THE ECONOMIC and SOCIAL CONSEQUENCES of POSTAL SERVICES LIBERALIZATION Syndex / Uni Global Study
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THE ECONOMIC AND SOCIAL CONSEQUENCES OF POSTAL SERVICES LIBERALIZATION Syndex / Uni Global study post & logistics global union TABLE OF CONTENTS EXECUTIVE SUMMARY 04 1. The impact of market opening on competition and national postal operators 05 a. Competition in the letter post markets 05 b. Parcel market 07 2. Adaptation strategies of national postal operators 08 a. The shift towards the CEP business 08 b. Cost-saving strategies: restructuring and rationalizing the postal network 08 c. Diversification and the provision of new services 10 3. The social consequences of liberalization 10 a. Evolution of employment 10 b. Alternative forms of employment 14 c. Wages 16 d. Working conditions 17 4. Quality issues 20 a. Accessibility 20 b. A slight decrease in on-time delivery rates but a steady rise in customer complaints 22 c. Prices 24 d. Delivery frequency and speed 25 Case study: the liberalization of postal services in Belgium 27 Case study: the liberalization of postal services in Brazil 30 Case study: the liberalization of postal services in Canada 34 Case study: the liberalization of French postal services 39 Case study: The liberalization of postal services in Japan 42 Case study: the liberalization of postal services in New Zealand 47 Case study: the liberalization of postal services in Poland 51 Case study: the liberalization of postal services in Portugal 54 Case study: the liberalization of postal services in South Africa 58 Case study: the liberalization of postal services in Sweden 60 Case study: the liberalization of postal services in the UK 63 EXECUTIVE SUMMARY Started in the 1990s, postal service liberalization was a still ongoing process and as the prevailing market aimed at enhancing the quality of services, bringing developments are expected to continue (falling letter post down prices and encouraging economic and employment volumes, increasing e-commerce shipments), the above- growth. Thirty years on, the results of the overall process mentioned trends are expected to continue, at the expense appear to be lower than expected. In all the countries of workers’ well-being and the quality of services. included in the present study, prices of services covered Starting in the early 1990s (Finland, Sweden, New by the universal service obligation (USO) have increased, Zealand) and experiencing a sharp boost in the with some countries experiencing rises as high as +80%. early 2000s, the liberalization of postal services is an Despite some more or less stable statistics regarding on- overarching global trend (for example the adoption time deliveries, the quality of services has gone down. of the 3 EU Postal Directives). Despite regional and D+1 deliveries are increasingly becoming a premium national differences in terms of scope and regulations, service, while the number of delivery days per week is liberalization has always pursued the same objectives, decreasing and delivery times are growing. From a market i.e. the introduction of competition in order to increase point of view, liberalization has supported the growth of the quality of services, lower prices and encourage e-commerce and boosted the business model of the economic and employment growth. Sometimes, the top CEP (Courier – Express – Parcel) market integrators1 process has gone hand-in-hand with the total or partial and other parcel operators. It has also forced former privatization of the historical operator with the aim of monopolists to modernize their facilities and reorient their reducing government debt and increasing the efficiency business models towards the growing parcel market. of the former monopolist. In the meantime, in a majority However, at the same time, liberalization has weakened of countries and especially in Europe, regulators have the way in which public service obligations are fulfilled underlined the necessity of guaranteeing a universal and financed, in turn encouraging the development postal service encompassing quality services provided at of competition based essentially on the cost of labour affordable prices for the benefit of all users, irrespective of (which on average accounts for 60 to 70% of a USP’s their geographical location2. cost structure). For postal sector workers, the changes have been The present report shows the state of play in postal overwhelmingly negative and labour shortages markets, in the context of the liberalization of postal have become a global issue. Liberalization has led services, based on the 11 national case studies to a sharp drop in employment in the sector since the presented in the study as well as extensive desk beginning of the century, growth in alternative modes research. It focuses on three main aspects of of employment and a sharp deterioration of working liberalization: the impact of market opening on (I) conditions. It has also disrupted the social ties existing competition and national postal operators; (II) on between postmen and the population, despite the fact employment and working conditions, and (III) on that the “postman” remains one of the most popular the quality of services. figures in the collective imagination. As liberalization is 1 “Integrator” is the term used to refer to the four main international express carriers, DHL (part of Deutsche Post DHL group), Fed EX, TNT and UPS who combined account for 87% of the international express market. 2 Recital 11 of Directive 97/67/EC of the European Parliament and of the Council of 15 December 1997 on common rules for the development of the internal market of Community postal services and the improvement of quality of service. 04 1. The impact of market opening on competition and national postal operators In a context marked by declining letter volumes, the opening up of markets has not led to any significant increase in competition in letter post markets, with the exception of the most lucrative market segments. At the same time, in the booming parcel market, national postal operators face fierce competition from global parcel delivery companies as well as from multiple private operators. These evolutions are challenging the historical business model of USPs, forcing them to adapt to new market realities. a. Competition in the letter post markets Generally speaking, despite market opening, competition in the letter post markets has been slow to develop and the market remains highly concentrated. In almost all countries covered by the present study (Sweden and New Zealand can be seen as exceptions), universal service providers (USPs) have retained a total or quasi-monopoly in several formerly protected market segments such as single-piece letters, registered letters or newspaper delivery (France)3. Share of USPs in the domestic letter post segment 4 The main reason for this is the relative unprofitability of some postal services due to the high cost of entry for establishing and maintaining a network, combined with the structural decline in letter post volumes, in a context of growing digitalization and e-substitution. This latter trend affects all types of customers and all regions. According to the Universal Postal Union (UPU), domestic letter post volumes appear to have declined by around 32% globally over the last 10 years. In the EU, the decrease is 26% (-3% per cent annually), though its pace has accelerated lately (-6% in 2016)5. In some cases, other factors such as the anti-competition behaviour of former monopolists and / or regulatory barriers set up by the state might have also helped limit market access. In Japan for example, Yamato, the parcel market leader and the company seen as most likely to obtain the license for “general correspondence”, refused to enter the market, considering the license conditions impossible to meet. Such regulatory barriers have also been identified in other countries such as France or Belgium. 10 5 0 2012 2013 2014 2015 2016 2017 -5 -10 3 In Belgium for example, TBC-Post is the only player that has managed to access the addressed mail segment. The company has however failed to gain any significant market shares. Similar situations exist in France with Adrexo which quickly exited the commercial addressed mail segment, and in Poland, where new market entrant InPost has rapidly refocused on the parcel market. 4 On letters, postcards, grouped mail and telegrams. All other services are open to private companies. 5 http://www.upu.int/en/resources/postal-statistics/query-the-database.html 6 Source: NZ annual report 2017 05 Despite this, competition has however developed in some of the most profitable addressed mail market 7 segments, such as bulk mail and direct mail, and in the unaddressed advertisement market . The reason for this is that these markets are easier to penetrate, as services are usually provided for large business or public customers such as insurance and telephone companies, banks, mail-order businesses and public authorities. These customers produce large amounts of mail that they can either deliver – sometimes even pre-sorted – to local sorting centres or have picked up by the postal service provider. New market entrants, whose business models are often based on two- or three-times-a-week delivery, in densely populated areas, and operating with a highly flexible workforce, can therefore avoid establishing a costly countrywide network of post offices and letterboxes. This situation, often criticized as “cherry-picking” (or “cream skimming”), clearly endangers the traditional business model of national postal operators, which used to finance some of their universal service obligations through revenues from more profitable markets. In 2018, Copenhagen Economics for example estimated that businesses and government account for 79% of European USPs’ revenues in the addressed letter segment. MARKET ENTRIES IN POLAND AND SWEDEN In Poland, lifting the monopoly of the national operator in the under-50g letter post segment constituted a milestone and an opportunity seized by InPost. The new market entrant managed to take around 0.5bn PLN8 of revenue away from Poczta Polska by for example winning the Ministry of Justice’s tender for delivering court letters.