Wednesday 9 October 2013

Delivering the recovery

Delivering the recovery

A spin off from the discussion on Royal Mail privatisation was 'is royal mail finished as a business?'
or  .. is there any way to make delivering stuff pay? 
Obviously there is at a price. UPS - DHL- Parcelforce will charge around £15 to pickup a box of almost any weight from your house and guarantee to take it somewhere else. The faster something is needed the more it costs. About £50 to send a document to Washington DC in 2 days.

The cheaper couriers will pick up a number of small sized parcels from your house for about £4 each and deliver them elsewhere, without guarantees.  And you can post a small sized box yourself at the Post Office for £3. 

This shows how hard it is to price deliveries and collections. Those small carriers Hermes and such, lose money. They lose money even though they can, at any time, pass everything in their depots to Royal Mail to deliver and cream off a %.

How much are we prepared to pay for a delivery? A good example of in-elasticity in the pricing is shoes.
Basic, UK footwear. Trainers. Slipper boots. Crocs and sandals. In the keenly priced £5-£20 this was quite a good business for online sellers. 
But in April, Royal Mail decided to increase the price of postage from £2.20 a box to £5.20. Around 135% overnight increase. Some prices went higher to around £8 a box.
And as a result the market collapsed. No point buying online for cheap goods if they cost MORE than in the local shops. There are no figures to point to. But the Communications union estimates over the counter ebay postings have fallen  by some £10 million in the 6 months since the increase. 

So clearly there is a price ceiling on what the consumer will pay for delivery.

And, as the local couriers lose money, £4 a packet to collect from Sunderland and deliver to North Wales isn't enough to make any money. But we won't pay more? So what is to be done?

Plus..we aren't happy with the service we already have anyway. We don't want to have to go to a depot.
{ which are pretty appallingly run - Anyone who thinks nationalisation of any industry would be good thing need only turn up to a large town sorting office to try and claim a parcel under the Stalinist bureaucracy that views you as, at best,  interrupting valuable state business with your presence.}

We won't go to a depot. We won't wait in. We don't want something left with a neighbour. We don't want deliveries while we are at work. And we definitely don't want to pay any money for a service.
What the data says is we want to go to a local shop, day or night, and pick up our stuff, quickly and without any hassle like I.D. cards.

Trouble with that, is there is no money in that either. Mail companies have tried to sell the idea on footfall. You can attract people to your shop! 

Get knotted! 

If retailers want footfall for free they can have a sale. Or sell low margin drivers like cigarettes and newspapers. None wants to have a very low profit, large space use, labour intensive operation where something as simple as price and forget baked beans could be put instead.

The internet and e-tailing is the future. We know this. 
But how to make it pay? The lower costs of selling online allow a greater profit. Except that online competition forces prices lower, which is a main reason shoppers search there in the first place. So the usual margins apply. 

Either postage prices must rise to accommodate an easy, secure, convenient, tracked, slick, posting/delivery/returns service. 

Etailers must accept lower margins for larger volumes, {which they already do - 25% is normal. On street is 80-100%}

Or the mail carriers are going to have to deliver and collect cheaper and better than they do now. 

With privatisation price rises are the most likely. But that is where we began and it won't necessarily improve the service in any way.


James S said...

I do a lot of internet shopping, and often have deliveries from 3 or 4 different delivery companies a day. It's actually one of those areas which would benefit from a single service provider, which would offer the scales of economy that could allow the pricing levels the customers want. Maybe

andrew said...

The first time I saw a mobile phone I wondered why anyone would call a house if they wanted to speak to a person.

Why does anyone send letters/ parcels to a house when we want stuff delivered to people.

Forget universal service asap. Introduce personal service - it may work in large cities.

Anonymous said...

About the Ebay postings. Ebayers have had a double penalty this year. Not only have they had RM increase (on certain sizes, some have become cheaper) but Ebay now levies a commission on the postage element for "Topsellers" whereas before it was only the product price element.

In many ways, this is pushing the internet back to its roots in selling specialist higher margin products rather than getting your baked beans delivered by Tesco or Waitrose/Occado.

Hope you have dumped the shares.

Timbo614 said...

Bill, you have highlighted in one article most of the problems of trying to set up and expand an e-tailing business. I know I've been trying for 4 years. Have almost given up :(

The reason for almost giving up? Ebay is almost the only place to start from if you want sales instantly that's fine but Ebay brings it's own problems...

1) The level of "Customer Quality" is low, most are honest and straightforward but a percentage, just enough to ruin it for all, are not.
Consequently you can't use the "no guarantee" or no receipt couriers who are the cheapest and easiest.

2) You can't use these couriers because a) You must offer same day despatch/next day delivery on ebay to get the right "status" to get seller fee discounts without which you are immediately at a 5-10% disadvantage and are shown lowest in the searches. b) You will suffer from "I didn't get" it claims too often - even if they did.

3) signed for Royal mail delivery is just too expensive for small parts that typically sell at £5-12 but are just large enough that if packed properly go over 25mm thick. If you don't do recorded/signed for you end up back at 2b) above.

As you point out, at the same time on-line competition is high. We want to sell high quality items - genuine items from manufacturers, not cheapo Chinese copies with their high failure rate - we just simply can't afford to keep getting stuff back. But selling the genuine stuff is really hard work and margins drop to a wafer.

It all seems to be a catch-22 to be honest.

I have actually decided to get out of our current product range - the competition/problem of "Johnny Bedroom" with our current offerings is proving too much. (for clarity "Johnny Bedroom" has no overheads to speak of, no employee stuff to deal with and seemingly doesn't care if he makes a profit that much).

Going into something newer/different. I am about to gamble on the 3d-printing revolution that is (I think!) to come. It's not there yet because it is too complex for the average person, which leaves a gap/niche for allowing people to try it out without actually having to buy (and build) a 3d-printer just so they can replace one chess piece or make their little arty creation in plastic... It's not new in fact bureaus are how a lot of computer companies started life.

But that brings me back to the mail.. because we will need to post these little creations out.. which so far is looking like a major cost item. But for now, for the customer, its far cheaper than £500-£3,000 for your own printer! I hope!

[P.S. not an add for the service the onl-ine control software is not finished yet!]

Electro-Kevin said...

My father-in-law died in Cyprus at the weekend - a disease brought on through excess.

A life of reckless spending on credit cards, blowing family fortunes (two inheritances) on holidays, flash cars and general stupidity.

A very selfish and rude man.

Emigrated to Cyprus under-funded and died their five years later leaving an equally stupid and reckless widow...

"He can't be cremated in Cyprus [against the law] so needs to be repatriated to England. He had a fear of being buried."

The son and daughter (wifey) are now being tapped for the £4k funeral costs and emotionally blackmailed.

£2000 of those costs are the flight back.

What do you think UPS might charge if I sent the bastard in a double bass case or something like that ?

Nick Drew said...

Good luck, Timbo!

Hopefully you have found your niche. I'd just post a salutary note: some years ago a shop local to me figured the camera-in-phone / general digital explosion would mean digi-pix printing in your neighborhood was a sure-fire thing

he spent quite a lot on the kit, but was trashed by Boots (and to a lesser extent by home printing)

there's an iron law about the costs of these things

Nick Drew said...

Kev - when the Beast has recovered I reckon he'd be up for an in situ solution costing a lot less ...

Anonymous said...

Seems like Blogger deleted my comment 10 minutes after I posted it. Maybe too many mentions of the bay? Anyway, here's an abridged version:

* As a customer I no longer look at postage costs much. I often rather pay extra for special delivery rather than look out the front window for 3 days.

* As a business it's pretty obvious that many customers really don't understand how much postage costs. Some will they could have done it cheaper even if you offered them discounted business rates which you know are the cheapest possible. Some people think you can just stick a 50p second class stamp on anything. Also seems to be more common for men to complain.

* Overall ecommerce seems to be moving away from offering free shipping and instead encouraging customers to upgrade to special delivery (but note that even Amazon Prime is obviously more of a 48 hour service, less than 50% of stuff arrives in 1 day).

* eBay's model is broken and losing to Amazon. Stupid move to want "premium service" sellers to offer free shipping.

* Customers have a preferred channel whether that's eBay, Amazon, your own website, or brick and mortar. An extra £2 postage should not cause someone to abandon their favourite channel and go shop elsewhere. The problem with eBay is that sellers don't have a brand identity and so are engaged in price wars and their customers are cheap bastards. Don't start a new business on eBay or try to be the cheapest.

* Royal Mail is continuing it's roll out of barcodes and adding them to Freepost in November. But it's not enough. Why aren't depots as automated as Amazon's warehouses? Big savings to be had I believe, but not after huge investments.

Anonymous said...

*but not until after huge investments.

Anonymous said...

Royal Mail don't backpedal often:

CityUnslicker said...

great articel and comments. I notice that I am much more prepared to g out and buy stuff now that postage has adjusted more to the market.

Higher fuel costs in the future (another post is due on the chronic shortage of D2 diesel due to problems in Russia and Iran) will also increase this problem.

I love it when I learn alot reading my own blog!

Ryan said...

With the internet continuing to expand more deliviries are required, not less, and the royal Mail is well-place to become a universal service provider. It has been held back by government interference in its operations.

I think it is time the Royal Mail did away with post-box collections. Probably they would be better off with machines in large shopping centers that would allow you to create a sticky label with a barcode in which the destination address, return address and tracking information would be embedded. This label would take the place of a stamp. You would get a receipt with the same barcode that could then be used to retrieve tracking information from the same machine, or via the web.

DHL, FedEx and UPS offer a good service - if you are a sizeable business with lots of parcels to despatch. But they are extortionate in their charges. For individuals their service is very poor - worse than Royal Mail. I work from home and I have to revert to Royal Mail for courier deliveries and international tracked express mail.

Bill Quango MP said...

Come on google - sign me in

Bill Quango MP said...

James S- you can't get a more economy of scale than Royal Mail. Much like the BBC and NHS the sole provider does shield us from the real costs at the expense of choice, alternatives and an adherence to the median.

Andrew- universal service is really required. There are all sorts of schemes to price regionally. But postage prices are already ridiculously complicated at the moment. Even 8 years after it came into force many people are unaware of what a large letter size is or when it applies.

Anon - Ebay and Royal Mail seem determined to shrink their customer base by 10% at least once a year.

Timbo - we suffer the same. Our stuff is low-low-low price. 10p makes all the difference. And what has become much worse this year is the stupid new posting sizes.
For the first time at a Christmas trade show I wanted to see the outer boxes that the items come in.
Not the counter display boxes, but the packing size.
Anything over 8cm deep needs a big mark up to cover the postage and the extortionate ebay gouge.

I still don't really understand what 3d printing is. Metal components?

Kev- A student posted himself as freight a while back. Tied into a chair in a crate..And an MI5 corpse can fit into a holdall.

ND: Many years ago I made a comfortable living supplying cut flowers and potted plants to garages.
Then one day everyone started doing it. And cheaper. And better. Nestle took my biggest contract. And that was that.

Anon 11.29 Very good points. We have to ship free on Ebay now. Pro and con but the biggest problem is with free posting there is no opportunity to offer the postage discounts for bulk.
And ebay get very stroppy if discounts are given after payment- on their algorithms that counts as a refund for faulty goods.
I was aware of the proposed price revision

One of the reasons RM screwed up the sizes in the first place is that since RM/POL split post office have no representation with the regulator.
And RM had no care about what sizes people wanted to post. Only what would fit in a postsack.

Bigger postage sacks was the answer. Not smaller parcels.

Bill Quango MP said...

OH yes - and the answer to our delivery/collection problem?

Royal Mail should deliver in the evenings.Like the supermarkets.

gsd said...

I think the way Amazon has gone where they hold up free shipping items until the total order is over a tenner is very smart. It makes carrying small cost items still viable for both seller & buyer, encourages ppl to spend more and probably saves them lots of dosh in postage too. Result!

dearieme said...

Kev, tell 'em to bury him at sea.

Blue Eyes said...

My hope is that RM will retain enough market share to keep the economy of scale side up while being allowed to innovate and become more flexible.

I think Andrew is right, personal deliveries may become more possible. The Amazon Locker thing is a step towards this and RM have a good opportunity here.

What about a delivery system whereby instead of delivering to every home every day, we get an email when something is delivered to our local sorting office and we go when it's convenient to pick it up?

I had to go and pick a book up from my local sorting office first thing this morning and the staff were looking more chipper already. There was actually a "morning" from my employees ;-)

Now, what else can we sell off that will give individuals a sense of ownership of their public services...?

EK sorry to hear of your troubles. I will generously donate a pint next towards your costs next time you are in London - it's overdue.

Dan said...

The basic problem with shipping a human or animal corpse anywhere is that it is basically a massive bacterial culture looking for the time and opportunity to have a really good, riotous party. For this reason, when a medieval king died abroad they only ever shipped most of his body back home; the guts got dumped rather rapidly (probably into the nearest pigsty) and the body cavity was then packed with salt and straw.

The modern equivalent is to embalm the corpse. This is basically just putting a couple of plumbing hoses into the heart, and pumping in formalin plus red dye, and sluicing out the remains of the blood and plasma into the nearest drain. What you end up with is a pile of toxic waste that honks of formaldehyde but which won't decay all that quickly, especially not if the body cavity also has a good rinse-out with this same formaldehyde + dye mixture. The dye is there to reduce the normal waxy pallor of the body, and make it look a bit less dead.

Faced with a relative dead abroad who cannot be cremated at the place of death, I'd ship the remains to the nearest legal crematorium then ship the ashes (by then completely inert) back to Blighty in at least three different containers, using three different carriers. That way you're guaranteed to get "The ashes of uncle so and so" back, even if two couriers cock up and lose their parts. Failing that, I'd simply donate them to the local medical people, and "acquire" some ash from wherever and claim that this was the sad mortal remains, being sure to remove bits of wood etc from the ash.

Once back in Blighty, I'd give the deceased a commemorative ceremony and be sure not to stint on the free booze; nothing says "happily remembered" better than gifting the mourners with the hangover from hell.

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