Part 4 of the Postal e-volution series

Part 1 ~ How can USPS thrive in the 21st century?

Part 2 ~ net change: How the challenges of electronic commerce stack up for USPS

Part 3 ~ market wars: Postal Service rivals clamber for position in the new e-commerce economy

Part 5 ~ Creating a Postal Service to serve America's future

TNT Post Group: A Dutch dynamo

In 1994, the Dutch government decided to sell a majority ownership stake in its PTT service (a civil service agency with a monopoly on providing postal, telegraph and telephone services) to private investors. Over the initial opposition of the union, it was privatized as a single company (known as KPN) even though telephone services were deregulated while a traditional postal monopoly was retained. Investors in Europe and North America, where the new company was listed on the New York Stock Exchange, snapped up shares in the new company despite fears that the mail subsidiary would hold back the development of the high-tech telecom division.

As it turned out, the postal side of the business flourished. It quickly targeted the growing international mail market and set up sales offices all over Europe and the United States, winning major clients like Time-Warner and American Express. In January 1997, KPN expanded into the parcel and international shipping business by merging with TNT, an Australian multinational transport firm and Europe’s largest private delivery company. Soon thereafter the company engineered a corporate divorce from KPN and became TNT Post Group or TPG.

Netherlands
Post office name	Dutch Post/TNT (TPG Group)
Revenues	$7.1 billion
Mail volume	6.5 billion letters; 1.5 billion parcels
Annual volume per capita	433
Number of employees	115,000
Structure/ownership	Private corporation with minority stake owned by Dutch government; merger between Dutch Post Office and TNT Worldwide
Universal service obligation/monopoly	USO for letters, magazines and parcels; monopoly on letters weighing less than 100 grams (3.5 ounces)
Recent developments	Strategic alliance with Royal Mail and Singapore Post; contract for international express delivery for five European post offices

In less than six years, the Dutch Post Office has been transformed into a major multinational company with more than 100,000 employees, $7 billion in annual revenues and operations in nearly 200 countries. Though the Dutch government still owns 44 percent of the TPG’s shares and the company has the exclusive right to deliver letter mail weighing less than 100 grams (or 3.5 ounces), it effectively operates as a private enterprise and has become a major international competitor to UPS and FedEx. Since TPG has an alliance with Airborne Express and USPS is engaged in a similar venture with Airborne for residential deliveries, it is possible that city carriers are actually delivering a limited volume of packages that originate in TPG’s European operations.

TPG shows how quickly a post office can become commercially competitive. In the face of electronic diversion of mail, it has launched a hybrid mail service similar to the Mailing Online service the USPS is now testing to gain approval from the Postal Rate Commission. And it has expanded rapidly into e-commerce and logistics services, which now account for 16 percent of its revenues. Such revenues are growing by more than 20 percent annually. For example, TPG operates the warehouse and handles the deliveries of Bruna, Holland’s largest online retailer of books and CDs.

TPG has also acted to further expand its international mail business by negotiating contracts to handle all the international express mail of the Portuguese, Greek, Spanish, Italian and French post offices. In March of this year, it unveiled a $436 million joint venture with Great Britain’s Royal Mail and Singapore Post to merge their international mail operations into a Brussels-based company. (TPG will control a 51 percent stake in the venture, while its partners will each have 24.5 percent shares.) The absence of an American partner has led to speculation about a future role for United Parcel Service, but for now the alliance will work through Airborne Express in the United States.

The transformation of the Dutch post office over the past decade has been dramatic. According to a study conducted at the University of Rotterdam, the commercialization process has been “good for clients, good for upper management and good for shareholders.” The situation for postal employees is less clear. While their pay levels have risen by more than those of public employees who remain in the civil service, employment has remained flat even as mail volume increased by 50 percent between 1989 and 1999. The Rotterdam study found that the growing workload, combined with a shift toward part-time work and less control over work schedules, has created more stressful working conditions for Dutch postal workers. The price of commercialization has not been cheap.

New Zealand Post: The pied piper of commercialization

New Zealand was one of the first countries to commercialize its post office. In 1987, New Zealand Post was established as a State-Owned Enterprise charged with providing universal postal services and earning a profit for its sole shareholder, the government of New Zealand. Since then, the company has become a leading advocate of postal commercialization. It established New Zealand Post International Ltd (NZPIL) as a separate business unit to sell consulting services to post offices all over the world. The subsidiary offers advice on postal reform, sells automation technology and consults on other information management applications. In 1999 it won a contract funded by the World Bank to manage the postal service of Trinidad and Tobago. This year, NZPIL bagged an even larger contract to run the South African Post Office.

New Zealand
Post office name	New Zealand Post, Ltd
Revenues	$0.4 billion
Mail volume	1.5 billion
Annual volume per capita	417
Number of employees	9,300
Structure/ownership	State-owned, for-profit corporation
Universal service obligation/monopoly	USO for letters, magazines, parcels; no monopoly since 1998
Recent developments	Cream-skimming private competitor, National Mail, to launch initial public stock offering this summer

Readers of The Postal Record know that commercialization has had a very negative effect on postal employees in New Zealand. The number of workers was reduced from approximately 12,000 in 1987 to 6,900 a decade later while another 1,000 jobs were contracted out, including the work of more than 500 letter carriers serving rural areas. At the same time, the number of full service post offices was slashed from 1,244 to 297 as a result of a franchising program that created 705 private postal outlets with limited services.

Still, New Zealand Post gained a reputation for commercial success, earning consistent profits that allowed it to finance the takeover of its major competitors in the parcel and express mail markets. The profits also underwrote a reduction in stamp prices from 45 cents to 40 cents ($NZ) in 1995 (partially reversing the 50 percent increase in postage between 1987 and 1991) and allowed NZ Post to initiate an annual free postage day for New Zealanders that has proved highly popular. NZ Post was also one of the first post offices to offer electronic billing and payment services to its customers, launching e-bill service in November 1999 in a joint venture with Checkfree, the USPS’s partner in USPSeBillPay (see Part 3 in the May Postal Record).

The commercial success of NZ Post and its expansion into markets long dominated by private companies inevitably led to calls for privatization and deregulation. Proposals to sell the post office have so far failed, but its monopoly was reduced in 1990 to cover only letters weighing less than 7 ounces or costing less than $NZ 0.80 to deliver and then repealed entirely in April 1998. Although NZ Post remains obliged to provide universal service at a uniform rate, it now has 27 competitors who are free to deliver any type of mail at any price.

The UPS war on the post office goes global

The modus operandi is familiar. The multinational corporate giant wails about “unfair competition” from the post office, alleges nefarious and premeditated crimes against “free enterprise” and points to modest financial advantages enjoyed by the post office while ignoring its expensive universal service obligations. The aggrieved party is, of course, United Parcel Service. But the alleged perpetrator is not the U.S. Postal Service, at least not alone. Increasingly, UPS has moved its bullying tactics to a global stage. In Europe, UPS has been engaged in a long-term war on Deutsche Post (DPAG). It filed a complaint with the competition authorities of the European Commission in 1994 alleging that Deutsche Post was overcharging mailers of standard letters in order to offer parcel delivery at below costs. Sound familiar? UPS has repeatedly made the same charge of cross-subsidization against the USPS before the Postal Rate Commission. In 1998, the Commission rejected the complaint just as the PRC has rejected similar complaints over the years. That ruling has not deterred UPS, however. Alarmed at Deutsche Post’s rapid international expansion into parcel delivery and logistics, UPS filed a new complaint in 1999 charging the German government with illegally giving state aid to DPAG in order to finance the latter’s acquisition spree. An investigation is pending, but UPS is not waiting for the outcome of the case. It recently called on the U.S. Department of Justice to invoke an anti-trust enforcement treaty with Europe against DPAG. And it is considering filing a complaint against Germany with the World Trade Organization. In April, UPS filed a lawsuit against Canada under provisions of the North American Free Trade Agreement. In the suit, UPS charges Canada Post with cross-subsidizing parcel delivery with profits from its monopoly letter mail service and is seeking $156 million in damages from the government of Canada. That such charges have been investigated and rejected by other Canadian courts did not stop UPS. It has attacked the Canadian government for giving Canada Post the commercial freedom to acquire Purolator, a private parcel delivery company, in the mid-1990s and it will use any venue to undermine its competition in Canada. German and Canadian postal workers are learning what letter carriers and other postal workers in the United States have long known: UPS is a ruthless competitor that will stop at nothing to win. B Back to text

The early results of total deregulation are troubling. The profits of NZ Post have declined over the past two years as competitors have targeted intra-city mail, charging up to 5 cents less for postage on local mail than NZ Post charges. Moreover, a new company called National Mail is courting large business customers in New Zealand’s three biggest cities, having deployed 650 letter collection boxes in Auckland, 276 in Wellington and 251 in Christchurch. The company’s growth has been so encouraging that it plans an initial public offering of stock later this year. Meanwhile, NZ Post continues to bear the burden of a universal service obligation and there are fears that service and job cuts will result as NZ Post attempts to maintain profits in the face of selective (“cream-skimming”) competition from its private rivals. The cost of commercialization, already high for the workers of NZ Post, may soon get much higher.

Deutsche Post: The UPS of Europe?

After the chairman of United Parcel Service “declared war” on the U.S. Postal Service in 1998, one would think the USPS is the parcel giant’s biggest governmental enemy. But that title actually goes to Deutsche Post, the German Post Office (DPAG). The soon-to-be-privatized DPAG has emerged as UPS’s primary rival in Europe and could soon pose a global challenge to UPS and other delivery companies, including the USPS (see The UPS War on the Post Office Goes Global). To understand why UPS fears DPAG, a little history is necessary.

Germany
Post office name	Deutsche Post AG (DPAG)
Revenues	$14.1 billion
Mail volume	22.5 billion
Annual volume per capita	249
Number of employees	260,520
Structure/ownership	State-owned, for-profit corporation to be privatized this year
Universal service obligation/monopoly	USO for items weighing up to 2 kg; monopoly on letters weighing less than 100 grams (3.5 ounces)
Recent developments	DPAG has acquired dozens of parcel, freight, transport and IT companies across Europe and North America

The German government broke up the state PTT (postal, telephone and telegraph service) in 1989 and privatized two of its component parts, Deutsche Telekom and Deutsche Postbank, soon thereafter. A massive downsizing was undertaken to cut the workforce of the remaining component, Deutsche Post, from 390,000 to 250,000 to prepare it for privatization. The German Postal Workers Union (DPG) fought valiantly against the proposed privatization, but lost the battle in 1997.

The Christian Democratic (conservative) government of Helmut Kohl engineered a constitutional amendment and enabling legislation to sell the DPAG between 1999 and 2000. Other legislation deregulated the delivery of direct mail through a scheme to license competitors to DPAG, reduced the scope of the post office’s monopoly and called for its outright repeal at the end of 2002. Last month, the Social Democratic government of Gerhard Schroeder, who succeeded Kohl, announced that the initial public offering of at least 49 percent of the DPAG’s shares would be sold this fall.

Deutsche Post has not, however, waited for the sale of its shares to act like a private company. Rather, it has moved at blinding speed to transform itself into a multinational giant. In so doing, it also earned the ire of UPS as well as the attention of most of the world’s postal industry.

Convinced that the coming deregulation of postal services in Europe in 2003 (see Is the End Near for Europe’s Postal Monopolies?) will result in cutthroat competition and room for just four or five dominant companies, Deutsche Post has literally gone on a spending spree to ensure that it will be one of them. Over the past three years, it has made over 20 acquisitions valued at more than $4.5 billion. As the chart below indicates, it has purchased a variety of parcel, direct mail, freight forwarding, information technology and financial companies, including the privatized Postbank that used to be part of the old government post office.

The core strategy revolves around parcels. As DPAG’s CEO describes it, “We are building a parcel network for 350 million people. Like UPS has done for the United States, we are doing for Europe.” DPAG will continue to deliver parcels in Germany, but its other European parcel companies will operate under the Euro Express brand.

But just as UPS is more than a parcel delivery company, DPAG has invested in a whole range of companies that will allow it to be a one-stop provider of services ranging from express mail and logistics to banking and e-commerce. One of DPAG’s first investments was a 25 percent stake in DHL, the leading international express parcel company. In the area of freight shipping, DPAG purchased the biggest firm in the European industry, Swiss-based Danzas, and one of the biggest such firms in the United States, Air Express International (the price tag was $1.1 billion). DPAG will also use its post office network to market the financial services of the banks it has purchased, Postbank and DSL. Finally, DPAG has invested in technology firms that can assist its attempts to build e-commerce business. One of its first ventures in the area involves an on-line marketplace called e-Vita that is accessed through the company’s web site. DPAG plans to offer participating firms everything from warehousing and call center operations to delivery services.

Deutsche Post has firmly established itself as a player in the global delivery business and is well placed to compete in a deregulated European market. But its privatization and deregulation may still prove to be a mixed blessing for postal employees in Germany. On the one hand, the government is committed to using the proceeds of the IPO to cover unfunded pension liabilities. On the other hand, the loss of the monopoly is expected to cost DPAG $2 billion annually in lost revenues (assuming deregulation cuts prices by 20 percent). In that environment, an international commercial empire for DPAG could be cold comfort to workers who deliver mail in Germany.

One common thread in the stories described above is that the unions representing workers in the three countries largely opposed the changes enacted, at least initially. While their opposition certainly helped prevent even worse results, the unions waged essentially reactive campaigns in the debates over postal reform. In Britain, the debate took a different path.

Getting it (almost) right in Great Britain

Privatization is often thought of as an American idea, variously attributed to Milton Friedman, R. Peter Grace or Ronald Reagan. But since government ownership of industry never caught on here, the United States can hardly claim true parentage of the movement to privatize state-owned companies. A much better candidate is Britain and more specifically, the Britain of Margaret Thatcher. In the 1980s, long before it became a public policy tsunami in international circles, privatization was practiced with a vengence by the British Prime Minister, who sold dozens of state-owned companies, including railroads, mines, telecommunication companies and countless others to private investors. But Thatcher and her Tory Party failed to privatize the post office—thanks in large part to Britain’s Communication Workers Union (CWU).

United Kingdom
Post office name	Royal Mail
Revenues	$11.7 billion
Mail volume	19.5 billion
Annual volume per capita	326
Number of employees	200,000
Structure/ownership	State-owned Crown corporation with commercial freedom to borrow and to invest in joint ventures
Universal service obligation/monopoly	USO for letters, magazines and parcels; monopoly on letters costing less than one British pound (approx. $1.49)
Recent developments	Set up multibillion-dollar fund to invest in private parcel companies in Europe; monopoly may be reduced to 50 gram letters

No postal union has fought longer or harder to secure its future and the future of postal services in its country than the CWU. Over and over again, the CWU has defeated proposals to sell off or to break up the post office and its subsidiaries (Royal Mail, Parcelforce and Counters). To understand the quality of this achievement, imagine what would have happened to the USPS if Ronald Reagan had operated in a parliamentary democracy where the chief executive is the leader of the majority in the legislature. Indeed, there might not be a USPS today.

Although more commercially oriented than the USPS, the United Kingdom’s post office has operated under many similar constraints. The most significant has been its inability to manage its own funds. The government has appropriated up to 80 percent of the post office’s annual profits and has strictly controlled its ability to invest in new equipment, better facilities or new services. Restrictions on compensation practices imposed by the Treasury resulted in inadequate pay for workers, difficult salary negotiations for the union and generally poor relations for labor and management.

Moreover, just as the Internet began to threaten traditional volumes, new competitors set up shop in the U.K. The newly privatized Dutch Post Office began eating into the heavy volume of international mail generated in or bound for London, Europe’s premier financial center. Meanwhile, Deutsche Post bought a 50 percent stake in the British firm Securicor and thereby established itself in the Britain’s domestic parcel market.

CWU has long recognized that stopping a bad reform bill or thwarting ill-advised management initiatives, while obviously important, is not enough. In view of the changing global economy and the impact of technology, it has adopted a positive reform agenda. In 1997 it developed a plan for commercializing the post office while keeping it within the public sector. That plan, outlined in a union “Green Paper” called Freedom to Deliver: Posting the Way to Greater Success, called for transforming the post office into an Independent Publicly Owned Corporation or IPOC. The IPOC would be 100 percent owned by the government and would be free to manage its own funds and pursue commercial ventures, albeit subject to a new independent regulator.

Although initially cool to the IPOC idea, the (usually) friendly Labor Government of Prime Minister Tony Blair administratively granted the post office greater financial freedom last year, reducing the share of profits going to the Treasury and approving a number of significant investments and overseas acquisitions. The post office made a small investment in City Mail, the private firm that competes in Sweden’s open postal market, and then responded to Deutsche Post’s entry into the British parcel market (see page 15) by acquiring German Parcel, the third largest parcel delivery firm in Germany, for $500 million.

Finally, after contemplating and then rejecting a proposal to slice the scope of the post office’s current monopoly in half (thanks to pressure from the CWU), the Blair government introduced legislation in January of this year to give the post office greater commercial freedom by transforming it into a “public limited company” owned entirely by the government. The bill, which is expected to clear Parliament this year, borrows heavily from the proposal developed by the CWU. As such, it is a significant victory for Britain’s postal workers.

The victory was not total, however. The CWU is troubled by a provision in the legislation that would allow postal management to sell an unlimited percentage of shares in the new company if doing so is deemed in “its commercial interests.” Such a move would have to be approved by Parliament and is unlikely to occur anytime soon, but memories of the Thatcher years linger for the CWU. Moreover, while retaining the postal monopoly in Britain, which reserves to the post office the delivery of any item carrying postage of one British pound ($US 1.49), the legislation does not exempt the U.K. from a future law mandating deregulation passed by the European Union (see box on page 19). The CWU is now campaigning to correct these deficiencies at both the national and European levels. As the familiar saying goes, the struggle continues.

Lessons for NALC

The examples discussed in this artcle offer only a limited description of revolutionary changes now gathering pace around the world. Major postal reforms have been enacted in many other countries in recent years, including Japan, Italy, and Belgium, among others. And the postal services in some other countries are rapidly adapting themselves to a digital age (see The Electronic Post Office: Canada and Sweden Point the Way). But the case studies sketched here do offer at least two lessons for the NALC.

United States
Post office name	U.S. Postal Service (USPS)
Revenues	$64.5 billion
Mail volume	206.1 billion
Annual volume per capita	759
Number of employees	835,000
Structure/ownership	Independent, not-for-profit government agency
Universal service obligation/monopoly	Letter mail costing less than $3 or double postage, whichever is greater
Recent developments	Electronic bill paying poses threat to $17 billion in first-class mail; USPS introduces USPSeBillPay

First, no country’s post office has achieved the commercial freedom it needs to survive without paying a significant price for it. Ranging from liberalization and deregulation to privatization, the cost of commercial freedom can be steep. The challenge for NALC and its members is to strike the right balance in any future postal reform bill —one that will give the USPS the commercial leeway required to survive without endangering its historic mission to bind the nation together with a universal system of delivery.

Second, NALC can follow the lead taken by our sister union in Britain. Like the CWU, NALC must seek to define and shape the future of the post office and not allow others or great technological forces to overcome us. If successful, NALC will not only serve its members, but will also serve the country at large.

Article from the June 2000 issue of The Postal Record.

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