Much is at stake in the ongoing process of privatization, deregulation and European integration of postal services in the European Union, for incumbent postal operators and new competitors, for postal workers and their trade unions in Europe’s postal (and wider transport and logistics) sector, and for the citizens of Europe depending on universal services in general. The separation of mail and transport markets is considered a superficial relict of the past, and the decline of traditional (universal service) mail has diminished the political clout of public service advocates. The latest steps include the separation of express and mail services by TNT and the offer for sale of the British Post office by the new centre right government. The decision of TNT to disentangle the two business areas is of particular interest. The new mail company suffers from operating in a declining universal service market whereas the express business is operating in the expanding global logistics market. Instead of using the different areas to stabilize the overall corporation, a shareholder value perspective demands to cut back in mail and to deliver maximum returns in express services. Much like the earlier decision of the Dutch post office to take over TNT and start the age of aggressive cross border competition of postal and logistics services back in the early 1990s, the present decision puts new pressure on the major competitors – the German Post office and La Poste – that continue to pursue integrative strategies considerate of a wider range of stakeholders for the time being. The German Post office in particular can be regarded as an alternative role model, which has long outperformed the Dutch and other competition, and rivals UPS for world leadership in globalized logistics markets. Unlike the British and French Post offices, the German Post office had or was given the resources to invest in a rapidly expanding corporation. It still combines the main features of the universal efficiency model of public service (cross subsidized postal service available to each citizen at affordable rates) with the selective efficiency advanced by the new competition that rose in the 1970s, which is the key to understanding the dynamics of reorganization and the future of the global postal and logistics market unless appropriate public measures are taken to preservie the inclusive efficiency of a true public service within and across borders.
Reorganization Trajectory and Selective Efficiency of Express Services
The 1970s arrived with a major challenge to established regimes of accumulation and regulation including universal public services such as the postal system. The crisis of “Fordism” (Aglietta 1979) and the fiscal crisis of the welfare state undermined several arrangements of (more or less) peaceful coexistence of divergent public and private interests. Shrinking profit margins increased both inter firm competition and sharpened once again the class conflict between capital and labour. Shrinking state revenues turned the (more or less corporatist) welfare state into a battlefield of competing private and public interests. A key, yet under-researched aspect of the responses to the crisis of Fordism and to globalization in general lies in the field of infrastructure and logistics  services such as those carried out in the postal, transport and logistics system.
Some innovative transport companies started up or re-invented themselves within the highly segmented and regulated national framework of the U.S. transport, logistics and postal market that featured strong modal, regional, and pricing regulations as well as the postal public service monopoly. The new organisations that originally challenged and later were among the crucial change agents in the transport, logistics, and postal world were of U.S. (FedEx, DHL, UPS) and Australian (TNT) origin. Federal Express and DHL, in particular, were the two companies first able to deliver added value to production chains by way of reducing circulation cost in spite of the very high prices charged for their transport and distribution services. Unlike the post offices, which operated as labour intensive large bureaucracies at the national level and cooperated internationally, the new competitors developed into aggressively expanding business organizations serving a limited customer base. Premium prices for the services of courier and express companies were easily recovered by certain types of customers (banks, insurance companies, trading companies etc.) due to competitive advantages gained by shorter waiting times, lower losses and reduced insurance costs. A steadily increasing share of high value letters and light weight products were taken away from the older transport chains (of post offices and airlines in combination with forwarding agents) and absorbed into the integrator businesses. Unlike previous innovations which were developed and implemented by public postal organizations (e.g. postal code), postal organizations were at a disadvantage in the field of international express services due to their national constitution. Observers in the 1970s correctly foresaw the emergence of a new type of business organization that would fill the void:
“[…] It might be interesting to speculate on the role of distribution middlemen in the new international environment. Both the evidence to date and the economic logic would seem to indicate that a new type of capital intensive conglomerate will emerge during the 1970s to meet the needs of worldwide distribution. The functions of export packaging, shipment consolidation, ship chartering, export-import documentation, stevedoring, storage, customs requirements, and multi-modal inland distribution will be offered by a single firm. Thus it is suggested that a new form of distribution middleman with intermodal capability and spanning a wide range of intermediate distribution functions will emerge to serve the needs of the multinational distribution manager during the 1970s” (La Londe et al. 1993 : 11, emphasis added).
Traditional suppliers in the field of international mail and parcel transport, the postal organisations and the airline/forwarder alliances almost totally lost out to the express industry. The original four big players soon held approximately 90 percent (1996) of the market for international express service (DVZ 21.1.1997: 8) and aggressively attacked other market segments – including the segments of national and international postal markets still protected by law until the recent European liberalization. DHL managers led the new business association founded to challenge and ultimately to fundamentally change the regulatory structures of Europe’s transport and postal markets (Campbell 1994) leading to the shrinking of the market share reserved to meet universal service obligations. Yet so far there is no equivalent to the global efficiency of a truly universal service including each and every citizen in the world who can rely on a post office. None of the private companies aims to serve the needs of the expensive customers in remote regions. Each of the companies aimed or has been forced to aim for micro-economic competitiveness. We will observe the different strategies pursued by the major European firms first to return to the issue to the most important issue of inclusive and selective efficiency at the end of this paper.
Two Trajectories for Postal Organizations in Europe
UPS as well as the other integrators moved outside of the US into Europe and Canada during the 1970s (TURU 1990: 63f.). During the same period of time, several national competitors of the postal monopolies developed within the trucking and forwarding sector of some European states forming the nuclei of the later (German and then European) networks of small and medium (and subsidiaries of large) parcel enterprises such as Deutscher Paketdienst and German Parcel in Germany. These national firms together with the international express companies created a strong business force hostile to the postal monopolies in many European countries.
On the initiative of DHL, the private courier companies continuously stepped up their collective strategy in the 1980s and 1990s to gain access to protected postal markets.
The breakdown and rearrangement of Europe’s postal sector was a step-by-step process involving various private and state actors reflecting shifting strategies at the national level. A key aspect was the way in which several national post offices began to respond to the competition from internationally organised private couriers and express industries by both internationalising their own operations and seeking to reduce the national regulatory barriers to this process whilst others were more conservative and piecemeal in their responses. The most dramatic moves towards internationalising were made by the Dutch and German postal offices to which the French and British post offices eventually responded.
Swallowing Global Companies
A key first step for both the Dutch and the Germans was to deepen the previously established strategic alliance to fend off the U.S. integrators. The national postal organisations from Germany, France, Sweden, the Netherlands, and Canada purchased 50 percent of the smallest global player: TNT. There were substantial rumours to the effect that the company was in financial trouble (Bolton 1993) and given the overwhelming strength of the U.S. firms, the formation of the joint venture firm GD Net (headquartered in Amsterdam) in 1991 could be interpreted as an “anti-American” alliance quite similar to other European efforts (Airbus, Galileo etc.). Before this move, the industry was entirely dominated by non European and, most importantly, U.S. companies. The move towards European (and Canadian) collective emancipation, however, destroyed the common, multinational public affairs strategy of all postal administrations vis-à-vis the private integrators, and challenged the structure of the private industry alliance at the same time with TNT “changing sides” (by becoming owned by the former state monopolies). The European Commission approved the joint venture after forcing several amendments on the business agreement including a two-year limit on exclusive access for the joint venture company to all postal outlets of the five post offices (FT 4.12.1991: 3). Nevertheless, for a five-year period the relations between private integrators and public postal offices remained stable overall although the joint venture did not succeed in winning market share.
The public/private defence alliance of the five post offices broke down in 1996 when the Dutch Post office, KNP, announced the takeover of TNT. In 1995, KNP in the meantime had become the first national postal operator to be privatised. In 1996, this new private European PTT force decided to move aggressively into foreign markets by way of taking over TNT Express Worldwide as well as German carrier NET Nachtexpress, and Danish DTS Express APS. In 1995, KNP had already bought Dentex B.V. in the Netherlands and Colandel N.V. in Belgium (Botelle 1998, DVZ 6.7.1996: 1).
This move of KNP triggered a number of defensive and offensive reactions on the part of other actors. The German post office, in the meanwhile commercialised and renamed Deutsche Post AG, immediately cancelled substantial contracts with TNT’s German subsidiary (truckload transport between the major reshipment centres) even making allowance for a prolonged legal battle (DVZ 12.4.1997: 1). Within a year the new competitive strategy of DP AG was worked out under the leadership of CEO, Klaus Zumwinkel. The former McKinsey manager was called in to guide the transformation of the German post office in 1989 by the Christian Democrat/Liberal government coalition firmly committed to privatise government services – albeit taking a more gradualist approach. Zumwinkel took the post office job after building a management-led organisation at the family run business Quelle, the large catalogue retailer which happens to be one of the largest customers of the post office. Zumwinkel has used much of McKinsey wisdom (and personnel) to reorganise the postal organisation in order to help Europe’s largest postal organisation to eventually prosper in an internationalised market environment.
Deutsche Post AG’s intention to transcend the multinational strategic alliance strategy to develop an integrated cross border organisation became increasingly obvious. Deutsche Post AG not only moved into Dutch territory but also into the major neighbouring markets of France, the UK, and Italy as well. Starting in 1997, Deutsche Post AG went on an extremely rapid process of expansion both at home and abroad. A $3.1bn spending spree brought over 20 companies across Europe, the U.S. and elsewhere with some 100,000 employees under its influence or control. The most important acquisitions included the international integrator DHL (courier and express services) and Danzas AG (the leading European freight forwarding and logistics business from Switzerland) (see Dörrenbächer 2003).
The Social Democrat and Green government coalition replacing the Christian Democrat and Liberal coalition in 1998 further strengthened Deutsche Post AG by selling the Postal Bank back to the transport/logistics company which has also diversified into business supply retailing in an effort to strengthen local service outlets.  While the conservative government (like the Dutch government) invested heavily in the modern postal infrastructure to defend the postal system against UPS and Federal Express, the conservatives were inclined to sell the Postal Bank to banking interests. The reversal of this decision is in line with Germany’s social partnership history: reintegrating the Post Bank supported the employment stability in a postal organisation forced to shed more than 100,000 jobs in the 1990s. In both the Dutch and the German cases, government support for large transport and logistics organisations continued, albeit in a modified form. Instead of concentrating on national home markets, political decision-makers now lobby for liberalisation at home and abroad to proactively support the internationalisation of the well-positioned industry leaders. TNT Post Group in particular stepped out of the defensive postal alliance to campaign for full liberalisation and alternative ways to finance universal service obligations. This realignment spells further troubles for competing post offices with less national support for transnational reorganisation such as French La Poste and the British Post Office.
Gobbling Up European SME Networks
While the German and Dutch governments were fast to change minds with regard to the future role of postal services within Europe and thereby gained lead time for their respective national organisations on course towards transnational reorganisation, other governments came late and were not able to do as much for their national postal organizations. The reorganisation story of major European post offices continued with the British post office acquiring the German Parcel (GP) network of small and medium companies and French La Poste acquiring Denkhaus, the major partner of the DPD network of parcel companies as well as two more family members to eventually obtain full control over this network. Both network operators (originally thought to be a viable SME alternative to large integrated courier and parcel organisations) came under intense pressure when Deutsche Post AG bought national partner firms such as Belgium Parcel from GP and Italian MIT out of the DPD network. The DPD network reacted by turning the horizontal franchise system into a vertical franchise system to make hostile bites into the network more difficult. Unanimous decision-making within the network has been replaced by majority voting to allow for easier expansion into new business fields such as electronic storage and e-commerce. (HB 15.1.1998: 38) As evidenced by the La Poste takeover of DPD partner firms, however, the networks of small and medium companies lack the long term viability of large, and more deeply integrated (including trans-border operations) companies (see Hertz 1996 for another case study from Sweden). Infrastructure services such as postal, transport, and logistics seem to require centralised control, whether supplied by public or private organizations in national or in cross-border operating networks. This argument is strongly supported by the history of the takeover of the German Parcel network by the British Post office.
The members of the German Parcel family assembled shortly after Germany elected the new coalition government of Social Democrats and Greens. Not surprisingly, the family-run businesses were less than enthusiastic about the prospect of (moderately) rising fuel prices due to the ecological tax reform efforts promised by the incoming government. Frustration was big enough, however, to reverse the general attitude about the future viability of the SME network that had competed quite successfully with the industry giants up to this point. Though the majority decision to sell out to the British Post office was triggered by the election results, two other factors were cited by Bischoff (a senior member of the German parcel firm, Bischoff-Spedition) as having a major impact. Firstly, not all the participating firms were willing or able to raise the money needed to collectively invest in technology upgrading to improve information flows. Secondly, the international expansion of the network was severely hampered by the difficulty of finding adequate partner firms abroad matching the capacities of the participating German firms. Again, lack of ability or willingness to take on necessary investments played a major role. At the end, a major partner able to back up a European network was considered to better serve the interests of the single companies.
Both the French and the British case suggest an original lack of government support to actively build an internationally operating transport and logistics company out of the national postal system. When major competitors defected from the multinational defence against U.S. intruders, the postal organisations from France and the UK (and the other national postal organisations) had no choice but to rethink their own strategy and eventually to also turn toward transnational reorganisation as the only viable alternative. However, both France and the UK continue to support a national reserved market to finance universal service obligations – and to gain time for further reorganisations necessary to develop a stronger international presence which may involve mergers with other postal organizations currently on their way to privatization.
Due to the global oligopoly structure of the express and courier industry, however, none of the remaining postal organizations can easily match the global reach gained by TNT Post Group and Deutsche Post AG with their acquisitions of TNT and DHL, respectively, apart from UPS and FedEx. The global structure of the courier and express market may in fact be the key element determining much of the future structure of the postal industry. Europe’s leading post offices in any case have transformed themselves into key players in the wider European and global transport and logistics market much like some of Europe’s leading railway companies, which likewise expanded into neighbouring transport and logistics markets (see Dörrenbächer 2003).
If You Can’t Beat Them, Join Them? Or Join Forces to Beat Them?
The future question appears to be this: Will some public post offices make an effort in the future to overcome the barriers of entry into the international and transcontinental express markets mainly created by what is still a tight oligopoly of four “global” wide area networks (DPWN, UPS, TNT-Post Group, and Federal Express), or will each of the post offices follow the French and British examples in contracting express services from TNT or another one of the big four? Japan Post also joined forces with TNT in 2005, for example, in an effort to jointly secure a leading position in the Asia Pacific express market. Other international joint ventures have been reported between post offices of smaller countries (e.g. between Malta Post and the New Zealand Post office), but “small” post offices and transnational network service corporations from small countries lack a crucial competitive advantage of three of the four global players, namely UPS, DPWN and Fed-Ex: the very high volume home market of the U.S. and Germany. However, since the contractual basis of joint venturing prevailing in the case of the majority of the competing alliances can be changed, and because future privatizations of post offices (in the UK and Italy, for example) are likely to entail new realignments, there may still be some strategic planning going on in post offices, which need to at least develop their own regional (“continental”) wide area networking strategies. There may still emerge a strategy, which aims at developing a new competitor to challenge the big four in the future at the continental and possibly global level. If some larger post offices joined forces (including the giant US Postal Service, for example), they would probably have a chance to challenge the present global hierarchy in express and postal markets.
Clearly some smaller post offices contemplate steps to merge, and a few have taken steps to do it. While both DPWN and TNT Post Group have shown interest in the past in buying stakes in national post offices of Austria, Belgium and Denmark after (partial) privatization, a combination of post offices has so far only involved the post offices from Denmark and Belgium. The privatized Post Danmark A/S has formed a consortium with the British Investment firm CVC Capital Partners, which owns 22 percent of the shares of Post Danmark, in order to purchase 50 percent of the Belgian post office De Post – La Poste in January 2006 (for €300 million). Other smaller post offices (from Scandinavia, Switzerland and Austria, for example) have developed regional cross-country services (express, logistics etc.) by way of taking over companies as well. Their efforts result in regionally confined wide area networks below the continental and cross-continental (global) level.
The Tale of two Efficiencies
It is highly important to appreciate the two efficiencies visible in the historical development of the universal (inclusive) postal and the selective private express services (selective with regard to the space where services are offered and with regard to the customer base). The different logics should not, however, be simply played out against each other in traditional public bureaucracy versus private entrepreneurship arguments (compare Plehwe 2002). As a matter of fact, inclusive if not quite universal services have been pioneered by a private (tea) Distribution Company in England:
About the same time a Mercantile committee had been formed which campaigned up and down the country on behalf of the uniform penny post. The formation of this Committee was mainly due to Mr. George Moffatt, a tea merchant who had made a fortune by the simple invention of selling tea to all retailers and dealers throughout the kingdom, at the uniform price of the market daily, by adding one half-penny a pound to such price, as his profit” (Coase 1939, 431/2). The proposal to establish a universal low postage price likewise did not originate from within the British Royal Mail. Rowland Hills proposal for the one penny per letter rate irrespective of the distance, and the replacement of the collection of fees upon delivery by the stamp to be paid in advance ran into outright hostility of state officials. The Postmaster-General of the day, Lord Lichfield, stated that‚ “of the wild and visionary schemes which he had ever heard or read of, it was the most extraordinary” (Coase, 1939, 431).”
Many state officials in the early days regarded the postal system as a source of revenue rather than as a universal service for citizens, and private sector forces had an important role to play in the process of transforming an originally quite selective postal service into the universal service as we know it. The other way around it is not convincing to portray state postal services simply as inflexible monopolies. A long history of crucial innovations was possible only because private profit motives did not interfere with a universal service regime. The comprehensive common postal code would not work if competing companies had developed private systems on their own, and the international regime of postal services can be undermined if necessary subsidies for inclusive public services cannot be secured. In fact, many private competitors of postal services rely on the crucial information infrastructures developed by the postal organizations. 150 years ago like today the crucial question remains: how much private sector competition does a universal service system tolerate without losing its own advantages, service and innovation capacities? Whereas the primary challenge originated from private city posts within the nation states in the 19th Century, today the universal postal services have to cope with international express companies eager to tap into high volume and high profit margin markets existing across borders as evidenced by the history of re-mailing.
While the competing efficiency logics would be best understood as complimentary, the conflicting interests of players involved ultimately and inevitably translate into a political struggle over the scope of the public sector monopoly necessary to maintain the inclusive efficiency of universal services, and the mirror image of increasing space for private sector competition in the liberalized segment of the market. While the battle was originally pitched as a fight between express service companies and their allies in favour of liberalization against the postal organizations and their allies in favour of regulated universal service monopolies, the postal reform efforts in individual European countries has substantially altered the constellation, and threatens to undermine the organizational structure necessary to maintain the national as well as international universal service principle.
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