The week that was: 29 July 2011

Congress concerned over US branch closures, EU open Royal Mail investigation, and SingPost reveals Q1 results… Welcome to ‘the week that was’ – your weekly round-up of all the big headlines from the post and parcel industry.

This week, members of the US Congress expressed concern about the 3,700 post offices now up for possible closure across the United States. The US Post Office asked for official approval from US regulators on Wednesday regarding its plans to review 11% of its post offices for possible closure. Seeking $200m in cost reductions and a response to the 20% drop in mail volumes over the last few years, USPS wants to close 3,650 of the 26,880 post offices and 5,610 stations or branches within its retail network. Senators Susan Collins and Tom Carper are understood to be currently working on a bipartisan compromise postal reform bill together, but while the Democrat Carper expressed support for the “difficult but necessary step” of closing post offices that are “losing money or are no longer necessary”, the Republican Collins was less enthusiastic. “The fact is, maintaining our nation’s rural post offices costs the Postal Service less than one percent of its total budget and is not the cause of its financial crisis,” said Collins. The Senator from Maine added: “While there are some areas where postal services could be consolidated or moved into a nearby retail store to ensure continued access, this simply is not an option in many rural and remote areas.” Members of congress, who USPS must keep on side if it wants to affect reforms that will save far more money than closing 3,700 post offices, were briefed by Postal Service executives last week about the retail consolidation plans. The closing of post offices has been among the highest profile of any postal issues among Congressmen, despite the more fundamental problems at the Postal Service, which has been losing more than $8bn a year and now faces the ceiling on its $15bn line of government credit.

Across the Atlantic, the European Commission opened an investigation on Friday to determine whether the UK government’s planned financial restructuring of Royal Mail breaches EU state aid rules. As a part of the postal operator’s privatisation, the government intends to relieve Royal Mail of its pension deficit, estimated to be £8bn, as well as strengthening the company’s balance sheet in light of a reported £1.7bn debt. However, the Commission said it had “doubts that Royal Mail’s restructuring plan foresees adequate measures to mitigate any distortions of competition brought about by the state intervention and to ensure a sufficient own contribution to the cost of restructuring”. The opening of the investigation will give third parties the possibility to comment on the measures under examination, the Commission said. Joaquín Almunia, the Commission’s vice president in charge of competition policy, said: “The Commission acknowledges the importance of the reform of the postal market in the UK. However, we must ensure that the state measures do not provide undue advantages to Royal Mail as this would distort the conditions of competition among postal operators in the Internal Market.” The UK government claims the measures are in line with the EU Guidelines on state aid, but the Commission said it “has not convincingly demonstrated that the submitted restructuring plan would comply with the guidelines”.

In Asia, a slower economy hit profits at Singapore Post during the first quarter of the financial year, although according to its latest results some balance was provided by strong growth from e-commerce shipping. On Wednesday, SingPost reported a 3.5% drop in its profits to S$39.2m for the quarter. Revenues grew overall by 3% to S$142.3m, but the Post’s operating costs grew faster, by 6% year-on-year to S$109.3m. The company said it was facing a challenging outlook at the moment, but was investing in building its presence in the South-East Asia region to allow a more balanced source of revenues. Among market sectors, slow growth was seen in the mail segment, where revenues grew 1.6% year-on-year to S$97.2m thanks to contributions from government, business and direct mail. Retail revenue grew at a similar rate, 1.5%, to S$16.6m for the quarter, with the sale of products offsetting decline in financial services income after SingPost sold off its SpeedCash business in March 2011. However, SingPost saw strong growth in its Logistics division – revenues grew 10.7% to S$51.2m thanks to good performances in the company’s cross-border mail and logistics business Quantium Solutions, express delivery unit Speedpost and online payment and shipping unit vPOST. Commenting on the results, Ng Hin Lee, the chief executive for postal and corporate services, said: “In spite of the slower economy in the first quarter, the Group’s topline grew 3% with all business segments showing improvements in revenue. Logistics recorded strong revenue growth mainly from Quantium Solutions which saw good traction from regional e-fulfillment business and transshipment. Operating conditions remained challenging but overall, we maintained underlying net profit at a stable level of S$37.4m.”

And finally…

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