Red, orange and yellow: Two privatisations and a cop out

The 2009 UK postal strikes seem to be over for now, but who knows what 2010 will bring? An insight from John Modd, editor of Mail & Express Review. All the indications are that there remains a huge gulf between Royal Mail and the Communications Workers’ Union at a national level.

In truth, however, one suspects it is London plus a few more militant mail centres making the running whilst the vast majority of Royal Mail employees, by design or by default, let the loudest do the talking.

Meanwhile TNT, the best managed postal business in the world, continues to perform well in the current tough economic climate; and Deutsche Post seems to be successfully re-establishing contact with reality after a period of turbulence, not least in the US. But that is not to detract from the incredible success story that has been the German post office over the last 15 years.

Yet in the early 1990’s it was Deutsche Post which was the sick man of Europe, and Royal Mail the star, up there with Coca Cola as a recognised and trusted brand.  What happened to turn the tables?

Each of us probably has our own preferred version of what went wrong. Clearly unions and management played their part. Government as shareholder milked the profits with excessive ‘dividends’.  But there is no doubt in my mind that the fundamental mistake was to back off from privatisation and the injection of private capital, and to compound this with a particularly British approach to market liberalisation which allowed the private sector to do the easy bits (downstream access), top slice Royal Mail’s profits, and at the same time leave delivery as an effective monopoly.  One suspects the law of unintended consequences was very much part of that equation!

There have been two overt privatisation attempts, Heseltine’s in 1993/4 and Mandelson’s in 2008/9.  What they both demonstrate is that in the dying days of a weakened government, whether Conservative or Labour, it is impossible to push through privatisation in the face of irrational behaviour by Members of Parliament incapable of seeing the bigger picture.

There have also been at least two other opportunities to merge Royal Mail with another post that would have injected capital and management expertise. Both foundered on a mistaken belief in Royal Mail’s current and future strengths relative to the suitor, which has gone from strength to strength as Royal Mail has struggled.

Privatisation changes everyone’s terms of reference: staff, management, unions. It forces a fresh look at what needs to be done. It is not a panacea and will not through a wave of a magic wand remove all the big commercial issues facing any postal business in today’s virtual world.  But it makes one hell of a difference!

Example: Belgium Post turned itself around with a combination of venture capital and support from Danish Post. Example: Austria Post has undoubtedly benefited from partial privatisation and is becoming a major regional player. Privatised posts such as Singapore have flourished. For goodness sake, even Malta is 100% privatised!

Yet here we are, almost 20 years’ on from Heseltine, with a 100% state owned Royal Mail that is perceived as currently the weakest large post in Europe. By contrast the one time German basket case, long privatised, strides the globe as the world’s largest logistics group. Yes, of course it has benefited from high prices in its home market, but credit where credit is due. And a privatised TPG used the purchase of TNT to transform its whole culture. Yes, it still has industrial relations problems as it continues to downsize its core Netherlands business, but those problems never really get out of hand, and the profit margins on mail are to die for.

Nowadays everyone in these two postal businesses recognises the need to respond to the realities of competition and the disciplines of the market.

The CWU in the UK may make the similar noises, but in its London heartland is still rooted in the cosy corporatism of the 1970’s. The Austin Allegro union if you will.

One hopes a new government with a new mandate will grasp the nettle, and privatise at the beginning of its term, not towards the end. But I won’t hold my breath!

Do you agree with Modd? Please comment below…