EC Fines Deutsche Post Over Parcel Pricing

The European Commission yesterday fined the German post office, Berlin-based Deutsche Post AG, 24 million euros ($21.7 million) for abusing its dominant position to undercut rivals in the German parcels market.

In its decision, the EC said Deutsche Post gave rebates to companies that agreed to use its service exclusively and used profits from its monopoly letter-carrying service to subsidize its parcel service, which was able to charge far less than competitors.

In a statement, the EC said Deutsche Post “abused its dominant position by granting fidelity rebates and engaging in predatory pricing in the market for business parcel services.” The EC also said the public suffered from higher rates on stamps needed to subsidize the parcel service.

Deutsche Post has already halted the practices the EC has cited.

Besides the fine, Deutsche Post also agreed to establish a separate legal unit for business parcel sales. The aim is to ensure that revenue from Deutsche Post's monopoly letter business is not used to finance parcel services. The new company will begin January 1.

European Union competition commissioner Mario Monti applauded the “forward-looking result” of the case, which he said creates an even playing field for parcel firms. He said a competitive parcel delivery system was important to the development of electronic commerce.

Deutsche Post said the fine would not affect future profits, especially because it already had put aside 50 million euros for such a contingency.

“The EU fine of 24 million euros is within the published profits that were retained for this purpose,” Deutsche Post said in a statement.

United Parcel Service of America, Atlanta, was pleased with the EC's decision. UPS had complained to the EC in 1994 that Deutsche Post practiced predatory pricing by using revenues from its monopoly in letter delivery to finance below-cost sales of business parcel services.

“This is important news for the global marketplace and a boost to the principles of free trade and fair competition,” said Mike Eskew, vice chairman at UPS. “International companies have been trying to compete with a German post office that has systematically used its profits from stamps to undercut competition.

“Deutsche Post has some of the highest stamp prices in the world — about 51 cents — to deliver a letter in a densely populated country about the size of Montana,” Eskew said. “Now the EC has spotlighted what they've been doing with that money.”

UPS, along with the Teamsters union, the AFL-CIO, the U.S. Chamber of Commerce, the American Trucking Associations and FedEx, asked the U.S. Department of Transportation in January to revoke DHL's foreign air-freight forwarder license. DHL Worldwide Express is owned and controlled by Deutsche Post.

As a result of the EC ruling, UPS again called on the transportation department to revoke the license, which gives Deutsche Post — through DHL — the ability to establish interstate package delivery.

The request was made on the grounds that the law deregulating the U.S. air-freight market does not permit a postal monopoly that is owned and supported by a foreign government and able to cross-subsidize express and parcel services to be licensed in the United States.

While the restructuring of Deutsche Post might seem to remedy this problem, UPS said the split would not occur for at least the remainder of this year, leaving plenty of time for Deutsche Post to funnel monopoly profits into DHL for its U.S. operations.

“Allowing DHL to retain this license effectively imports the unfair competitive practices of the Deutsche Post from Europe,” Eskew said. “Clearly, it is not in the best interests of the U.S. to allow the Deutsche Post to do here what it has done in Europe. The European Commission's ruling underscores the need for [the] DOT to take quick action to revoke DHL's foreign air-freight forwarder license.”

The German postal service faces two other continuing investigations by the EC.

The EC is investigating whether the German government gave state aid to Deutsche Post by setting prices too high in its monopoly letter-delivery branch. In addition, the company faces an investigation into the practice of “remailing.” Here, large German companies have sent mailings to Germany from Britain because rates were cheaper than domestic postage. Deutsche Post intercepted some of those mailings and added a surcharge.

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