China, VAT and Brexit challenge cross-border parcel growth

Surging volumes of parcels from China, changes in VAT exemption levels for imports, and continuing uncertainties surrounding Brexit are just some of the challenges facing postal operators and parcel carriers trying to expand their cross-border business, according to executives. 

Overall, however, delivery companies can look forward to many years of strong growth in the parcel business, various speakers made clear in a panel discussion at the POST-EXPO 2018 conference in Hamburg yesterday. 

Global parcel volumes increased by 17% to 74.4 billion items last year, with worldwide parcel shipping revenues rising by 11% to $279 billion, according to the recent Pitney Bowes Parcel Shipping Index. Worldwide volumes are expected to surpass the 100 billion mark in 2020, which would be one third more within just three years. 

China is the number one growth driver and is now by far the largest parcels market by volume, up by 28% to 40 billion items last year. Revenues reached $73 billion, representing an average price of just $1.83 per parcel, according to the index. Meanwhile, Chinese international volumes are taking off, with a 30% rise to 1.73 billion items last year, according to figures from the Chinese State Post Bureau. 

But Clint Dally, vice president product management for Blue Crest (formerly Pitney Bowes Document Messaging Technologies), warned: “Posts are challenged with the massive growth of incoming e-packets from China.” This boom in low-value and low-price parcels from China resulted in limited facility space, profitability problems, challenges to find sufficient manpower for sorting, and other logistics problems, he explained. 

At the same time, more European countries are looking to reduce the ‘de-minimis’ level for VAT-free imports in order to increase tax revenues by charging low-value goods, he pointed out. “The higher taxable e-packet volume will likely require EU Posts to gather more piece-level data,” he predicted. 

Another trend is that some postal operators are starting to impose surcharges for items that are not properly barcoded or registered. Without a barcode, they have to input data manually or using video-coding, thus increasing their costs and slowing down processing. However, technology can help to reduce manual processes and improve data capture, he noted. “Managing data and workflows will be key to supporting volume growth and driving profitability,” he told conference delegates. 

Also speaking on trends in cross-border business, Georg Weidinger, head of Swiss Mail Solutions, highlighted the ‘under-declaration’ of the value of goods in import parcels as an ongoing problem. However, government moves to reduce the VAT-free threshold, such as the new zero-rating in Sweden, and pressure for ‘fair terminal dues’ – especially from US president Donald Trump – could lead to more realistic values on imported goods, he said. 

In response to a question from Russian Post’s international sales representative Tikhon Evdokimov, he pointed out that the very high volumes from China to Russia were partly due to Russia’s very high ‘de minimis’ level. 

Another future trend could be more fulfilment within the EU in future, with retailers combining relatively costly Fulfilment by Amazon (FBA) with cheaper warehousing in other locations. “FBA is definitely a trend. But costs are comparatively high compared to others,” Weidinger said. Moreover, the increase in large and heavy B2C shipments of over 31.5kg (the traditional division between one-man and two-man handling) was forcing operators “to find solutions in distribution”, he added. 

Swiss Mail Solutions itself will keep to its business model of a broad range of logistics services, including warehousing in several locations, centralised order tracking and delivery management with ‘cherry-picking’ of local partners, through its ‘EasyCommerce.plus’ platform. 

On the topic of Brexit, the experienced postal industry executive suggested that some retailers would switch European imports from London to other EU entry points to avoid customs issues once the UK left the EU next March. “Some countries are preparing with their Posts to take over volumes from London in future,” he commented. 

In response to a CEP-Research question whether Brexit was “good or bad” for the logistics industry, consultant Gavin Macrae, managing director of Pine Monkey Associates, who was moderating the session, commented that he had observed three types of responses so far. 

Some companies were playing a ‘waiting game’ until things became clearer, some were worried, and some were “very excited” as they saw business opportunities as ‘facilitators’. “There are certainly people who see opportunities, there will be companies who will be fleet of foot to take advantage,” he forecast. 

From a supplier perspective, Rob Qualm, market director parcel at Vanderlande, commented that Brexit could have an impact on the volumes of shipments being stored in warehouses while awaiting customs clearance.