Exponential -- June 14, 2015

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Exponential
from
Volume 2 – Issue 11 | 14 th June, 2015
Major topics in the world of business today,
curated expert research:
what to know, where to go
The Briefing
• HR goes global: online talent
platforms
• Seoul-icon Valley: South Korea’s
hot tech scene
• Uber poaches researchers from
Carnegie Mellon University
Deeper Dives
• Red-letter day: the future of the
post office and mail
• Trading spaces: challenges of
shipping industry incumbents
• #WeHeartCharts: how stamp
prices have changed over time
betsyweber via flickr
dkeats via flickr
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Exponential the Skillbridge Magazine
The Briefing
HR goes global:
online talent
platforms
• Outsourcing contracts with Fortune 100
companies have more than doubled
since 2000.
• 74% of Uber drivers drive to maintain
steady income, yet 61% of Uber drivers
have another job.
Digital talent meets opportunities with greater ease
The recent McKinsey Global Institute report, “Connecting talent
with opportunity in the digital age,” highlights the potential of
online talent platforms to connect individuals with work
opportunities and to correct dysfunctions in labor markets. The
range of platforms is wide: from websites like LinkedIn that
aggregate individual résumés with job postings to fast-growing
digital marketplaces of the “gig economy,” including Uber and
Upwork. The report states that, “[w]hile hundreds of millions of
people around the world already use” these online services
“their capabilities and potential are still evolving.”
In developed countries, 30 to 45% of the working-age population
is counted as unemployed, inactive in the workforce, or working
only part time. In Brazil, China, Germany, India, Japan, the United
Kingdom and the US, these groups represent a pool of 850m
people. McKinsey’s supply-side analysis forecasts that online
talent platforms could “add $2.7 trillion, or 2%, to global GDP by
2025” while increasing employment by adding 72m full-time
employment positions.
Key Reading:
• McKinsey Global Institute: Connecting talent
with opportunity in the digital age
• Mary Meeker’s 2015 Internet Trends:
http://www.kpcb.com/internet-trends
• Accenture: The rise of the Extended Workforce
Mary Meeker’s talent predictions
Freelance talent grows rapidly
Online talent platforms are effective because they increase the
transparency of the demand for skills, enabling young people to
make better educational choices. Currently, there is a
“misallocation” of spending on tertiary education that translates
to $89bn that is misspent in Brazil, China, Germany, India,
Japan, the United Kingdom, and the United States.
If McKinsey’s predictions are correct, the growth of online
platforms may mean that labor is set to be the next big
international market.
The future of work
Venture capitalist Mary Meeker, a
partner at venture capital firm Kleiner
Perkins Caufield Byers, recently
delivered her annual “State of the
Internet” presentation that highlighted
the swift changes taking place within
human resources technology.
Meeker pointed to Greenhouse, a
leader in HR-tech which features a suite
of tools that include identifying the skills
needed to fill key gaps, evaluating
candidates and optimizing the interview
scheduling process. Another firm that
Meeker highlighted was Checkr, a
startup that has made conducting
employee background checks more
simple and elegant while reducing
turnaround times.
Meeker notes that online platforms
provide a level of trust of service that
was not possible prior to the Internet
and its live-updated ratings systems.
This is paramount in a world where ondemand
talent acquisition systems have
become the norm. While anyone can
create his or her own brand on the
Internet, maintaining one’s own integrity
becomes the job of the individual.
Today, 31% of freelancers are confident
they can find a job online within 24
hours. From craft sellers on Etsy to
people who rent out their homes on
Airbnb, the Internet has provided
hundreds of new ways for individuals to
earn income.
Meeker reports that 74% of Uber drivers
drive to maintain steady income, yet
61% of Uber drivers have another job.
On Etsy, 82% of sellers work on the
platform on a part-time basis.
Online platforms typically do not provide
a full income for most users. The
average Etsy seller earns $1,400 per
year from the platform, the average
eBay seller earns $3,000, and the
average Airbnb renter earns $7,700.
There are major benefits to acting as an
independent service provider: 87% of
Uber drivers like using Uber because
they can “be their own boss” and “set
their own schedule”.
92% of UpWork’s freelancers agree with
the statement that they now “have more
opportunities to work from anywhere
they choose.”
The Accenture report “The rise of the
Extended Workforce” points to
government predictions that
employment services will be among the
fastest-growing segments of the
economy, adding 637,000 jobs in the
next 10 years or twice the growth rate
for the overall economy during the same
period. Already, 20-33% of the US
workforce comprises independent
workers (freelancers, contractors and
temps), up from 6% in 1989. Worldwide,
companies now spend an estimated
$300bn per year on contingent labor.
Outsourcing is now an estimated $6
trillion global industry with Fortune 100
companies more than doubling their
external contracts since 2000.
Tomorrow’s workforce will be
characterized by teams of workers who
may not be an organization’s permanent
employees. Instead of a single
enterprise with full-time employees,
companies will increasingly be
comprised of formal employees and an
ever-shifting global network of
contractors, temporary staff, business
partners, and outsourcing providers.
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Black Seoul-icon Friday Valley: is back,
but South is it Korea’s better hot than
ever? tech scene
• The South Korean government predicts
that mobile Internet will be 1,000 times
faster in 2020 than it operates today.
• The number of US-based investments in
Korean companies doubled between
2012 to 2014 and the sum rose from
$8m to nearly $600m.
Key Reading:
• New York Times: What Silicon Valley Can Learn
From Seoul
• WSJ: SoftBank to Invest $1 Billion in South
Korea’s Coupang
• McKinsey Insights: South Korea: Finding its
place on the world stage
Exponential the Skillbridge Magazine
The Briefing
South Korea invests in technology
The South Korean Science Ministry recently announced a
$1.5bn initiative to upgrade Korea’s mobile infrastructure. By
2020, the government predicts that mobile Internet will be
1,000 times faster. If you have a connection you will be able to
download a feature-length film in approximately one second.
In the same time frame, the American Federal Communications
Commission hopes to wire most American homes with
broadband Internet with speeds of at least 100 megabits per
second, or roughly one-sixtieth of South Korea’s goal.
American firms are taking notice of Korea’s edge. Google's first
campus for startups and entrepreneurs in Asia opened in May
in Gangnam, a glitzy neighborhood of South Korea's capital,
Seoul. Google cited South Korea's flourishing startup scene
and pervasive smartphone use as the reasons for picking
Seoul after opening similar sites in London and Tel Aviv.
The Google campus is the latest addition to the expanding
startup scene which has attracted app developers,
entrepreneurs and venture investors. Seoul has also recently
begun to attract venture funds from Japan and Silicon Valley.
According to Korea’s Small & Medium Business Administration,
the number of startups in the country soared to roughly 30,000
as of January 2015, up from the 2,000 new companies that
were formed 16 years ago.
Softbank invests $1bn in Coupang
Korean firms and America
What the brains think…
Japan’s SoftBank will invest $1bn in
South Korea’s largest mobile commerce
company, Coupang, as it increases
investments in overseas Internet firms.
Mobile accounts for 75% of Coupang’s
revenue and 85% of its overall traffic.
SoftBank previously led a group of
investors that gave $600 million into
Kuaidi Dache, a Chinese taxi-booking
app. The firm parlayed a $20m
investment in Chinese e-commerce
giant Alibaba into a stake valued today
at $72bn.
The deal between Coupang and
SoftBank is the largest Internet
investment in South Korea’s history and
will add the Japanese back to a list of
private investors that includes
BlackRock, Sequoia Capital, and hedgefund
investor William Ackman.
Coupang was founded in mid-2010 by
Bom Kim, who dropped out of Harvard
Business School to start the company in
his native South Korea as part of a wave
of “daily deal” startups that included
Groupon and LivingSocial. After that
market buckled, Coupang refashioned
itself as the Amazon of South Korea and
has since flourished.
.
The number of US-based investments in
Korean companies doubled between
2012 and 2014. The sum of
investments rose from $8m to nearly
$600m during this time, according to
venture capital data tracking firm
PitchBook. In part, this is because there
are more startups in South Korea than
the country's nascent venture capital
industry is equipped to handle. Amid
the slowdown of the Chinese economy,
Korean firms are turning east to
California to raise capital. "Everyone has
startup fever in South Korea," said
Richard Jun, who runs Santa Monica
venture capital firm BAM Ventures.
Los Angeles appears to be the first stop
for many Korean firms in America. The
Los Angeles region's Korean immigrant
population is about 226,000, nearly five
times that of Silicon Valley and the San
Francisco Bay Area combined,
according to a report last December
from the Migration Policy Institute.
Additionally, USC and UCLA have
attracted the world's largest cohort of
Korean students. Due to Southern
California’s links to the entertainment
industry, the area has become an ideal
spot for Korean video game firms
entering the American market.
According to McKinsey Insights, South
Korea sailed through the 2008–09
financial crisis “with remarkable
aplomb.” Despite its heavy reliance on
exports, South Korea registered only
one sequential quarterly decline in real
GDP during the global downturn. By the
third quarter of 2009, South Korean
growth had bounced back to nearly 3%,
while unemployment—which even in the
worst of the crisis never rose more than
a single percentage point—had already
begun to ease. Indeed, South Korea’s
production and consumption were
returned to pre-crisis levels in less than
a year. Among Asia’s “tiger economies”
South Korea suffered the least and
recovered most rapidly.
The BCG report “Competing with China:
Lessons from South Korea’s
Manufacturers” points out that, in
2000, South Korean companies had
90% of their offshore-manufacturing
operations in China. By 2010, that
number had dropped to 70%. This move
has not only reduced costs for South
Korean firms but has also enabled
companies to grasp the needs of
customers in rapidly developing
economies, diversifying their markets.
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Uber poaches
researchers from
Carnegie Mellon
University
Exponential the Skillbridge Magazine
The Briefing
Carnegie Mellon Not Pleased After Uber Lures Away Researchers
Uber Technologies, the car-hailing app, poached 40 researchers
and scientists from Carnegie Mellon University’s National
Robotics Engineering Center (NREC). The raid left one of the
world’s top robotics research institutions in crisis.
Carnegie Mellon and Uber had previously announced a strategic
partnership in which the school would “work closely” with the
ride-hailing service to develop driverless-car technology.
However, behind the scenes, this effort was less collaborative.
Uber took six principal investigators and 34 engineers from
Carnegie Mellon, including NREC’s director, Tony Stentz, and
most of the key program directors. Before Uber poached the
employees, NREC had over 100 engineers and scientists
developing technology both for companies and for the United
States military.
Uber’s long–term business plan envisions autonomous cars
that could someday replace its tens of thousands of drivers.
With virtually no in-house capability, the San Francisco firm
acquired enough talent to build a team instantly. Should
universities now be fearful that they may lose some of their
brightest minds to the private sector?
Winners
and Losers
Good Week For: Yahoo
The rights to the NFL’s first
streaming-only broadcast were won
by Yahoo, as the Internet portal
seeks to attract more advertising
dollars. Betting big on live content,
Yahoo said it would make the
Sunday, October 25 matchup
between the NFL’s Buffalo Bills and
Jacksonville Jaguars available on all
of its digital platforms, including Web
browsers, mobile phones and
televisions equipped for streaming
video. “Basically any digitally
connected user will get it, for free,”
said Adam Cahan, Yahoo’s SVP of
mobile and emerging products.
Good Week For: Ambrella
Ambrella, the company that makes
the video encoding chips used in DJI
drones as well as GoPro cameras,
saw revenue jump 74%, year on year,
while net income tripled. Most
surprising was the company’s sales
projection for the current quarter.
Growth is set to rise 18% ahead of
forecasts. Ambarella cited DJI’s
recent launch of its Phantom 3 drone
as a major success factor. Ambarella
expects drone-related revenue to
account for over 10% of total
earnings for the current quarter.
Ambrella’s valuation has risen to 34
times forward earnings.
andreas_poike via flickr
Bad Week For: Deutsche Bank
Deutsche Bank’s Co-CEOs, Juergen
Fitschen and Anshu Jain offered their
resignations to an emergency
meeting of the bank's supervisory
board, and their resignations were
accepted. The bank said John Cryan
would become co-chief executive,
replacing Jain in late June. Fitschen
will remain in his post until May
2016. After that, Cryan, who has
been a member of the bank's
supervisory board since 2013, will
become the sole chief executive. The
planned resignations come after a
series of scandals affecting the bank,
including a $2.5bn regulatory fine in
connection with the bank's part in
the Libor rate rigging affair.
Bad Week For: Molycorp
Molycorp, the only American miner
and processor of rare-earth
elements, will file for chapter 11
bankruptcy protection this month to
cut its $1.7bn debt load. The
company, based in Greenwood
Village, Colorado, is completing a
plan that involves senior bondholders
exchanging some or all of their debt
for ownership of the company. It is
exploring options such as an equity
sale to junior creditors and
shareholders to ensure the company
would emerge in sound financial
health. This is a major reversal for a
company whose stock soared as high
as $77 a share in May 2011 but now
trades at around $0.40 a share.
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The global round-up
Exponential the Skillbridge Magazine
The Briefing
Alibaba’s Jack Ma Visits US to lure
businesses into China
Alibaba Group Chairman Jack Ma visited
New York and Chicago to pitch China’s
middle class as a growth opportunity for
American business and his e-commerce
company. Ma is looking for revenue
beyond China, where the nation’s
economy is projected to grow at its
slowest pace since 1990. One strategy
is to position Alibaba as a cross-border
e-commerce solution, enabling China’s
557m Internet users to buy things from
anywhere in the world. Costco and
Macy’s are among US companies who
already reach Chinese shoppers
through Alibaba.
Ethiopia looking strong to investors
The recent World Economic Forum on
Africa put the spotlight on Ethiopia,
where the economy is flourishing and
the government is embracing select
foreign capital. Executives from General
Electric Co., Dow Chemical, Standard
Bank Group, and MasterCard attending
the June 3-5 gathering in Cape Town
singled out the East African nation as a
market with strong potential. Ethiopia
was Africa’s eighth-largest recipient of
foreign direct investment last year, up
from 14th position in 2013, Ethiopia’s
economy is expected to expand 8.6%
this year and 8.5% in 2016 according to
the IMF.
Tesco considers selling its South
Korean operations for $7bn
Retailer and supermarket giant Tesco
PLC is considering selling its South
Korea retail operations, its largest
business outside the United Kingdom, to
raise up to $7bn to fund its turnaround
efforts. Tesco hired HSBC Holdings PLC
to manage a process to sell the retail
operation, which is expected to receive
interest from private-equity firms.
Tesco’s global operations were shaken
by a series of blunders in the UK,
including an accounting scandal,
massive write-downs, as well as
management upheaval.
waklingsf via flickr
Chinese want to build Peru-Brazil railway
Beijing hopes to build an interoceanic
railway between Brazil and Peru that could
make for faster, cheaper transportation of
local commodities to resource-thirsty
Chinese markets. The proposed rail link,
known as the Twin Ocean Railroad, would
connect Porto do Açu, a Brazilian Atlantic
port, with Peru’s Puerto Ilo on the Pacific
Ocean through some 3,300 miles of rail.
The railway would cut transportation time
and reduce the cost of shipping grain from
Brazil to China by about $30 a ton.
Shenzhen Airlines will purchase 46 planes
from Boeing for $4.3bn
Shenzhen Airlines will purchase 46 planes
from Boeing for $4.3bn, according to the
carrier's parent Air China. Shenzhen Airlines,
which currently owns a fleet of "more than
100" aircraft, according to its website, will
receive the planes in stages between 2016
and 2020. The deal for the Boeing 737
planes increases Air China's fleet by 6%. Air
China took control of Shenzhen Airlines in
April 2010 in a bid to expand its presence in
southern China.
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The Briefing
The Briefing
Exponential the Skillbridge Magazine
Five key
reads
aiigle_dore via flickr
The New Scientist: 4 sinister threats
that loom for the cashless society
CASH; CURRENCY; DISRUPTION – Cash
is no longer king. The latest figures
show that in 2014, the total number of
cashless transactions overtook ones
using cash for the first time in the UK.
The change can be attributed to new
technology – apps for phones and
contactless systems that allow you to
pay by waving a card or a phone over a
terminal. Many other countries see
similar trends. But are there downsides
to cashless societies? Banks have not
always proved to be guardians of the
public interest and tech firms can be
disrespectful of privacy. E-payment
systems are becoming akin to utilities
such as water, in that they are
indispensable to everyday life. What will
happen when someone is "cut off" from
a payment system? New regulatory
safeguards will be needed to ensure
providers act responsibly. There are
also anti-competitive issues: Visa and
MasterCard account for more than 80%
of the global credit card market, and
well over 90% in many countries. This
represents a strong degree of control
over commonly used payment means.
Bloomberg: Larry Ellison is spending a
fortune to save American Tennis
ENTREPRENEURSHIP; TENNIS – Larry
Ellison, the founder of Oracle, wants to
rebuild tennis in America. Ellison, 70,
has a history of reinvigorating a waning
sport. His love of sailing led him to his
highly controversial domination of the
America’s Cup, the capstone to decades
of exploits that have included brushes
with death while sailing in the Pacific,
and the construction of a real estate
empire in Malibu and Hawaii (where he
owns 98% of the island of Lanai).
In the run up to the 2013 America’s Cup
in San Francisco, Ellison used his
fortune and connections in technology
to create the biggest, fastest yachts the
world has ever seen. The result was two
and three hulled boats that travel more
than 50 miles per hour. After initially
falling behind, Ellison’s team then
completed one of the greatest
comebacks in sailing history. As San
Francisco officials complained about the
regatta’s cost and impact, spectators
packed the waterfront, millions tuned in
on TV and tracked the boats online.
New York Times: In Europe, Fake Jobs
Have Real Benefits
WORK; WELFARE; BENEFITS– Five years
after the global financial crisis, there
are signs that a recovery may finally be
taking hold in Europe. The economy of
the 19-nation eurozone has been
growing slowly but steadily since last
year, led by Germany and a turnaround
in once-troubled countries like Spain
and Ireland. As oil prices have dropped,
consumer spending and manufacturing
have started to pick up. Unemployment
is even starting to fall. Yet the long-term
unemployment that 10 million people in
the eurozone are experiencing has
become a defining reality. In 2014,
Eurostat estimated that 53% of
unemployed people in the eurozone
were without work for a year or more,
and many of those have been jobless
for more than two years. The problem is
worst along Europe’s southern rim. In
Greece, which has plunged back into a
recession, 73% of job seekers have not
landed work in more than a year; in
Italy, it is 61%. But the trend is rising
even in more prosperous nations like
France, where the rate has recently
approached 43%, the highest
percentage in two decades.
The Atlantic: The Hospitals That
Overcharge Patients by 1000%
HEALTHCARE; HOSPITALS - On average,
US hospitals charged patients (or their
insurers) 3.4 times what the federal
government thinks procedures cost. For
example, when the hospital incurs $100
of Medicare-allowable costs, the
hospital charges $340. The ratio of
hospital charges to costs has only
increased over time. In 1984, it was just
1.35, but by 2011, it was 3.3. Facilities
that mark up their prices the most are
more likely to be for-profit urban
hospitals that are affiliated with a larger
health system. Overall, three-quarters of
the hospitals on the highest-markup list
are in the South, and 40% of them are
in Florida. Only Maryland and West
Virginia restrict how much hospitals can
charge. The Affordable Care Act makes
not-for-profit hospitals offer discounts to
uninsured people, but it doesn’t set
limitations on bills sent to patients
treated at out-of-network or for-profit
hospitals. Except for people on
Medicaid and Medicare, whom
hospitals can only charge a governmentregulated
amount, these high markups
can negatively affect many consumers.
Medium: How Federal Dollars Are
Financing the Water Crisis in the West
WATER; DROUGHT; GOVERNMENT -
Water shortages that have brought
California, Arizona and other Western
states to the edge of an environmental
cliff have been attributed to a historic
climate event — a dry spell that experts
worry could be the worst in 1,000 years.
An examination by ProPublica shows
that the scarcity of water is as much a
man-made crisis as a natural one, the
result of decades of missteps by
governments and businesses who have
faced surging demand driven by a
booming population. The federal
subsidies that prop up cotton farming in
Arizona are just one of myriad ways that
policymakers have been slow to reshape
laws to reflect changing circumstances.
Another crux are the provisions in
historic water-use laws that not only
permit but compel farmers to use more
water than they need. “Use It or Lose It”
is the cynical catch phrase for one of
those policies.
From Las Vegas to LA, leaders have
flinched when staring down the,
unstoppable force of urban sprawl.
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• The UK government will start selling its 30% stake in
Royal Mail later this year.
• Since 1987, the number of letters received per
American household has plummeted 80%.
Exponential the Skillbridge Magazine
Deeper Dives
Red-letter day: the
future of the post
office and mail
UK government to sell its last remaining stake in the Royal Mail
The UK government has announced it will sell its remaining stake in Royal Mail PLC.
Treasury chief George Osborne told the Westminster parliament that the government
will start selling its 30% stake in Royal Mail later this year. The holding is now worth
about $2.3bn.
Royal Mail traces its history to 1516, when King Henry VIII ordered the creation of the
first national post service. In the twenty-first century it has struggled with losses
following the rise of the Internet, the advent of free email, and the emergence of
tougher competition from private postal services.
Royal Mail was partially privatized in 2013 under the previous administration’s plan to
sell off several state assets to repair Britain’s public finances. But the privatization
drew fire from workers’ unions and critics who said the government sold the public’s
stake too cheaply. The Royal Mail privatization echoes those carried out in the 1980s
under Conservative Prime Minister Margaret Thatcher, who sold many state
companies, including the state airline, the telephone operator, and various utilities.
Thatcher’s privatizations were controversial, with critics saying she was selling state
jewels at bargain prices, depriving the treasury of funds and rewarding speculators.
American mail trucks of the future
America’s delivery and collection fleet of
190,000 mail trucks includes 142,000
vehicles that desperately need to enter
retirement. Their average age is 24 years
with the first Grumman Long Life Vehicle
rolling off the assembly line in 1987.
Maintenance costs on mail trucks hit almost
$1bn in 2012. Replacement parts for older
models are scarce. The trucks are not up to
today’s safety codes and consume high
amounts of gas. Replacing the fleet would
cost the post office about $5bn, and that’s a
check they currently can’t afford to write. The
financially struggling mail agency has
exceeded its legal borrowing limit and
doesn’t have the necessary cash for such an
expensive investment.
US Postal Service reports narrower loss
In the second quarter of 2015, the US
Postal Service (USPS) delivered 37.7bn
items, down from 38.2bn a year earlier,
but its shipping and package volume
increased 14.4%. US Postmaster
General Megan Brennan said in May
that its “cost containment and revenue
strategies are delivering results.”
Despite the increase in packages, the
post office’s operating margins “are
lower than in mailing services,” Chief
Financial Officer Joseph Corbett said.
He added that USPS will make
investments in improving its network
infrastructure and delivery vehicles.
In August 2014, USPS won approval
from regulators to lower prices by as
much as 58% on certain Priority Mail
packages for customers shipping at
least 50,000 parcels a year. USPS then
started cutting prices to attract big e-
commerce. Operating revenue in 2014
grew 1.3% to $16.9bn while operating
expenses fell less than 1% to $18.4bn.
Key Sources:
• Bloomberg: The U.S. Postal Service Is in
Even Worse Shape Than You Think
• McKinsey: USPS Future Business Model
• WSJ: British Government to Exit the Royal
Mail
Why the mail is in bad shape…
There are many reasons that explain
why postal services around the world
are facing problems. A report by The
Heritage Foundation details many of
these reasons for the USPS decline:
• Letter writing is disappearing. Since
1987, the number of letters received
per household has plummeted 80%.
The total volume of such mail has
declined by 25% since 2010.
• The Internet Is decimating paper bill
paying. As late as 2002, 75% of all bills
were paid by mail and only 17% were
paid electronically. In 2012, the USPS
reported that 56% of bills were paid
electronically and only 40% by mail. The
rest were paid in person.
• The greeting card Industry has
declined. The number of mailed
greeting cards has dropped by 50%
since 1978, and by 10% since 2010.
• The future looks bleaker. The US
Government Accountability Office (GAO)
has estimated that total US Postal
Service volume could fall by 20%.
How will the USPS continue to fund
itself with these massive declines?
Thoughts on how to save the post office
In 2010, the US Postal Service hired
McKinsey to conduct an analysis on
methods that could be used to reduce
its expenses and increase its revenues.
Many of McKinsey’s suggestions
involved expanding the products and
services that the post office offers.
McKinsey recommended incorporating
financial services such as banking and
insurance into the post office and
offering transportation services such as
warehousing. It also recommended
introducing new retail products such as
vending machines, and using asset
commercialization strategies like selling
advertising on the side of mail trucks.
Other McKinsey-proposed solutions that
would require legislative changes
include improving workforce flexibility
and leveraging a natural shift in
employee mix due to a 5% annual
attrition rate. As career employees leave
the post office, they can be replaced
with non-career employees up to
bargaining limits. McKinsey is quick to
emphasize that time is of the essence
for the post office to remain solvent,
and only a limited subset of options will
take effect quickly enough to address
short term financing requirements.
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• The trade gap narrowed by 19.2% to a seasonally
adjusted $41bn in April 2015.
• Maersk Line, a unit of the Danish shipping and oil
giant, is the world’s largest container operator,
controlling 15.3% of all capacity.
Exponential the Skillbridge Magazine
Deeper Dives
Trading spaces:
challenges of shipping
industry incumbents
America closes its trade gap
The US trade deficit fell sharply in April as the effects of a West Coast port slowdown in
early 2015 faded. According to the Commerce Department, the trade gap narrowed by
19% to a seasonally adjusted $41bn in April, the sharpest drop in over six years.
Trade figures have swung wildly in recent months, in large part because of the labor
dispute at West Coast ports that created backlog of goods early in the year and a
surge in imports after the matter was resolved in March. Tepid overseas demand and
a strong dollar are both obstacles for exporters. From July 2014 through mid-March,
the dollar appreciated more than 23% against a basket of major currencies according
to Federal Reserve data. That has made American products more expensive overseas
and foreign goods cheaper at home.
Through the first four months of 2015, US exports were down 2.3% while imports were
down 1.8% from the same period in 2014. Last month, American exports of services
were the highest on record. Other categories were mixed, with sales of industrial
supplies, capital goods and autos rising, but consumer goods and food falling. One
major factor helping the trade gap the sharp narrowing in the petroleum deficit linked
to a surge in domestic oil production. The trade deficit for petroleum products was
$6.8bn in April, the lowest since March 2002.
Maersk orders more megaships
Private equity takes on shipping
Opportunities in shipping technology
Technology is playing an increasing role
in shipping logistics. In one prominent
example, the UK firm ExactEarth has
developed high-end technology for
tracking ships – using eight satellites to
track 120,000 ships and producing
seven million daily reports. ExactEarth
was started six years ago with three
employees. It now has 59 employees
and expects 2015 revenues to be about
$25 million.
Other innovations are coming out of
Finland. Norsepower has introduced
Rotor Sail — a new wind propulsion
technology for ships that brings fuel
savings of 2.6% for each small Sail. The
technology pays for itself within 4 years.
Into the 21 st century
The world’s biggest container-shipping
companies are set to dominate
maritime trade over the next few years,
leaving little space for small and
midsize operators to compete, said
Maersk CEO Nils Andersen. Maersk
Line, a unit of the Danish shipping and
oil giant, is the world’s largest container
operator, controlling 15% of all capacity,
according to shipping data provider
Alphaliner. Last week, Maersk
confirmed a $1.8bn order for 11 new
megaships that will be able to carry
19,630 containers each. The new ships
will be deployed in the Asia-to-Europe
trade loop.
“I can’t speak for other companies, but
small and midsize carriers-controlling a
3% to 5% market share--with very few
exceptions--have been unprofitable for
the last seven years,” Andersen told The
WSJ. “After such a long period of not
being profitable, it defies logic to
continue to invest in the business.”
Key Sources:
• WSJ: U.S. Trade Gap Shrinks by 19%,
• Reuters: Shipping industry faces shake up
as private equity unwinds bets
• McKinsey: The hidden opportunity in
container shipping
While global shipping grapples with its
worst downturn in 30 years, private
equity firms are unwinding massive bets
made on the sector in a move that will
accelerate a restructuring of the
shipping industry. Private equity firms
invested tens of billions in global
shipping after the 2008 financial crisis,
but weaker Chinese demand and an
oversupply of ships has driven down
freight rates. Additionally, firms have
been forced to idle vessels and, in some
cases, to file for bankruptcy. Mergers
and acquisitions are likely to drive more
consolidation in one of the world's most
fragmented industries. According to
shipping services firm Clarkson, 70% of
the sector's thousands of firms own
fewer than 51 vessels.
According to maritime fund
management firm Tufton Oceanic,
private equity firms invested $32bn in
shipping from January 2012 to January
2014. This is equivalent to 22% of the
total value of the world merchant fleet,
including ships on order. The value of a
new tanker or dry cargo vessel is 13%
lower than 10 years ago, said Ralph
Leszczynski, head of research at ship
broker Banchero Costa.
McKinsey Insights reports that the
container-shipping industry has been
highly unprofitable over the past five
years. But, during this time, earnings
have been “exceptionally volatile.”
McKinsey believes several factors are
responsible, notably “trade’s spotty
recovery from the global financial crisis,
and redoubled efforts by corporate
customers to control costs.” However,
some of pain is self-inflicted. As in past
cycles, the industry “extrapolated the
good times” and foresaw an
unsustainable rise in demand. It is now
building additional capacity that may not
be needed.
Shipping companies cannot afford to
throw up their hands and accept their
fates. Hidden beneath these issues is
another set of challenges that shipping
lines can readily take on. Across the
industry, in commercial, operations, and
network activities, shipping lines have
opportunities to improve performance.
In operations, many lines treat fuel as
just another cost of doing business and
have been slow to adopt new
technology. A new attitude to
technological change is required if small
existing firms are going to survive.
8 +1 (212) 548 4548 www.skillbridge.co

Exponential the Skillbridge Magazine
Deeper Dives
We heart h charts
Trane de Vore via flickr
Which Asian countries have embraced
smartphone technology for shopping?
Asia’s shoppers are experts at
“showrooming” –looking at items at a brickand-mortar
store whilst simultaneously
checking the prices available online.
According to data from Google’s Consumer
Barometer survey, this showrooming is most
prevalent in less developed tech markets.
The top showroomers are Vietnam’s
shoppers. 40% of them stand in a store
while cross-checking prices online. South
Korea is second.
In Asia, shopping starts on smartphones:
% of web shoppers that use smartphones for product research
Source: TechInAsia.com
How much has the cost of a US postal
stamp changed over time?
In 1866, a postage stamp cost 3 cents,
equal to 45.7 cents in 2015 dollars. The
real price of a stamp peaked in 1878 and
1879 at 72.6 cents in 2015 dollars. In
1883, the price of stamp declined to 2
cents, which was then the equivalent of
48.4 cents in 2015 dollars.
US first class domestic letter rate, 1866-2015
Source: QZ.com
Source: The Johnston Archive
How has world trade increased between
1960 and 2014?
Between 1980 and 2002, world trade
more than tripled while world output
only doubled. The rise in trade relative to
output is common across countries and
regions, although relative growth in
trade and output varies greatly.
Transportation, communication, and
tariffs are examples of costs incurred
during international trade. Such costs
have fallen dramatically over the past
30 years.
World trade as % of world GDP, 1960-2014
Source: World Trade Organization and United Nations
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The Interview
h
Exponential the Skillbridge Magazine
The Interview
• This week’s interview is with Deb Cupp, SVP and General Manager, Sales for North American HR at SAP.
• SAP has more than 291,000 customers in 190 countries, as well as 74,500 employees located in more than
130 countries.
What are your key learnings on the
future of HR Management?
We’re now seeing the Chief Human
Resources Officer have a seat at the top
table. The Head of HR is as important to
the organization as the CFO or the COO,
and they have an equal stake in the
future of the business. I think what’s
different now, from maybe even a year
and a half ago, is that people are
starting to recognize the critical
importance of their talent, and they’re
starting to recognize how scary this war
for talent is going to be.
We are moving towards a scenario where
we’re going to have many different
generations in the workforce - the baby
boomers are retiring and taking much of
their expertise with them. It’s a little
scary. It’s making organizations
recognize the power of people, and the
importance of training, developing,
guiding and retaining the right people
who matter.
We’re seeing a lot of activity around
performance management. Decisions
are increasingly being made from a
technology perspective. At present, it is
standard practice to send everyone to
performance management classes. It’s
usually once or twice a year. You do a
mid-year review and a final review. These
reviews are pretty static, and there’s not
a lot of dialogue back and forth. These
trends are changing.
In your experiences, do people from
different generations - Baby Boomers,
Generation X, Generation Y - use HR
technology in the same ways? If not,
what differences do you notice?
The generations attempt to use
technology in the same way, but their
knowledge base is different. The
Millennials are very used to having
incredible ease of use. So they want
something that’s on a mobile device;
they want to be able to use an
application in the same way they use
Facebook or YouTube.
We have to deliver very visibly, and you
have to be able to have collaboration.
There are opportunities for employees to
collaborate together and drive their
packages by interacting with each other.
All of that needs to be tied together. That
didn’t happen as much five or ten years
ago, so this newer generation is driving
this desire for ease of use and flexibility.
Although they are not as used to the
technology Baby Boomers are asking for
the same things. When you go through
processes with a group in a room
everyone will generally voice the same
type of desires. I think the generations
want the same things, but they describe
them differently based on their previous
experiences.
What is the one piece of technology that
you think will be key to revolutionizing
the workplace in the next ten years
I really think it’s going to be about
integration. The key question is: how do
you take every aspect of a workforce and
provide information in an integrated
fashion? I think that the most important
thing, going forward, is integrated access
which delivers information for and about
the employee. That’s what it really boils
down to. I want one place to go to
anything related to myself as an
employee, whether it be information
about my paycheck or where I can valueadd
information around my learning and
Deb Cupp is SVP and General Manager, Sales for North American HR
products at SAP. Deb holds a BA from the University of Richmond and a
MBA from St. Joseph’s University.
my enablement.
What is the one business book that you
would recommend that people read?
I loved Sheryl Sandberg’s Lean In. I
would say everyone should read it
because I think it gives an incredible
perspective different groups of
employees, not just women. It explains
the key dynamics around people who are
growing in their careers, people who are
interested in how to do things more
effectively, and people who are
interested in ways to interact with
different genders and generations.
What elements of the HR world do you
think need the most improvement, and
how can these changes be achieved?
The biggest challenge in the HR world is
that it’s somewhat archaic in its
business practices. The best example of
that would be analytics. If you run any
business, large or small, you’re going to
have supply dynamics around the
supplies you use. Do they have access to
information that’s meaningful?
In the HR space, we find people don’t
have access to information that is
actionable. They have a lot of stuff, they
know a lot about people, they have a lot
of data, but they don’t have it in an
actionable format. The one thing that
people are clamoring fools for more than
anything right now is actionable data
related to their employee base and their
population.
That is a solvable problem today. Some
of the companies have done well in the
workforce analytics perspective, but how
do we empower decision makers when
they think about their people?
Online Extra: Read the full length interview,
including a deeper discussion into the changing
nature of human resources and the future of
work: www.skillbridge.co/DebCupp
10 +1 (212) 548 4548 www.skillbridge.co