid Print and Mail’ service as offering reduced cost, faster delivery, and improved sustainability.

Peter confirmed that Belgium Post was also increasingly active in this area, although he felt “for the moment no major market impact is noted, possibly due to the necessary investments needed”.

Whilst outlining Swiss Post’s interest in hybrid, Daniel pointed out that there are other developments focussed on cost savings that are not necessarily about moving production closer to the receiver.  “We observed movement of mail production from Europe and the USA to the Asia Pacific area for huge, not time critical, volumes,” he said.

Challenges for cross border Internet shopping

Moving on to the undoubted growth in cross-border B2C packets driven by e-commerce, we looked at some of the issues getting in the way of that growth: customs rules and charges; VAT; effective and responsive delivery systems; and returns mechanisms were just some of the problems highlighted.

Peter emphasised the importance of security and sector specific solutions. As an example of the customs issues in Europe he quoted the difference between the E150 duty free limit, and the E22 euro limit for sales tax purposes (E45 for private gifts). “Aligning both limits would eliminate a lot of paperwork and would in the end only have a marginal impact on tax revenues.”

Martin saw double-digit growth at least until 2012 as trade and customs barriers are removed. However, he pointed out that there remains a barrier to longer distance cross-border purchases if the cost of transport relative to the goods is too high.

It was to help overcome some of these problems, explained Daniel, that Swiss Post “has acquired specialised firms and has started competence centres to support its employees and customers”.

Iain pointed out that there is also a need to understand what is driving the desire to buy cross-border. For some it might be price (which could be impacted by exchange rate shifts); for others a more fundamental issue that the product is not available in the home market.

Other barriers to free trade

Inevitably, the discussion moved on to liberalisation and other remaining barriers to free trade.

Whilst still very dependent on national postal operators to provide delivery services, all our companies are looking at the use of alternative delivery providers as mail markets liberalise. They also continue to use Extra Territorial Offices of Exchange (ETOE’s) for cost, quality and environmental reasons. As Martin said “ETOE rejecting PPOs are forcing mail streams to be transported unnecessarily sometimes half way around the globe”.

Daniel added that “the UPU is not helping to create a competitive environment … the UPU solution is always a compromise between different views on markets,” including developing countries, industrialised monopoly PPOs and liberalised Europe.  Peter concluded, “UPU rules do indeed hinder the full deployment of our business model due to the fact that they don’t really allow free trade”.

Sales approaches

It was clear that much international volume continues to go through the hands of intermediaries:  consolidators and wholesalers. This gives them big volume leverage and also makes it easier for overseas postal operators to enter a particular market without a huge upfront investment: they simply sell to the intermediaries.  Daniel summed up this approach: “Selling to intermediaries is a very price sensitive short term business, no big hurdles to go in the market and to leave it … you can do it with low investments and you can reach remarkable market shares in quite a short time. But it is increasingly difficult to achieve positive results.” Iain added the warning: “Wholesale can provide volume-but no customer ownership.”

Selling direct to the originating customer was seen as having its pluses and minuses. “SME customers usually deliver a higher margin, but have a higher cost of sales and require marketing investment. Large customers provide volume but usually demand lower margins … You need to be very effective commercially and make sure your customer mix is a balanced portfolio … Most of all focus on customers who really have mail as part of their core means to do business,” Iain said.

Peter added care needs to be taken not to enter into direct competition with your wholesale channels. “This means that we limit our direct sales to high volume customers where we can add value by offering them tailor made solutions but also offer standardised products for the SME sector.” For Martin, “customer service, customisation and a consultative approach are crucial components of our sales strategy. Generally DHL Global Mail is servicing both segments: direct customers and wholesalers”. In line with the co-opetition model, it also acts as a sales channel to other posts to sell their services globally.

With several other topics still on the agenda, including further exploration of the process of working with other posts, our participants may return to discuss these further in a later edition of Mail & Express Review.