Below are some of our previous findings about postal practices in large countries. Additional information can be found here.
China
Overview
China’s postal service, China Post, has among the largest delivery networks in the world, with 77,000 post offices. Its more than 500,000 postal employees serve China’s 1.3 billion inhabitants, delivering over 7 billion letters and 95 million parcels annually and generating over $7 billion in revenue (2005 statistics).
Today’s China Post dates from the founding of the Communist regime in 1949. The postal service for decades remained an appendage of the government. Only in the 1980s, when China moved toward limited liberalization, were big state units formally restructured as stated-owned enterprises (SOEs) and given a degree of operational freedom. But SOEs were by no means set free — they remain wholly controlled by the Communist Party and subject to its largely opaque decision-making processes.
Because of its size and complexity, China Post was the last large state organization to be restructured as an SOE. However, additional reform of the postal service has stalled. Moreover, since postal rates have been kept artificially low, traditional mail services operate at a loss and require subsidies.
China Post has long provided services beyond mail delivery, the most important being money deposit and remittance. Hundreds of millions of Chinese keep their savings with the Post, even though it pays very low or, with inflation, even negative rates of interest. Migrants from rural China regularly use the Post to send an estimated $30 billion in remittances back to their inland families. Until 2003, the Post was required to keep its deposits in state banks. Such banks were directed to pay a slightly higher (state-controlled) interest rate on Post deposits. The difference between what the Post paid out and what it earned on deposits long provided the primary subsidy to support universal mail service.
The last ten years have witnessed a whirlwind of modernization in China with a growing economy, increasing cash reserves, and China’s entry into the WTO. With the passage of a limited and still vague postal reform bill in 2005, parts of the postal sector have come alive. What is now the China Post Group (still owned by the state) has been active in protecting its traditional monopoly on personal domestic mail under 350 grams and leveraging its network to hold on to exploding new markets.
Liberalization and Privatization
As the red-hot Chinese economy has sprinted forward, reform of the traditional mail system is still in the initial stages. Modernization and competition have taken place in economically vital sectors of courier service (business express mail), electronic communication, and banking. China Post still maintains a legal — if hotly contested and often unenforced — monopoly on mail and parcels weighing 350 grams or less. Profitable intra- and inter-city express mail service (EMS) has been the main battleground, where local and foreign competitors face formidable opposition from regulators loyal to state-owned China Post.
Until 2005, the State Post Bureau had a dual role — it was both the regulatory authority on all postal matters and the organization which delivered the mail. In every area it could control, it has been slow to innovate and sought to block potential competitors from breaching its monopoly.
China Post did establish its own Express Mail Service (EMS) in 1980, recognizing it as a high-potential market. Since China Post had no international capacity, international EMS was opened to foreign carriers in the mid-1980s. But those carriers — including FedEx, UPS, DHL and TNT — were prohibited from handling domestic EMS until roughly 1995. Since that time, foreign carriers have lobbied to extend their reach into Chinese domestic markets. Thousands of local Chinese carriers have also sprung up, serving cities and high-volume routes, often on a semi-legal basis. Meanwhile, China Post has sought — through subsidiaries and joint ventures — to participate in lucrative international markets, primarily intra-Asian express mail and package delivery.
Efforts to open up China’s domestic mail market and to establish the long-term legitimacy of local carriers have largely failed. Legislation to reform the postal system has been drawn up by China Post insiders who sought to protect China Post monopolies and to tilt the playing field in lucrative emerging markets. In effect, China Post itself drew the line between what in China are called “Post-exclusive” and “non-Post” services — services which foreign and local carriers alike claimed should be opened to full competition under WTO. These competitors to China Post complained that a sector operator — the subsidized Universal Service Provider of traditional mail service — should not be allowed to set the rules for an entire industry.
The last three years have seen an explosion in non-mail services provided by China Post — primarily banking and financial services. Such services are closely linked to industrial development and are profitable for China Post. Besides express mail, savings banks, remittance transfers, Internet banking, and logistics services — all leveraging the ubiquitous China Post network of post offices — have evolved at breakneck speed. Moreover, the China Post network is established in rural China, and so the government has used the China Post infrastructure as a conduit to bring small loans, insurance, ATMs, and Internet transfers into the back country.
Life insurance sales represent the next business venture for China Post. In June 2008, China Post Group received the go-ahead to launch China Post Life Insurance Company Limited. The new company has stated that it will target farmers, low-income urban residents, and migrant workers in particular.
Postal regulatory functions were separated from postal business functions of the State Post Bureau with the creation of China Post Group (CPG) in December 2006. On the one side, the State Post Management Bureau (SPMB) was set up as the agency which regulates postal services nationwide. On the other, CPG, with registered capital of 80 billion yuan (about US$11.5 billion), was established as the operational arm with four segments: postal services, logistics and express services, private document services, and financial services. Still wholly owned by the state, CPG has launched subsidiaries which have entered into joint ventures with domestic and foreign companies. Certain profitable units have even been packaged for limited IPOs to raise private capital, but the fact that the state continues to play such a large role in ownership has scared away most potential investors.
Competition
There is virtually no nationwide competition in the core letter mail business because postage prices are held low for political reasons. A letter can be sent from Shanghai to Yili, some 4,500 km away, for what amounts to pennies. China Post still holds roughly 90 percent of the domestic market, although it has faced the most pressure in emerging industrial centers.
Today, however, there are over 100,000 foreign and non-state express mail service providers that carry out about 80 percent of same-city express mail delivery and over 50 percent of trans-province business express mail services. Such firms can handle mail under 350 grams so long as it is not personal mail. Foreign firms like DHL, UPS, TNT and FedEx have taken most of the international freight forwarding market. China Post, through a co-operative agreement with Dutch TNT, holds only about 25 percent of that business.
New legislation may give China Post’s Express Mail Service the sole authority to handle documents weighing under 150 grams, effectively forcing most domestic express companies to shut down, as 90 percent of their business is derived from handling such small items. It presumably would prevent foreign and private firms from handling business from online retailers.
Future
Observers say it is unlikely that the Chinese government will allow foreign competitors significant entry into what is considered a semi-strategic sector of the economy. Moreover, the Chinese continue to reevaluate the role of foreign investment all across their economy in light of their strategic priorities and their obligations under WTO. Postal reform is still “under consideration” but it appears likely that the government will promote a Chinese small package competitor and discourage foreign companies through a variety of subtle (but still WTO-compliant) restrictions.
The most that can be expected in the medium term is legal clarification of boundaries so that the mail industry can develop with more certainty within the booming Chinese economy.
Useful Links
China Post Article in Beijing Review
Germany
Overview
Deutsche Post — under the umbrella name Deutsche Post DHL — is the largest mail operator in Europe, delivering roughly 70 million pieces of mail six days a week in Germany. With about 500,000 employees worldwide, it is also one of the globe’s largest employers. Its revenues totaled €64.4 billion ($82.85 billion) in 2009. Deutsche Post has also become the world’s largest logistics company.
The German postal service is unique in being one of the first European services to be converted from a completely state-run organization into a semi-independent, semi-private business. Moreover, as early as the 1990s, Deutsche Post was the first “national” postal service to pursue an aggressive strategy of expansion and diversification beyond its home country.
The growth of Deutsche Post beyond Germany has been controversial. Some maintain that the company’s acquisitions and rapid worldwide expansion into the private sector have been paid for by its “trapped” residential mail customers within Germany. DP has long opposed full competition in its domestic market, but Germany was among the first European countries to comply with EU directives to liberalize their postal markets; it did so in January 2008. The European Commission’s Third Postal Directive had called for full liberalization of European postal markets by January 2009. Since then, European policymakers have postponed that deadline several times.
DP has received state subsidies. Critics have maintained that these state monies were used to shore up the firm’s loss-making parcel service. Legal battles have ensued for the better part of a decade. In 2002, the European Commission ordered DP to return the subsidies. But six years later, an EU court ruled that DP could reclaim the subsidies with interest, as competition authorities had failed to prove that subsidies were illegitimate. An appeal by the European Commission in 2010 was denied.
DP and its labor unions opposed the opening of Germany’s postal market and have gone to great lengths to limit competition, emboldened by the reluctance of other European nations – notably France – to revoke their own domestic monopolies.
In November 2007, the German government instituted a minimum wage for letter carriers, with the support of both Deutsche Post and its unions. The minimum wage put competitors at a significant disadvantage by preventing them from paying lower wages, effectively re-granting a letter-delivery monopoly to Deutsche Post.
Competitors, led by TNT, challenged the law in German court. They were vindicated in January 2010, when a German court nullified the minimum-wage regulation.
There is no doubt that the aggressive Deutsche Post will continue to be a major player in a broad range of world markets — mail and package delivery, business logistics, banking, communications, and finance. To this point, Deutsche Post has shrewdly grown by leveraging a huge domestic revenue base that few of its competitors — private or national — can match.
Liberalization and Privatization
Reform of the post-war German postal service in West Germany was already underway well before the reunification of the two Germanys in 1990. The postal system of West Germany was officially reunited with the virtually bankrupt East German system in 2000.
The postal service was split up in 1989 into three units, but the critical transition came in 1995 — the so-called “second wave” of the orchestrated German liberalization policy — when those three units were officially converted into private stock companies — Deutsche Post AG (DP), Deutsche Postbank AG, and Deutsche Telekom AG (AG stands for “stock company” in German). A large block of DP shares was put on public exchanges in November 2000.
The new “private” Deutsche Post began a whirlwind round of investments and acquisitions beyond German borders, seizing upon new business opportunities across Europe and beyond.
In 1998, DP acquired Global Mail (USA) the largest and fastest-growing private provider of mail services in the North American market. A Swiss logistics company, Danzas, was snapped up in 1999.
Although the traditional German postal bank had been split off from the postal service in 1989, the German government allowed Postbank AG to come back to Deutsche Post AG in 1999 as a subsidiary when Berlin sold its government shares of the bank (both giro money transfer service and the savings bank) to Deutsche Post AG. At the beginning of 2009, DP sold Postbank in order to “sharpen its focus on the core divisions Mail and Logistics.”
Although DP officially went public in 2000, share stakes in the company were retained by various government bodies. As a semi-public, semi-private entity, DP acquired a 25-percent stake in DHL International Ltd., the worldwide market leader in international courier shipments.
In 2002, DP was granted a license to deliver mail in the United Kingdom, the first company to break the Royal Mail’s long-standing monopoly. That same year, DP took over 100 percent of DHL to consolidate its growth strategy in express delivery. But in 2009, the company sold its domestic express business in the United Kingdom.
In a move aimed at breaking into the enormous American market, DP acquired the #3 American delivery company, Airborne Express, in 2003 and integrated it into DHL as DHL Express. DHL itself was rebranded as DHL Global Mail the following year, bringing a broad range of international mail services under integrated control. But in 2008, DHL announced that it would cease domestic delivery in the United States. By 2009, DHL had terminated its intra-American delivery service. However, DHL still delivers international parcels to American destinations and carries American goods to foreign delivery points.
Ownership and Structure
Roughly two-thirds of DP shares are “free floating” shares, open to market fluctuations since November of 2000. The remaining third are held by the German government-owned development bank, the KfWor Kreditanstalt für Wiederaufbau (Reconstruction Credit Institute), which dates back to the Marshall Plan after World War II. These latter shares are not on the market.
Deutsche Post DHL is the name under which the company appears in public, e.g. in advertising. Deutsche Post AG is the company’s legal name. Dividends on DP stock are tax free for residents of Germany. Shares of Postbank were put on the market in a spectacular IPO in June of 2004. DP retains an ownership stake in Postbank.
DP operates through two brands (DHL and Deutsche Post) and five business divisions.
The mail division delivers approximately 70 million letters six days every week in Germany and provides services across the entire mail value chain, including production facilities at central hubs, sales offices and production centers on four continents, as well as direct connections to more than 200 countries.
The express division — under the DHL brand — transports courier, express, and parcel shipments all over the world, combining air and ground transport.
The logistics division — also operating primarily under DHL brands (DHL Global Forwarding and DHL Exel Supply Chain) — provides a range of international logistics services via long-term contracts with major multinationals across a wide range of industrial sectors.
The services division includes the corporate center, global business services, and retail postal outlets.
Regulation and Universal Service
At the time of the first postal reform in 1989, the three units of the old Deutsche Post were overseen by a federal ministry — the Bundesministerium für Post und Telekommunikation. However, that centralized ministry was dissolved in 1998 in favor of a more decentralized new federal “net” agency (Bundesnetzagentur) which reported to the ministry for economics and technology. Other secondary functions from the old regime were split to the federal ministry of finance and the federal ministry of the interior.
A new non-ministerial support institution — Bundesanstalt für Post und Telekommunikation — was also created, which is responsible for diverse legal services as well as benefits for former postal civil servants.
Deutsche Post contracts with the government as the nation’s universal service provider.
According to the postal administration law (Postverwaltungsgesetz, abbreviated PostVwG), mail service is to be financially self-sufficient and to be administered in “the interests of the German national economy.”
Competition
There are hundreds of commercial mail distributors in the country. German mail boxes are not the exclusive property of Deutsche Post. DP’s monopoly on letter mail formally ended on Jan. 1, 2008. Actual competition has been slow to take root.
Postage for a standard letter, up to 20 grams, costs the sender €0.55 (US$0.70), while a letter up to 50 grams costs €0.90 (US$1.14). DP lost its exemption from Germany’s value-added tax (VAT) in March 2010, but DP executives say that commercial and bulk consumers shouldn’t expect to see their product costs increase. Since July 2010, DP has been subject to VAT. If the company carries those costs itself, analysts project a hit to annual earnings of €150-€300 million (US$190-US$381 million). The previous tax break had given DP an advantage of some €500 million (US$635 million) over its competitors.
Express delivery and package markets are already open. Competitors including the PIN Group and the Dutchowned TNT Post maintain a noteworthy presence in the residential mail market, but DP still dominates.
Future
Deutsche Post has ambitious growth plans. It is already a world leader in the market for transport, logistics, and communications services. The company has identified growth opportunities outside Germany and has enthusiastically embraced technology in all parts of its business, from delivery to financial services. With its branded DHL services, DP continues to grow in Asia.
In 2010, DP hopes to expand its network across Germany and to increase its availability to private customers by adding 4,000 additional points of sale, 2,000 additional mailboxes and 150 additional packstations.
Deutsche Post has also made a significant commitment to improving the environment. As part of its GoGreen initiative, DP aims to cut its carbon emissions — and those of its subcontractors — by 30 percent by 2020 compared to a 2007 baseline. DP also offers a carbon-neutral shipping service.
As the volume of traditional letter and parcel mail shrinks, Deutsche Post continues to look for new revenue-producing projects. For instance, Deutsche Post has begun selling “Internet letters,” which are said to be safer and more reliable than standard e-mails. DP hopes that businesses will turn to Internet letters to send secure official correspondence. A hybrid mail option for printed delivery is also available.
Despite these new offerings, the company’s success may ultimately hang on its mail products. Of all the products DP offers, mail posts the highest profit margin. Sustained growth will require fatter profits from its express, logistics, and freight forwarding arms.
Useful Links
India
Overview
The Indian Postal Service, or India Post, is a government-operated system. It consists of more than 155,000 post offices scattered across India’s vast land expanse of more than three million square kilometers and serves a population of roughly 1.3 billion citizens. India Post claims to be the largest postal system in the world, with nearly 500,000 people working for the company.
Last restructured at the time of Indian independence in 1947 from the remnants of the British system, India Post rests on a legislative foundation laid out by the British in the Indian Post Office Act of 1898. The Indian Parliament attempted to revise the 1898 Act in 1982 and again in 2002, but their proposed changes were never adopted. A sweeping reform measure that would have strengthened India Post at the expense of competitors was introduced in 2006 but has not advanced.
India Post supplies a variety of services to the Indian population, including small savings banking and other financial and documentary services. It is the oldest and largest savings bank in India and the second largest provider of life insurance in the country. In total, financial services provide over half of the revenues of India Post.
There have been studies by global consultants on the paths to reform and liberalize India Post and other critical infrastructure sectors, but real reform has not matched the hopeful rhetoric.
Liberalization and Privatization
India Post remains a government-owned entity operated by the Department of Posts (DoP), which is part of the Ministry of Communications and Information Technology. India Post enjoys a state-protected monopoly on letter delivery, but the definition of “letter” is open to interpretation. The only exceptions to the monopoly named in the Post Office Act of 1898 are private communications delivered by the writer to the recipient, those sent by messenger, and related notes within parcels of goods.
India Post is also not liable for lost or damaged letters, according to the statute. This protection from liability contradicts the Consumer Protection Act of 1986. India Post has sporadically lost cases brought by consumers alleging delinquent service, but such consumer-friendly judgments are by no means the norm.
Outlines for reform have come in draft bills in 2002 and 2006. These proposals would have given India Post a weight-based monopoly covering both letters and parcels on mail deliveries of 500 grams or less.
These draft bills would strengthen India Post’s monopoly by defining the word “letter” and explicitly barring the private carriers that currently deliver low weight parcels from doing so. The draft legislation would also assess a levy on private carriers to finance India Post’s universal service obligation.
The proposed 2006 bill stipulated that private carriers would have to pay a fair wage rate determined by the government and comply with all applicable national labor laws. Such mandates essentially would have required that private carriers adopt India Post’s cost structure. They also effectively would have undermined any potential for liberalization.
Ownership and Structure
Echoing the original British structure, postal service in India is divided geographically into 22 postal circles (originally “routes”), each headed by a Chief Postmaster General. Within each circle there are regions called Divisions under the control of a Postmaster General. An additional circle, the so-called Base Circle, handles the postal needs of the Indian armed services.
The government exercises its authority through a Postal Service Board consisting of a chairman and three members who are responsible for Operations & Marketing, Development, and Personnel. A governmentappointed Joint Secretary and Financial Advisor also attends all meetings.
Nearly 90 percent of India Post’s offices are in rural areas. According to the Planning Commission for the Government of India, on average, rural post offices cover just 34 percent of their costs. In hilly areas, cost coverage is just 15 percent.
Regulation and Universal Service
Under the Indian Postal Act of 1898, the “Central Government” fixes the prices for postal services and seeks the approval of Parliament on its decisions. This vague responsibility falls to the Postal Services Board.
India Post bears the Universal Service Obligation but receives significant subsidies from the government. Of the 23 services provided by India Post, only Insurance, Speed Post, and Foreign Mail yield a surplus of revenues.
The 2006 draft bill would have required private carriers to contribute roughly 10 percent of their revenues to a fund to compensate India Post for fulfilling the Universal Service Obligation. This USO Fund contribution would be a cost passed on to consumers.
Although the bill has not passed, there were rumblings that smaller companies might be required to pay less. Observers predicted that larger carriers would split their businesses into smaller units — losing economies of scale — to avoid the maximum contribution.
The bill proposed that an Independent Mail Regulatory and Development Authority be set up to level the playing field and enforce standards.
There would also have been a Mail Dispute Settlement Tribunal to resolve disagreements between the Registering Authority and the Service Providers, between the Service Providers themselves, and between Service Providers and Consumers. India Post, under the proposed legislation, would have continued to enjoy immunity from liability charges stemming from failed delivery.
Competition
Private courier companies have been delivering various types of written and printed communications without calling them letters. Some 2,500 have registered with the government. At times, senders have included a small “object” in the envelope in order to categorize it as a parcel.
The proposed 2006 bill would have restricted foreign ownership in any private courier to below 49 percent.
Private carriers operate almost exclusively in urban areas.
The market has been growing rapidly — by 20 to 25 percent per year. Of the 16 billion items sent in India each year, private firms deliver more than 7 billion.
Future
Studies by McKinsey and Company have pointed out that, in the future, India Post will be a great vehicle for public-private partnerships. Following models of liberalization undertaken in other countries, some planners look to debundling the owner, operator, and regulatory functions of India Post.
India Post’s huge distribution network — the largest in the world — may be its most significant asset in any future partnership with either private-sector concerns or with other government agencies.
The National Postal Policy statement on India Post’s web site explains that “the new economy and modern markets require [the postal service] to become more financially autonomous and commercially flexible in order to deliver its core functions and other services.” To that end, India Post has continued to look for new revenue-producing projects as the volume of traditional letter and parcel mail shrinks. In recent years, for example, the company has begun to offer gold coins, books, and mobile connections at many of its postal outposts. The Post has also launched a partnership with ARM I-Solutions to sell railway, bus, airline, and even movie tickets at post offices in several states. With the private firm’s “Genie Ease-Ticket” service, customers can also make hotel reservations at select India Post outlets.
Moreover, in addition to the banking and financial services it already offers, India Post has announced plans to open the Post Bank of India in order to expand banking services to the rural areas of the country — in which 60% of India’s population resides. India Post is also looking to further break into the lucrative sectors of data processing and electronic communication.
Prompted by recommendations from a study conducted by the Jamnalal Bajaj Institute of Management Studies, India Post is also exploring technology that would make it possible to scan letters into the Post’s system for reprint and delivery anywhere in the country.
While a large-scale restructuring of the current postal system is certainly imminent, no decisive movement towards privatization is expected.
Useful Links
India Post Website
India Post’s Speed Post
India Post’s Citizen Charter
Japan
Overview
Japan Post is comprised of four major entities: postal operator Japan Post Service, post office operator Japan Post Network, life insurer Japan Post Insurance, and financial institution Japan Post Bank. This unique structure was created in a landmark, 10-year privatization scheme on October 1, 2007.
That privatization plan, however, was halted in early 2010 by the new government of the Democratic Party of Japan (DPJ), which was elected in September 2009.
A reorganization of the four-pronged structure for Japan Post has been the focus of reform plans in recent years and is expected to get back on track during 2012.
Japan Post’s infrastructure sustained major damage in the catastrophic earthquake and tsunami of March 2011, with as many as 330 post offices destroyed or damaged. In light of a 5.5 percent mail volume loss in the 6 months from April-September 2011, Japan Post Service Co. announced losses of ¥44.3 billion, an improvement in the bottom line of one-third over the same period a year earlier.
Structure
The four present JP entities are all multimillion- or multibillion-dollar entities. Japan Post Insurance employs 5,770 workers and is the nation’s primary provider of life insurance policies. During the 2008 fiscal year (which ended March 31, 2009), JP Insurance reported premium income of ¥7.9 trillion (US$83.69 billion).
Japan Post Bank — with 233 branches, 11,675 employees, and agents in approximately 24,000 post offices — holds deposits totaling over ¥177.5 trillion (US$1.88 trillion) and total assets of ¥196.5 trillion (US$2.08 trillion). The Bank’s net income was ¥229.3 billion (US$2.43 billion) in the 2008 fiscal year. With such financial heft, Japan Post Bank is the biggest bank in the world.
Japan Post Service’s 95,631 employees distribute 68 million pieces of mail per day to 32 million locations. JP Service delivered 21.2 billion pieces of mail in the 2008 fiscal year and earned a net profit of ¥29.8 billion. Rates for regular letters up to 25 grams are ¥80 (US$0.85); for letters up to 50 grams, the rate is ¥90 (US$0.95).
In fiscal 2008, Japan Post Network earned ¥40.8 billion (US$432.2 million) through its network of 24,539 post offices. It employs 112,726 people. Japan receives the second-highest volume of mail in the world, trailing just the United States.
All told, the net income for the entire Japan Post Group was ¥422.8 billion (US$4.48 billion) in fiscal 2008.
Ordinary Japanese households, who tend to shun “riskier” financial markets, have long kept their savings in low-interest accounts with Japan Post Bank. Having halted privatization, the DPJ is poised to double the level of deposits that JP Bank can legally take, to ¥20 million (US$211,880) per customer. The existing government guarantee on deposits would stay at ¥10 million (US$106,030). This change would give the postal bank a huge advantage over other Japanese banks.
The DPJ government is also contemplating a change that would allow Japan Post Insurance to raise its coverage limit to ¥25 million (US$264,850). Japan Post Insurance already controls 40 percent of the market.
Liberalization & Privatization
In principle, Japan’s postal market has been liberalized since January 2003. As many as 100 firms have applied for licenses to deliver mail up to 250 grams. But none of these firms has a significant presence in the postal marketplace. Japan Post effectively has a monopoly.
The highly publicized privatization scheme had been full of stops and starts even before the DPJ government officially put it on hold. In reality, Japan Post would hardly have been private, as the state would have retained full ownership of the holding company.
Historically, Japanese economic planners have identified postal reform as key to making Japan’s financial markets more efficient. The country has struggled through four recessions since 1991, and policymakers have admitted that interlocked and inefficient capital allocation was inhibiting growth. Japan Post simply controlled too many assets. As of 2005, more than 85 percent of Japanese households had postal service accounts and some 60 percent had insurance policies with Japan Post.
Former Prime Minister Junichiro Koizumi staked his political legacy on the privatization of Japan Post by calling snap elections in 2005. Despite passionate opposition, Koizumi won enough support to move ahead with his longterm plan to privatize the behemoth.
In January 2006, the government mandated the establishment of a holding corporation — Japan Postal Services Corporation (JPSC) — whose stock was to be entirely owned by the government. JPSC in turn was structured to own the stock of four subsidiary operating corporations created as Japan Post was split up. JPSC began to identify itself as Japan Post Holdings Co., Ltd. The four-part structure formally came into being on October 1, 2007.
These reforms tore deep into the fabric of Japanese society. Political and cultural opposition was strong, and powerful interest groups continuously made their voices heard.
Japan’s postal labor unions proved especially hostile to the privatization plan. In fact, two of the postal unions, previously rivals, merged in response to the announced plan in October 2007 to form the Japan Post Group Union. This syndicate has 229,000 members.
By September 2009, when Koizumi’s Liberal Democratic Party was voted out of office and replaced with the Democratic Party of Japan, the privatization plan began to unravel.
On March 30, 2010, the DPJ government adopted Banking and Postal Service Minister Shizuka Kamei’s “renationalization” policy, and the privatization plan was effectively scrapped.
Plans to reorganize Japan Post into three entities had been considered for late 2011 but were delayed until 2012 for reasons including the effects of the March 2011 earthquake and tsunami. A holding company that merges the explicitly postal entities (Japan Post Network and Japan Post Service) would stand at the top of the organizational chart. Japan Post Bank and Japan Post Insurance would operate under the wing of this new holding company. The government plans to take the new company public at some point but will keep more than one-third of the shares.
Previous efforts to privatize even parts of Japan Post have met resistance. A plan to sell an unprofitable string of hotels owned by the JP holding company was scuttled in February 2009, after the Minister of Internal Affairs and Communications called into question the deal’s transparency and sale price.
Regulation & Control
A 2004 Cabinet decision left Japan’s politically appointed Minister of Internal Affairs and Communications (MIC) with virtually complete authority in mail matters — approving all changes in postage rates and supervising postal operations and standards. The Cabinet ruling also continued universal postal service, and stated that the postal monopoly would not be abolished “for the time being.” In effect, the government continued to set the prices and make the rules.
With privatization now a non-starter, regulatory reform is also unlikely. Japan Post and its emerging subsidiaries will continue to report to and be supervised by the Japanese government.
The arms of Japan Post are government-owned corporations. They report directly to the government and retain government guarantees and special rights.
Competition & Universal Service
Universal service is recognized in Japan to comprise 6-day delivery of mail of up to 4 kilograms. The DPJ also plans to charge the re-organized postal group with providing “universal” banking and insurance services throughout the country. An independent postal reform committee would be created to monitor for unfair competition with private-sector financial institutions.
Japan Post is in the process of modernizing its traditional mail operations. It has taken steps to form business alliances with both Japanese and European firms to gain a foothold in the high-margin package delivery market. Almost immediately after initial restructuring in October 2007, Japan Post forged a domestic partnership with Nippon Express, a prominent Japanese parcel delivery firm.
As a result of the DPJ’s reforms, Japan Post is poised to compete more aggressively with private insurers and banks. Private firms are not pleased with the government’s decision to raise the ceiling on JP’s bank deposits and insurance policies. They fear that competition will suffer. Other critics of the new reform plan worry that it will throw the nation’s financial markets “back to the past.”
JP’s business focus remains on the domestic market. Insurance and banking services are sold through the Post’s network of post offices, and the company has not announced any plans to expand abroad. About 80 percent of Japan Post’s assets are invested in Japanese government securities, so foreign dealings appear unlikely.
Financial Services and Other Non-Postal Activities
Japan Post Insurance Company was the world’s largest insurer by asset value in 2009, with assets of over $1 trillion. A 2010 report by the U.S. Trade Representative noted that its life insurance system “remains a dominant force in Japan’s insurance markets.” The report expressed concern about conditions obstructing a level playing field between the company and private-sector insurers and has urged Japan’s government to take steps to ensure equivalent treatment.
Japan Post has introduced electronic bill-paying and also begun to offer its customers the option of moving savings into a range of investments — including stock market investment trusts managed by private financial firms. Japan Post has also formed an advertising company to take advantage of unused space inside and outside of post offices. As of 2008, Japan Post Bank offered JP-brand credit cards. Similarly, Japan Post Insurance has begun offering hospitalization and surgery insurance.
Future
Liberalization of postal markets in Japan really got underway with changes made in 2003, but in recent years, the most significant initiatives to complete the task have met formidable resistance and subsequent delays. Most recently, 2012 has been designated as the target date for reorganizing Japan Post and transferring ownership to the private sector.
The Japan Post Group’s senior management has made a priority of focusing on strengthening internal management systems as it addresses losses due to declining volume. Meanwhile, its President and CEO noted in the Group’s 2011 annual report, “Having waited for the realization of postal reforms, we would like to begin providing easy-to-use products and services to better respond to the needs of customers.” He also noted that 2012 would be the time for a “counteroffensive to ensure our postal business develops and grows over the medium and long terms.” Postal market observers worldwide will certainly be keeping a close eye for signs of progress.
Useful Links
Wharton School Paper on Japan Post’s Privatization
Japan Times Q & A on Japan Post’s Privatization
Japan’s Ministry of Information and Communications – Postal Service Policy Planning Bureau
United Kingdom
Overview
Britain’s national post — Royal Mail — traces its roots to the 16th century and the reign of Henry VIII, but its modern iteration was effectively chartered in 1969. Each working day, Royal Mail delivers 62 million items to 28.8 million addresses.
About 163,000 people work directly for Royal Mail Group — more than 60,000 fewer than in 2002. In fiscal year 2010-11, which ended in March 2011, Royal Mail Group posted revenue of £9.2 billion and operating profits of £39 million — a decline of £141 million over the previous year. Overall revenue, however, declined by £193 million and mail volume declined by 4 percent.
Royal Mail’s core postal operations are lagging. The postal group lost £120 million in 2010-11, after making £20 million in profits the previous year. Experts predict that mail volume will decline by 5 percent each year, and postal officials have hinted that 20,000 jobs may be axed.
A postal reform bill — the Postal Services Bill — passed in June 2011 set Royal Mail on the path toward privatization.
Liberalization
Britain’s postal markets were opened to full competition on Jan. 1, 2006, three years ahead of the European Union’s goal of full postal liberalization by 2009.
Liberalization has been good for Britain’s economy. A 2008 study by Europe Economics showed that competition in the postal sector created 3,300 new jobs and boosted the British economy by £229 million.
Privatization
Despite the opening of postal markets, Royal Mail remains government-owned and received public subsidies to the tune of £150 million in its 2010-11 fiscal year. Royal Mail claims that it needs government subsidies to maintain its network of over 11,800 post offices.
The U.K. government has also committed £1.34 billion of public money over four years to help the post office network modernize. The European Commission has investigated state subsidies to Royal Mail in accordance with its rules on State Aid.
In December 2008, the British government released a report that called for the partial privatization of Royal Mail. Entitled “Modernise or Decline,” the so-called Hooper Report noted that Royal Mail was the only post in Western Europe to lose money. The report cited a shrinking mail stream and strikes as reasons for dwindling revenues. The report also found that “in 2007, the postal sector accounted for 60 percent of the days lost to industrial action across the whole [British] economy.”
The report concluded that the government should transfer a 30 percent stake in Royal Mail to a private postal firm, and assume responsibility for Royal Mail’s pension liabilities, which had reached £4.5 billion by March 2011. In 2010, pension liabilities were £8 billion. Changes in accounting were responsible for the significant improvement in the organization’s pension outlook.
In June 2011, Parliament passed the Postal Services Bill, which restructured the company’s balance sheet in hopes of making it attractive for future sale. It also rid Royal Mail of its historic pension deficit by offloading it onto the government. Ultimately, Royal Mail hopes to sell up to 90 percent of the postal operator to a private company, leaving the remaining 10 percent for its employees.
In a June 2011 interview following the passage of the bill, Alex Walsh, head of postal affairs for the Direct Marketing Association, stated, “While the new legislation will render Royal Mail a more attractive proposition for interested investors, we’re concerned that competition will suffer. There’s also no incentive for Royal Mail to improve efficiencies or cut costs. So it’s highly likely that commercial mailers will be saddled with price increases along the line.”
Competition
Despite liberalization, competition has yet to fully take hold. Royal Mail is still the dominant actor in the British postal market.
Currently, 59 firms are licensed to deliver mail in Britain, including the Royal Mail. However, most competitors only collect and process mail while still paying Royal Mail to handle delivery.
Royal Mail executed 6.4 billion of these last-mile “access” deliveries in fiscal 2009-10, an increase of 20 percent over the previous year. That means that more than one in three letters was posted in 2009-10 by a competitor but delivered by Royal Mail. This access mail accounts for half of Royal Mail’s business mail volume.
Given Royal Mail’s government-owned status, taxpayer subsidies, and dominant market share, the playing field is not entirely level. An independent regulator is tasked with ensuring that Royal Mail does not abuse its market position when competing with other postal operators.
Regulation
The Postal Services bill changed the regulatory structure of the U.K. postal market. The Postal Services Commission’s (Postcomm) tenure as regulator ended October 1, 2011. The communications regulator Ofcom took its place.
The regulator’s duties are largely the same: ensuring that the universal service guarantee is upheld and overseeing licensed postal operators. Ofcom enjoys greater policing powers over licensed operators than did Postcomm.
Like Postcomm, Ofcom regulates Royal Mail’s prices and its quality of service. A first class stamp runs 46 pence, and a second class stamp is 36 pence. Royal Mail’s competitors are free to price services as they please, even if lower than the regulated price.
If other licensed operators are accused of anti-competitive behavior, their cases are referred to the Office of Fair Trading under general British competition law.
Royal Mail is obligated to offer its competitors access to its vast network on a “fair and reasonable basis.” In other words, all Royal Mail’s competitors must be able to negotiate for use of the universal service provider’s delivery system, if they wish.
Consumer Protections
Consumer Focus claims to “champion” consumers’ interest; it absorbed the old Postwatch, an independent consumer watchdog for postal services in the United Kingdom, in 2008. The group has a statutory responsibility to monitor Royal Mail’s performance and advises the regulator on action to take if Royal Mail violates the terms of its license or fails to meet the performance targets set for it by the regulator.
Consumer Focus is also active on local or more parochial issues, such as the closing of post offices, local delivery problems, and product trials in certain areas. Consumers can employ Consumer Focus’s services in pursuing their own complaints about mail service.
Universal Service
Royal Mail provides the United Kingdom’s “universal postal service,” which includes the flat-rate stamp and the obligation to deliver letters to every UK address, 6 days per week. It must deliver parcels 5 days per week. Its competitors need not fulfill a universal service obligation.
Five service areas are required under the universal service obligation, with postage at a flat rate:
– Priority and non-priority mail services, or more commonly, general letters and packets;
– Non-priority parcel service for packages up to 20 kg;
– Registered and insured services;
– Support services for ensuring the safety and integrity of mail, including mail forwarding for up to 12 months;
– International outbound service.
Bulk mail was removed from Royal Mail’s universal service obligation in August 2011.
Controversially, in mid-2011, Royal Mail asked for permission to leave mail that required an absent addressee’s signature with neighbors. Consumer Focus said that it was “unconvinced and unimpressed” with the proposed move.
Non-Postal Services
With revenue from letters and other traditional postal services trending downward, Royal Mail has expanded into several non-postal commercial activities. Through the Post Office, Royal Mail sells life, travel, and other vehicle insurance policies and provides several basic savings tools. The company also offers personal loans, mortgages, and other basic financial services. It even sells broadband and phone services. Consumers can also handle passport business and pay car taxes at the Post Office.
Since launching online savings accounts in August 2010, the Post Office has attracted £4 billion in deposits.