New law to prevent undercutting by couriers likely (UAE)

THE UAE is likely to come up with a law fixing a threshold below which no courier company will be allowed to offer services in the local market, industry sources said.

The move has been initiated by Empost (Emirates Corporation for Commercial Postal Services), a wholly owned subsidiary of the UAE General Postal Authority (GPA), which has recommended to the Ministry of Finance and Industry to enforce the new law, the sources said.

The Empost move to approach the ministry comes after attempts to fix rates through an agreement among members of the proposed UAE Couriers Association did not produce the desired results. The UAE Couriers Association was formed two years ago but has not been formally launched and the delay is attributed to the failure of the members to agree on a system of fixing prices.

The associations move is said to have stumbled on the reluctance shown by units of US parent companies to be affiliated with any mechanism for fixing prices in view of the strong anti-trust laws in the US. We will never associate with price-fixing. It is against the US anti-trust law and our headquarters will never go for anything like a cartel, representatives of these companies said.

Emirates Post last year cut rates of its Express Mail Service (Mumtaz Post) to AGCC countries to raise EMS traffic volume within the region, they argued. The only way that the business can survive is to adopt some standards in doing business and elaborate common strategies, one source pointed out.

The courier business in the UAE, which used to show a steady growth of 15 per cent every year, recorded only five per cent increase last year, the sources said, adding that it is not a healthy sign for the industry. Revenues in terms of documents business are going down, because the movement of documents and their numbers went down considerably in the last three years, with the market losing more than 50 per cent of its volume.

Because of shrinking business everybody is running after what is left, which forces prices to come down more and more. Dubai is the only place in the world where couriers services can be used at such low rates, they said.

If profitability has to go up something needs to be done and everybody has to observe minimum standards, they suggested. Nowadays anybody tries to run a courier company without realising that its a complicated business and needs some elementary standards and ethics, one source pointed out. Sources pointed out that although the US-based courier companies were distancing themselves from price fixing, it would be very difficult to restore order in the market without some kind of regulations with regard to pricing, they explained.

Besides the presence of small unlicensed companies, a major factor that is killing the industry is the e-mail: it costs nothing to send a letter by e-mail.

At present, the only documents required to be sent by couriers are legal documents, checks, as also anything that needs signatures, though some payments can be done on-line as well. The future of the industry lies in e-commerce, delivery of physical items rather than papers, they believed. In view of the tough market conditions international courier companies operating in the UAE had last year asked the government to transfer their local sponsorship to the GPA or revoke the10 per cent fees that they pay to the government.

A government response to the demand, however, enforced a new law, according to which courier companies will no longer be audited by the Ministry of Finance and Industry, but by the GPA and pay 10 per cent fees to the GPA instead of Ministry of Finance and Industry. Earlier, they had to pay an annual fee of 10 per cent to the Ministry in addition to a percentage to be paid to their local sponsors. The double payment, industry sources say, made the business enviable.

The sponsorship fee is sometimes paid as an agreed flat amount or a percentage of the total business. In general, the amount to be paid to a local sponsor varies from one company to another, ranging between one per cent and 10 per cent.

At the moment, the courier companies pay the licence fee of either Dh100,000 or 10 per cent of their annual income, whichever is greater. Copyright 2002 Khaleej Times. Source: Financial Times Information Limited.