These questions all briefly came to the forefront on December 29, when President Trump tweeted critical remarks about Amazon’s delivery deal with the United States Postal Service (USPS), claiming the USPS should charge Amazon much more than they currently do.

While a June 2017 op-ed in the Wall Street Journal made a similar point, arguing the USPS lost $1.46 per Amazon shipment it delivered, its author also holds a stake in FedEx and several others have disputed his calculations, claiming the USPS’ contract with Amazon is not causing the organization any financial issues.

The USPS, FedEx, UPS and last mile delivery: who wants it more?

However the numbers add up, there’s no doubt that we all want last mile delivery to get packages to our homes or offices – after all, who has time to go pick up every package they order at a warehouse or distribution center? So who wants to get those packages to our doors, and why?

The last mile of delivery, or the final stage of delivery from the local/regional warehouse to your doorstep, has traditionally been the most expensive stage of the delivery process. It can’t be done as efficiently as moving large quantities of packages from one warehouse to another and requires vehicles and manpower to make each delivery. The cost per delivery also accelerates dramatically in less densely populated areas, making it cost-prohibitive for some delivery companies.

Given that the USPS is already engaged in door-to-door delivery six days a week, they have generally been able to complete Amazon’s deliveries with lower costs. As a result, the USPS handles about 40% of Amazon’s last mile delivery. In comparison, UPS handles 20-25% of Amazon’s final deliveries, while FedEx handles an additional 15-20%.

The USPS is efficient enough that even UPS and FedEx rely on the USPS to make a portion of their last mile deliveries, estimated to be about 30% of FedEx’s total ground packages in 2014. UPS or FedEx ship their packages to the nearest distribution center to the final delivery address, and then pay the USPS to complete the final stage.

As e-commerce continues to grow, however, so does the demand for last mile delivery of vast numbers of packages, and volume should continue to grow well into the future.

And as the volume grows, the more cost-effective it becomes for other companies to become more involved in last mile delivery.

As a result, in 2017, both UPS and FedEx announced plans to introduce new lower pricing for shipping goods within a 50 mile radius, rather than adding a higher rate or surcharge, in an attempt to win over more of the growing last mile delivery market. According to DC Velocity, this announcement was accompanied by efforts from FedEx to open four new major hub centers and 19 automated distribution facilities in the preceding 12 months, and hundreds of millions of dollars of investment by UPS to improve automation in its local hubs to improve productivity by 25%.

Amazon trying to get a piece of the action

Never one to be shut out of a potential business opportunity, Amazon has recently also started experimenting with various delivery options of their own.

The Amazon Flex program pays regular people to serve as Amazon delivery personnel in their own vehicles in specific markets, as long as they can complete delivery within an allotted time window. Amazon is also testing a program called Seller Flex, where Amazon’s own vehicles will pick up goods from the warehouses of select third parties to make the deliveries to consumers. The new Amazon Key further allows Prime members to have delivery people open their doors and enter their homes to deliver packages inside, potentially serving as a piece of a larger plan to take over more last mile delivery.

With drone and self-driving vehicle technology continuing to progress as well, any company able to utilize it for quick, cost-effective last mile delivery – whether USPS, FedEx, UPS, Amazon or a new player – could also cause seismic changes in the future.

Proliferation of delivery options ultimately about making money

No matter who delivers a package to your door, the delivery will cost them money, so how do they make a profit? In the case of USPS, their contracts with Amazon and others guarantee them massive numbers of packages, and can then utilize their existing network to deliver them efficiently.

For FedEx and UPS, their hope is that the combination of reducing their own cost per delivery with increased automation and warehouses, and savings by handling deliveries themselves, rather than paying USPS to handle the last mile, will pay off. The competition between the two will also mean both will be eager to take hold of as much of the market as possible in hopes of preventing the other from dominating it. Depending on what kinds of deals they’re able to offer to Amazon or other major companies like Wal-Mart, Best Buy and Staples, they may be able to encourage them to use their services rather than develop their own and further decrease competition.

For Amazon, not having to pay USPS or other carriers would be a consideration. Holding complete control over the delivery process would also let them have greater control over speed, and more ways to encourage customers to pay for Amazon Prime to have faster shipping and other options.

Whoever comes out on top will be in position to profit as e-commerce sales rise and more packages than ever require last mile delivery, making this a key issue to watch for years to come.

The post Who’s knocking at your door? Analyzing the future of last mile delivery appeared first on Trade Ready.

According to the World Trade Organization, over the past 20 years trade in services has become the most dynamic segment of world trade, growing more quickly than trade in goods.

Services represent in excess of 21 percent of world trade. Forecasters predict that this figure will reach 50 percent by the year 2025, as information and communication technologies continue to increase the tradability of services. The shift to knowledge-based economic activity also results in the assimilation of economic activities, which creates an increasingly integrated global economy. The outsourcing of inputs, including services, further fuels the integration process.

Trade in services between Canada and the U.S.

In both Canada and the U.S., the service sector is an important contributor to the economy. According to the U.S. Trade Representative’s Office, Trade in services with Canada (exports and imports) totaled an estimated $87.5 billion in 2015. Services exports to Canada totalled $57.3 billion, while services imports were $30.2 billion.

Trade in services was also a major job creator in the U.S. Exports of goods and services to Canada supported approximately 1.7 million jobs in the country in 2014.

Modes of Delivery: Four Ways Services Are Traded

Services include a wide range of activities. At one end of the spectrum are what might be termed personal services, such as training, live artistic performances and medical care. At the other end are impersonal services, such as telecommunications or the services embodied in manufactured products. In the case of telecommunications, for example, the service is delivered through automated equipment by a telephone company or a cable television operator.

The World Trade Organization (WTO) lists four modes of delivery or ways in which services are exported.

Mode 1: Cross-border

Cross-border trade takes place when the service itself crosses the border from one country to another without the movement of persons.

The service is transported either via electronic means (e-mail or fax) or by infrastructure, such as transportation services (air, rail, land or sea) or telecommunications (telephone or radio). 

Examples:

• Management consulting: studies, reports, business plans, financial advice
• Information and communication technology: Internet service provision, cellular telephony
• Marketing: market research, advertising, articles
• Consulting engineering: feasibility studies, drawings
• Health: tele-health
• Education and training: e-learning, distance learning
• Transportation: courier services, other transportation services

 Mode 2: Consumption abroad

Consumption abroad relates to services used by nationals of one country in another country where the service is supplied. This requires the consumer to travel across the border to another country to actually use the service. The supplier of the service, who is being paid by a “non-resident” customer, is technically exporting a service (even without leaving the country).

Examples:

• Tourism and travel-related services: tour operators, hospitality industry, business tourism, agri-tourism, eco-tourism, edu-tourism
• Education and training: study tours, conferences, foreign students, seminars
• Legal: client seeks legal advice in local market and so travels to the market
• Health: patient travels to foreign country for diagnosis and treatment

 Mode 3: Commercial presence

Commercial presence refers to instances where a company from one country sets up subsidiaries or branches to provide services in another country.

 Examples:

• Financial services: banks, investment companies, insurance brokers
• Construction engineering: sets up project offices to manage local infrastructure projects
• Information technology: local offices set up to service local clients
• Distribution: shipping, warehousing, logistics

 Mode 4: Movement of natural persons

Movement of natural persons refers to individuals travelling from their own country to supply services in another country.

Examples:

• Arts and culture: film industry—actors, directors, production crew, performers
• Construction: architects, tradespeople
• Education and training: trainers, professional speakers
• Environmental: consultants, specialists
• Geomatics: mapping, oceanography
• Recreational and sporting: coaches, trainers, promoters

Companies become service exporters if they are paid for their services by a “non-resident” customer, regardless of where the service is provided.

The subtlety of services trade

For an export to take place, residents of one country pay residents of another for some kind of benefit. In the case of trade in goods, merchandise is physically shipped from one country to another, making tracking and measurement relatively straightforward. Trade in services is much more subtle.

Take, for example, the case of a multinational corporation with offices in two adjacent countries. If the subsidiary in one country ships components to the subsidiary in the other, the transaction is recorded both within the corporation and in the customs offices of both countries. But if a manager from one subsidiary travels to the subsidiary in the other country to participate in meetings and offer advice, the export of that manager’s services is not recorded anywhere. Yet, value—in the form of several days of the manager’s time—has been transferred from one country to the other.

Services may also be part of more complex international transactions. For example, a firm may be hired to build a subway system in another country. Part of the export will consist of subway cars, but an equally important component will be the design, planning, project management and training involved in constructing and operating the finished system. Some of these services will be delivered in person by individuals travelling to the site of the contract, falling under mode 4. Others, such as plans and schedules, can be transferred electronically, falling under mode 1.

Technology is outpacing services trade regulation

As information technology has become more sophisticated, databases, advanced software applications and the Internet have made it possible for many businesspeople to export their services without travelling abroad. This makes counting, controlling and regulating service trade more difficult.

For example, medical services are rigorously regulated in virtually every country of the world. A doctor qualified in one country cannot practice in another without first passing a series of examinations in the second country. Yet, medical technology already enables X-rays and other types of body scans to be transmitted over long distances for examination and diagnosis. In another example, a doctor in one country may be asked to offer an opinion on the case of a patient in another—in effect, practicing medicine in the patient’s country.

The service sector has become a significant economic force in the 21st century. As a result, countries are re-thinking national strategies, entrepreneurial service firms are reinventing themselves and economists are delighting in having new trends and numbers to assess, analyze and forecast.

It may be relatively easy to anticipate new trends, but being in a position to capitalize on them is a different matter. Services are invisibles. They cannot be demonstrated, shipped and returned as products can.

Successful service firms have recognized that in selling these kinds of services, the key to success is in the building of relationships, the adaptation of services to meet customer needs and the continuous innovation of unique high-value solutions.

The post Know your service exports: 4 ways services are traded globally appeared first on Trade Ready.