USPS/GLS: another right Royal Mail mess
United States Postal Service based its decision not to renew its contract with General Logistics Systems, which is owned by Royal Mail, on service and fee complaints by its customers. The new contract will go to Deutsche Post and, indirectly, the switch represents yet another blow for Royal Mail.
United States Postal Service (USPS) will not be renewing its contract with German-based delivery company General Logistics Systems (GLS) for package deliveries in 23 European countries, although the contract will continue to be in place until December 24, 2004, when it expires.
The company has instead chosen to cooperate with Deutsche Post, Germany’s leading postal service operator and part of Europe’s leading logistics group, Deutsche Post World Net [DPW.F]. The exclusive license is for the delivery of private parcels (EMS and standard air parcel traffic), again in 23 European countries, estimated to account for some 1.6 million consignments per year.
USPS’s current contract with GLS was considered to be a landmark agreement when it was originally signed in January 2002. However, the cooperation between the two companies encountered serious problems from the outset.
In Germany, where GLS is based, USPS’s clients were unpleasantly surprised by the increasing costs the GLS exclusive agreement caused. GLS would charge its clients E17 in customs clearance costs, while packages were cleared for import for free when national postal operator Deutsche Post delivered them and many clients refused to pay for a service that had previously been free. This led to increased transportation costs for GLS because it had to return the packages back to the US. Service complaints were registered and this also contributed to USPS’s decision to abandon GLS for Deutsche Post.
Even though the wider public might not automatically associate the GLS brand with Royal Mail, the British parent will keenly feel this loss of business. Royal Mail is suffering from continued service quality problems in the UK and these are being aired and amplified in the media. In addition, the company is beginning to feel pressure in the increasingly competitive UK B2B sector, as the loss of Powergen to competitor UK Mail highlighted last week.
GLS has been Royal Mail’s most profitable parcel operation so far, more than doubling its operating profit to GBP25 million in FY 2003/2004. But even ignoring the importance of this particular contract, losing another deal due to service and fee issues further damages its reputation as a reliable business partner and is the last thing that Royal Mail Group needs at the present time.
