Europe view: Postal parity in Britain

Britain is about to administer a much needed post-Sept. 11 pickup tonic to the global express and parcel delivery market by opening its postal market to full competition for the first time. And that means plenty of new business opportunities for private firms, from U.S. giants like United Parcel Service and FedEx, to aggressive European postal groups like TPG of the Netherlands and Deutsche Post World Net of Germany.

There’s likely to be more good news next month when the European Parliament is expected to approve an agreement reached by EU governments last October to start opening the postal market from 2003. But Britain’s move is the more significant because until now the country that led Europe in privatizing and deregulating an array of industries, from air transport to energy, has shied away from selling the Royal Mail to private investors or peeling away its monopoly. But now Postcomm, Britain’s independent postal regulator, has ruled that, starting in April, bulk business mail – nearly half the letters delivered in Britain – can be handled by rival operators. Companies involved in recent trials, including TNT, the express unit of TPG, and Britain-based Hays and Business Post, are expected to take advantage of the new freedoms and expand into the market within months. Deutsche Post, UPS and FedEx also are expected to apply for licenses or seek alliances with the new operators by year’s end. The bulk business market is worth about 1.5 billion pounds ($2.1 billion) a year and promises a profit opportunity for newcomers running into hundreds of millions of pounds. After the Postcomm announcement “our world changed,” said Paul Carvell, Business Post’s chief executive.” You rarely get the market opening up in front of you like this. The scale of it and the profit opportunity makes it very exciting.” But the news couldn’t have come at a worse time for the Royal Mail, or Consignia as it now calls itself. It is involved in a messy dispute with its unions over pay that could lead to Britain’s first postal strike in six years. Consignia also is expected to unveil a $1.7 billion cost-cutting drive, having already warned that up to 30,000 of its 200,000 jobs are at risk. And now the monopoly bulk mail business, which contributes 30% of its revenue, must face competition from nimble private firms. Consignia could do with a dose of competition. It has failed to meet delivery targets in each of the past six years, its employees are involved in more strikes than any other industry and last year it made its first operating loss – $143 million. Successive governments also must share some of the blame because its large monopoly profits have been siphoned off to the state in dividends rather than invested in modernizing the business. The delay in deregulating and the failure to privatize also prevented Consignia from emulating the Dutch post office, which responded to domestic competition by moving into the air express business with a farsighted $1.5 billion acquisition of Australia’s TNT. Deutsche Post emulated its business model, spending over $5 billion on acquisitions, including Air Express International of the U.S., DHL Worldwide Express and Danzas, the giant Swiss forwarder, to become the world’s leading global transporter. France’s La Poste is scrambling to catch up, and while Consignia has moved abroad, establishing a sizeable presence in the German parcel market, it has left it too late to become a global player. There’s no reason why Consignia should wither following the loss of its monopoly. The German and Dutch postal services survived the arrival of competition by investing heavily in more efficient technology and overhauling outdated and restrictive working practices while deregulation in Sweden sparked vastly improved performance levels. Competition won’t result in an overnight change in the market. Postcomm expects private operators to offer businesses reduced rates for delivering their mail within months but at first the