Post offices threatened by global giants

The future of Jersey Post, and probably of Guernsey Post, is threatened if a postal licence is granted to the giant Dutch-based global logistics business TNT, according to some involved in the postal industry. Jersey-based HubEurope, which was recently granted a licence to compete on a limited basis with Jersey Post, has warned that allowing TNT into the market would be similar to Mike Tyson getting into the boxing ring with Skinny McFly.

‘In simple terms they have the economies of scale to totally wipe out Jersey Post. This is a real possibility,’ HubEurope director Chris Bee said. TNT have confirmed that, although they currently do not require a licence in Guernsey, they are also considering competing with Guernsey Post.

HubEurope’s Mr Bee, who says TNT’s application does not impact on his own business, has objected to the Jersey Competition Regulatory Authority and written to the Minister for Economic Development Alan Maclean because of the impact he believes TNT could have on the whole island economy.

‘I have no vested interest in trying to prevent this, because our product is totally different to that offered by TNT,’ Mr Bee said.

‘The primary reason HubEurope originally applied for its Class 1 license was to offer an alternative to Citipost DSA who, we felt – as a non local company – would compete with Jersey Post and siphon valuable revenue and taxes from the Jersey economy, giving little or nothing back.  So I’ve learned in the process of applying for a licence that it’s the Jersey economy we should be concerned about, and not necessarily competition for competition’s sake,’ he said.

Mr Bee said that he would happily compete with 100 Jersey companies, but that the JCRA appears give out competitive licences because they just look at the legal process, not the economics.

‘My primary objective is not to save Jersey Post, it’s to ensure there is no massive leakage from Jersey’s economy,’ Mr Bee said.

‘I do not exaggerate when I say that to allow TNT a Class 1 license to operate in Jersey will see the demise of Jersey Post, which will then threaten the USO. The social impact of this will be significant as well as the mounting financial and political pressure on the States, as Jersey Post services become increasingly expensive and onerous to maintain.’

While TNT’s application to the JCRA is in the  name of a UK-based subsidiary, the group as a whole employs 161,500 people and had revenues of €10.4 billion in 2009.

The Communications Workers Union, who opposes liberalisation of Jersey’s postal market, believes that granting a licence to TNT ‘puts the future of Jersey Post and the universal service obligation in further jeopardy’.

‘Not only do we have concerns about increasing competition per se, but we believe the award of a licence to such a large operator, into a market with little potential for growth, is likely to be particularly damaging to postal services on the Island.’

The CWU point out that in 2009, Jersey Post reported an operating profit after tax of £230,000 – a fall of 96% on the previous year – and, even without the introduction of competition in Jersey, the company is projecting being pushed into an unsustainable loss in the coming years on the back of a forecasted decline in mail volumes.

Former States member Guy de Faye, who has been advising HubEurope, has also written to the JCRA pointing out what he sees as the current flaws in competition policy which puts an emphasis on promoting more competition while ignoring the wider impact on the economy and on existing businesses.

He believes that having broken the postal monopoly, the JCRA have ‘a duty of care and concern for the new licence holders’ which means they should consider the size of the market when deciding how many businesses should be allowed to compete.

‘The documentation indicates that the JCRA has focussed all its attention on the impact of a TNT postal licence on the USO operated by JP and has failed to exercise its remit of care under the law toward the other extant licence holders,’ Mr de Faye writes.

‘It is one thing for a competition regulator to open up a monopoly market to competition, but it is a wholly different matter if the regulator’s actions create an unstable market sector.’

Accusing the JCRA of ‘paucity of intellectual rigour’, Mr de Faye says that the authority appears to believe that ‘if competition is good, then more competition must be better’.

The chief executive of Jersey Post, Ian Carr, says that while they welcome further competition in the postal market ‘ it remains committed to discharging its legal obligation to provide a USO to consumers throughout Jersey’.

‘The speed and scale of liberalisation, and introduction into the market of significant competitors such as TNT as proposed by the JCRA is a very real concern to Jersey Post,’ Mr Carr said.

‘The market for postal services globally is in a state of flux, as e-substitution continues to draw traffic away from conventional postal networks and the impact of the global recession is felt by businesses and consumers alike. As an operator with a significant exposure to the international and export mail markets, these trends are particularly felt by Jersey Post.’

Mr Carr said that he market itself has an extremely high concentration with few major customers for large letters and packets, another factor contributing to the uniqueness of Jersey’s postal market and one which requires a bespoke assessment of risk by the JCRA

‘Jersey Post has strong reservations about the proposed granting of a licence to an operator with the scale of TNT and the catastrophic unintended consequences should it be issued,’ he said.

‘The introduction of such a significant UK postal operator into a bulk export market which is to be all but fully opened in January 2012, poses a significant threat to not only Jersey Post but other licensed operators in the market who simply do not enjoy the scale of TNT as a business. It could also have a significant impact on the future sustainability of the USO in Jersey.

‘It is essential that the model for a sustainable USO in the future is agreed by all key stakeholders. The Treasury Minister has declared publicly that the States of Jersey will not provide a government subsidy in the future to fund the USO – a statement reflected in the thinking of the house generally who recently voted, in response to a petition and proposals, presented to the States on behalf of the Communication Workers Union by Deputy Judy Martin, not to support the funding the future postal service through public subsidy.

‘We have requested many times in the past, that the JCRA undertake robust competitive impact assessments before licensing further operators, or liberalising the market fully, risking undermining further the funding and future sustainability of the USO.’

Another initial notice to grant a Class 1 postal licence has just been made by Hi-Speed Freight Services Limited which includes DHL Global Mail/ Deutsche Post Global Mail/ DHL/Deutsche Post World Net.

With thanks to Business Brief