Royal Mail Buys German Firm to Join Postal 'Super League'

LONDON – Britain’s Royal Mail last month moved to join what CEO John Roberts called the “super league” of global post offices through the purchase of Germany’s third largest private parcel carrier, German Parcel, for approximately $465 million.

The move came after the British government announced in December that it was giving Royal Mail new commercial freedoms, including authority to borrow money.

Royal Mail’s acquisition follows the purchase by the Dutch of TNT in 1996 and a German distribution company last year, and Germany’s buying binge worth $4.5 billion during the last six weeks of 1998 to acquire foreign distribution firms.

German Parcel, located north of Frankfurt, has annual revenue of almost $400 million. It handled 100 million parcels last year, up 11 percent over 1997, has 60 depots, 4,000 vehicles and 4,500 employees. Royal Mail will also take over 24 franchise businesses through which the company provides parcel services in Germany and to and from the rest of Europe.

Roberts called the acquisition “a landmark for the British post office” that enhances its worldwide parcel capability and underlines Royal Mail’s determination “to position itself globally.”

“It will allow us to develop overseas markets to take up the challenges of postal liberalization,” he said, “and offer our customers new products and services to meet customers’ changing needs.”

Roberts called the acquisition the first among many, and noted that all European postal administrations “are looking at alternative ways of handling lettermail before the market is fully opened to competition in 2003.”

European Union directives call for full liberalization in 2003 of the postal market – including the lucrative letter business, which remains a postal monopoly in most EU countries. Critics in the private sector have charged that monopoly earnings have allowed post offices to subsidize parcel and other operations, undercutting private offerings.

A week after announcing the acquisition, Roberts issued a statement pledging Britain would be a top player in the coming “super league,” and noted that “the gloves are coming off” in the battle for global postal markets.

Domestic frontiers, he said, are dissolving rapidly “with a revolution underway” among European post offices competing “in a global market set to grow from $33 billion to $94 billion by 2010.”

He predicted that three or four post offices would dominate Europe, “with just a handful more forming a super league across the world.” Britain, he emphasized, would be a founding member.

Acquisition of German Parcel, Roberts said, “will allow us to develop overseas markets to take up the challenges of postal liberalization. It is our first major acquisition and at a stroke we have hugely enhanced our worldwide parcels capability.”

He added that German Parcel was the first of many acquisitions to come, including several forays into the US market where Royal Mail has been an active player for the last decade. Informed sources expect the British to announce several acquisitions later this month or next month.

“Globalization and deregulation are leading to postal services becoming an international commodity and the distinction between domestic and international customers is becoming blurred as large customers are able to choose the countries through which to undertake mailings,” he said.

Royal Mail plans to set up a new international business unit this spring that will offer “complete international mailing services into and out of the UK.”

Red tape had hampered commercial development of global postal administrations for decades, Roberts said, noting that “even ten years ago” nobody would have believed the acquisition of major international firms like TNT.

“This will mean a radical difference in the shape of our corporation, effectively merging different parts of the organization into flexible units which will directly address specific markets,” he said.

Nor is this revolution limited to governmental bodies acquiring companies abroad.

“Others are also in the game,” he said. “UPS, for example, has recently opened a new hub in Frankfurt as part of the company’s reported $1.1 billion investment program. Within a 20-mile radius of where I sit in my office in London, there are bases for eight foreign post offices, all actively working to win business from us – the US, the Netherlands, Germany, France, Sweden, Denmark, Switzerland and Belgium.

“Half the world’s mail is already deregulated and subject to competition for both domestic and international mail. By 2010, that will rise to three quarters and the end of protectionism cannot be far behind.

“In addition, the force of electronic developments, such as e-mail and the Internet, are taking a real hold on the marketplace. In the face of that, postal administrations will compete or be replaced by commercial competitors.”

Royal Mail, although still government controlled, has turned a profit for the last 22 years. Clearly, the Labor government felt controls needed to be loosened to keep the cash rolling.

In December, Peter Mandelson, the former Trade and Industry Secretary (he quit last month under fire about corruption charges), noted that postal “competition for business will be fierce.”

But greater uncertainty, Mandelson said, would bring “opportunities for expansion.” Therefore, “change is absolutely necessary if the Post Office is not to fall behind,” he said, adding that the Post Office “must change or find, increasingly, it is confined to a diminishing high volume, low mark-up sector of the postal market with all the consequences of falling value and shrinking profits.”

Mandelson ruled out “wholesale privatization” as a realistic option now. But he suggested that a minority stake might be sold at some later date through the stock market.

In the meantime, the government will give the Post Office Board accountability for the business’s success or failure. n

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