European Postal Perspective
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Distribution the way we see it European Postal Perspective Facing the challenge from low-cost posts Contents Management Summary 3 Structural Changes in the Postal Market 4 Strategic Battlefields 9 The Transformation of Postal Businesses 12 Summary and Conclusions 18 This report was written by Martin Raab, Erwin den Exter, Raymond Beers and Vera Schneemann and reflects the market and regulatory situation as of July 2007. ©2007 Capgemini. No part of this document may be modified, deleted or expanded by any process or means without prior written permission from Capgemini. Distribution the way we see it Management Summary Many EU members are on their way delivery speed. In competitive postal to implementing postal directives markets transactional mail will not 97/67/EC and 2002/39/EC to create need to be distinguished from direct a fully liberalized market. However, mail and prices may depend on the hope that liberalization would factors such as customer type and be achieved by 2009, the original speed/frequency of delivery. Private date set, is less likely now than customers will value access and ever. A recent vote by the European transparency while businesses will Parliament agreed that member states focus on cost. We expect most mail should have at least an extra two (more than 85%) to be suitable for years – until 2011 – before having low-cost, second-class post with to complete full market opening. longer transit times and just two Whilst not all countries have stated delivery days each week. their intentions as to when they may be ready, both the Netherlands and In order to counter their shrinking Germany have indicated that they revenues postal companies have three will open their postal markets as growth options: planned in 2008. ß International services – illustrated by TNT and DHL Global Mail. Currently, European postal markets are ß Small parcel residential delivery, not yet facing significant impact from although innovative strategies will competition. As recently as last year, be needed to make this profitable. incumbent organisations were still dominant and Earnings Before Interest ß Value-added services such as direct and Taxes (EBIT) margins exceeded marketing and electronic services 10% in many cases. However, this is unlikely to last once deregulation is As postal incumbents are large rolled out. Our belief is that by 2015, organizations, and as such, need time the European postal service market to transform, postal executives should will have changed significantly. start to change their business models now to face the increasing challenge Incumbents are defending their from low-cost posts. home market against cherry-picking competitors who have lower costs and more sophisticated business models. Even though incumbents are fighting back with their own improvements in both productivity and quality, the new entrants are doing surprisingly well by developing low-cost models that reflect a decrease in urgency of mail deliveries. This means further transformation of incumbents’ business models is needed. A hybrid postal model must combine low-cost with high delivery reliability – but not necessarily European Postal Perspective 3 Structural Changes in the Postal Market In this report we focus on the 13 key As of today the market shares markets in Europe: Germany (DE), basically reflect the size of the France (FR), United Kingdom (UK), protected domestic mail markets Italy (IT), Netherlands (NL), Sweden and not the competitive strength of (SE), Spain (ES), Switzerland (CH), postal companies. Competition will Belgium (BE), Norway (NO), Austria certainly change this in the future. (AT), Denmark (DK) and Finland (FI). In 2006, the European postal sector delivered around 93 billion Exhibit 1 Key players in the European mail items and had a turnover of postal market 2006 approximately �57 billion. Compared to ten years ago, the mail 18% 23% business now faces significant changes. Not only has electronic 5% communication grown enormously, but the postal directives 97/67/EC 7% and 2002/39/EC have begun to have 20% an impact as postal markets have 9% been partially opened across the EU. 18% Today, there is still little competition 100% = 57 bn. Euro (€) within most EU countries, but what N Germany (Deutsche Post) does the future hold for the established N France (La Poste) N United Kingdom (Royal Mail) players in a competitive postal market? N Italy (Posteitaliane) N Netherlands (TNT) N Sweden (Posten AB) This report discusses the impact of N Others1 these changes and paints a picture of the European postal industry of Source: Annual Reports 2006, 100% = ca. 57bn. 1 Spain, Switzerland, Belgium, Norway, Austria, the future. Denmark, Finland The European Postal Markets Today, the incumbent organisations in The 2005 figures in Exhibit 2 show each country are still by far the most the incumbents had very good EBIT important providers of postal services. margins. In most countries this is a significant change compared to 10 Exhibit 1 presents an overview of the years ago. TNT (BU Mail) had the main postal operators that were active highest EBIT margin with 19.5 % in in the mail market in Europe in 2006. 2005. Deutsche Post World Net (BU ß The combined market share of the Mail), Correos (ES), Die Post (CH) top five operators measures 77% and Finland Post also had EBIT of the total European market. margins above 10%. ß The market share of new entrants is still well below 5%. 4 Distribution the way we see it Exhibit 2 EBIT margins of the key players in the postal market 2005 Germany has set 1 January 2008 as the (in percent) date for fully liberalizing their postal 20.0 19.5 market, a date also being considered by the Netherlands (see Exhibit 3). 17.5 15.8 The Universal Service Obligation 15.0 (USO) has been an integral feature of postal service for many years, 12.5 providing delivery anywhere in the 11.4 10.7 country for the price of a stamp – 10.0 10.0 9.8 ubiquitous delivery for a uniform price. As a result, postage price does 7.5 not necessarily reflect the actual cost 6.3 6.1 of delivery since high-cost areas are 5.1 5.0 being priced below actual cost and 3.9 3.9 3.4 low-cost areas are being priced above 2.5 2.1 actual cost. 0.0 Further USO regulation areas include the number of weekly delivery days. All incumbents deliver on 5 to 6 days a week in contrast to a lower deliver Correos (ES) Die Post (CH) La Poste (FR) frequency offered by most new entrants. Posten AB (SE) Royal Mail (UK) Finland Post (FI) Posteitaliane (IT) Also regulated is the service level for TNT (BU Mail) (NL) Post Denmark (DK) Posten Norge (NO) DPWN BU Mail (DE) De Post/La Poste (BE) transactional mail requiring a high level Österreichische Post (AT) of next day delivery (D+1), i.e. above a rate of 80% or 90% depending on Source: Annual Reports 2005 national regulation. Density of contact points, like access to counters and to mailboxes according to the needs of the Status of postal market transactional mail in this document), users, is another important obligation regulation in Europe direct mail (advertising), newspapers for a postal service provider. All EU Member States have and merchandize fulfillment. implemented the postal directives USO regulation is a major subject 97/67/EC and 2002/39/EC or are in The segments of transactional and of the current political debate about the process of complying with these direct mail above 100 grams have been market liberalization. Looking at other directives. As of today, the EU is still liberalized in every country mentioned markets like the parcel/express market heading for a liberalized market by in this report. Half of the countries or the telecom sector, we believe that 2009, but that date may change to lowered the level of liberalization down USO will become obsolete with the 2011 or later (see Exhibit 3). to 50 grams. Unaddressed direct mail, increasing level of competition. Referring newspapers and parcels are liberalized to the parcel/express markets, we All the countries have begun to open as well, except in unaddressed mail observe only minor differences in their postal markets. For regulatory in Switzerland. the service levels for urban and rural purposes there has always been a areas and also uniform prices within distinction between personalized mail a country – at least for private customers. communication (which we will call We also see that private parcel shops emerge wherever postal companies leave room for private competitors. European Postal Perspective 5 Exhibit 3 Status of regulation of the postal market per country Structural changes in the postal market Transaction Mail Direct Mail Periodicals International Complete Country Fulfillment Liberalization >100g >50g >0g <50g >50g Unaddressed Magazines Outbound Inbound Austria • • • • • • • • • planned 2009 Belgium • • • • • • • • not scheduled Denmark • • • • • • • • not scheduled Finland • • • • • • • • • • achieved France • • • • • • • • not scheduled Germany • • • • • • • • • • achieved Italy • • • • • • • not scheduled Netherlands • • • • • • • • unclear Norway • • • • • • • • 2011 Spain • • • • • • • • • • 2009 Sweden • • • • • • • • • • achieved Switzerland • • • • • • not scheduled United • • • • • • • • • • achieved Kingdom ■ unless price exceeds 2.5x standard price ■ >50g, unless price exceeds 2.5x standard price Updated February 2008 ■ >100g Source: ECORYS: Development of competition in the European postal sector, 2005; corporate websites, websites of the countries’ ministries with primary responsibility for postal policy Distribution the way we see it Status of privatization Exhibit 4 Status degree of privatization of the incumbents Opening up the market means the emerging of competition. To stay Status of Country Incumbent IPO Legal Status Comments competitive the incumbent has to Privatization invest in huge transformation programs including new service offerings, new Completely privatized Netherlands TNT Yes Privatized 100% sorting technologies, new IT systems since 11/21/2006 and other supporting systems, alliances and joint ventures.