High rollers and a bid for a level playing field
Europe may be treading a long and painful path towards postal liberalisation, but at least private companies will feel they have some prospect of competing on an equal footing with the public postal operators (PPOs) once the European Commission has decided its final strategy.
In China, by contrast, doors appear to be closing in the face of express companies such as UPS and FedEx, which have invested heavily in the parcel and document market. China Post announced its intention in February to extend its monopoly to items weighing up to 500g. It will ban private operators from undercutting its EMS express arm on price for heavier items, and from making any deliveries to government offices.
The original implementation date was today (6 May). This has been pushed back to 16 June under pressure from the integrators, who warned the trade ministry of "catastrophic" effects on the Chinese economy if constraints were put on the $1.2bn international express delivery market, estimated to be growing at 30%-50% a year.
Critics argue that, having recently signed up to the World Trade Organisation, China's action is discriminatory, distorts competition and leaves room for price manipulation – a scenario familiar to the European Express Association (EEA) and to its postal committee chairman, Mark van der Horst.
He can hardly claim to be neutral on this, for the association was formed in 2000 as a merger of the European Express Organisation, backed by UPS, TNT and FedEx, and the DHL-led Association of European Express Carriers.
But van der Horst speaks for many when he queries why liberalisation of Europe's postal services has taken so long.
"We accept that it can't happen overnight. You can't have a monopoly one day and a totally open market the next. But why will it take 20 years?
"There is concern about maintaining basic service to consumers and about the size of the workforces involved, but for me that still doesn't justify taking 20 years. They have introduced automation and have got rid of people through introducing new technology into their processes, so they have been modernising anyway." The effect of piecemeal reductions in the market reserved exclusively for PPOs "has been to allow a lot of postal organisations to invest in a lot of other things, such as package delivery businesses, " says van der Horst.
"As long as you have monopolies making money, the risk exists that this can be used to fund services outside the scope of universal service and in direct competition with those who do not have access to that market – therefore it's a distortion of the playing field." This is now the main priority for the EEA. "We were focused for a long time on pushing the EC to go as far as possible towards liberalisation, " he says. "The new directive means we're still not in an open market. The compromise of 50g in 2006 is only a very small step towards total liberalisation.
"National governments should be working like hell to meet the 1 January legislation [reducing the reserved area to 100g]. We only have only seen signs of life in Germany. But the whole liberalisation process is now less important. It is becoming more important to focus on competitive distortion." Europe's competition directorate-general published a critical document last December reviewing four main aspects of postal competition: PPOs' efforts to extend their monopoly into areas such as hybrid mail; the lack of independent national regulation; crosssubsidy; and terminal dues.
The latter system, under which post offices recompense each other for international deliveries, is a "strange concept", van der Horst says. "In the normal world, 15 companies agreeing with each other on price is called a cartel." He says the directorate is looking at the Reims agreement, which governs terminal dues, to determine whether it conflicts with competition legislation.
State aid lies outside the directorate's remit, but the EEA naturally keeps a close eye on this area. One recent decision – and its timing – particularly concerned van der Horst.
On 12 March, the day before the European Parliament voted on the revised directive, it approved a t9bn payment to the Italian post office.
"It is losing €1.5bn a year, but the question is why it has lost money, " he says.
"They have made acquisitions, including parcel companies. Is someone making sure that this money is not being provided by the state? Is the accounting system clear enough to show that there has not been cross-subsidy from monopoly areas? I don't have a very good feeling about t9bn just being given to them." Predatory pricing fuelled by cross-subsidy was proven last year when the EC ruled that Deutsche Post (DP) had funded a strategy of below-cost selling of business parcel deliveries over a five-year period out of monopoly lettermail revenue.
UPS had complained that without cross-subsidy, DP would have been unable to maintain this strategy for so long.
The EC proposed an incremental cost test to establish a floor price that "postal monopolists" must charge when branching out into fields open to competition. DP agreed to make a structural separation between its reserved area and commercial parcel services.
"It was claimed further that monopoly profits had been used to fund acquisitions such as DHL, " van der Horst says. "The court said that was not proven, but the decision is still important. If you can prove there is excessive profit, though in this case it was not proven, it leaves the door open for future challenges that, for example, the price of a domestic stamp is excessive.
"The judgment shows that the moment you can prove a stamp price helped fund an acquisition, there's a problem." He accepts that in the end, there will be fewer players. "We are a global business and consolidation has already taken place. You can't argue any more that General Parcel, Van Gend & Loos or Securicor are separate companies. It doesn't concern me who owns whom, but only where the money came from." Post offices' recent announcements of planned shopping sprees were "impressive, but were only made after they learned they were going to have another four or five years of monopoly, " says van der Horst.
Sweden unilaterally opened up its postal market in 1993 and this precedent should show PPOs in larger markets that they have less to lose from liberalisation than they might fear.
Fifty companies are now operating there, but mainly in local markets. "You still have a national postal service, a dominant provider in the form of Sweden Post – and it has been highly innovative, " van der Horst says.
"They are trying to build main services into convenience stores and gas stations, for example. In the traditional debate about opening or closing post offices, there is little talk of that kind of integration. But in Sweden, a granny outside Lulea still gets her daily delivery." The key objective of postal administrations is not to provide jobs for their workers, but to provide service – and that can still be profitable, van der Horst points out. "The moment you open up the market, it's interesting that post offices get involved too."
