A Stamp of Cautious Approval for Postal Privatization in Europe

The U.S. Postal Service has announced that it will raise its prices again on May 12, after losing $5 billion last year. This represents the second rate hike in as many years. It’s also a step toward the annual price increases the agency has predicted since it was granted greater financial autonomy at the end of 2006.

Instead of trying to cope with rising costs simply by increasing prices on captive consumers each year, however, USPS could take a few pointers from its peers across the Atlantic. European posts are in the midst of an historic — and potentially consumer-friendly — movement toward postal “liberalization.”

But American policymakers should learn as well from Europe’s mistakes, for liberalization across the Atlantic has not been as complete as it could be.

Late last year, at a meeting in Luxembourg, the European Union resolved to open the last area of the protected mail market — items under 50 grams — to competition from private and foreign firms by 2011. Germany, the world’s third-largest economy, completely opened up its postal markets to competition.

These market reforms are no small matter — the EU’s postal sector accounts for $125 billion of economic activity.

But there continue to be detours in the necessary march toward a truly open market. In both the United States and Europe, postal labor unions fight fiercely against open markets and other cost-cutting measures, such as outsourcing of postal services, that would likely bring substantial benefits for consumers.

Germany’s liberalization has been tainted by last-minute anti-competitive measures. In late December, just days before German postal markets were opened to competition, the German parliament approved the introduction of a Deutsche Post-defined minimum wage which all postal operators must pay. The law will inhibit private companies — notably Dutch rival TNT Post and the German PIN Group — from delivering mail in Germany at lower costs.

Deutsche Post already enjoys other advantages, including a value-added tax (VAT) exemption on letter stamps.

The Netherlands responded by indefinitely postponing the liberalization of its postal market, which had been slated to be opened up on Jan. 1. Recent acquisitions have made Deutsche Post the largest private mail provider in the Netherlands.

Meanwhile, the 2011 target date for EU liberalization actually represents a two-year delay from its most recent goal. For 11 member states, an additional two-year extension has been authorized, pushing their liberalization deadline to 2013.

The official effort led by the European Commission (EC) is therefore admirable, but postponing liberalization is ultimately every bit as anti-consumer as the USPS’s proposed rate hikes.

Indeed, consumers have much to gain from a liberalized postal marketplace. A 2005 study by Ecorys Research and Consulting suggested that full liberalization would cut prices by 20-25 percent while improving service for consumers.

Some policymakers in Europe are getting the message. A number of countries, including Britain, Finland, and Sweden, have already opened their postal markets completely to competition (i.e., for letters weighing less than 50 grams) or privatized former state monopolies.

But state-owned Swedish Posten and British Royal Mail, for instance, still deliver 90 percent of their countries’ mail, with only a few significant competitors.

To be fair, progress will take time, as private companies work to build the infrastructure necessary to provide increased services. In order to facilitate the growth of competition, governments must be vigilant in ensuring that existing monopolies are not leveraged at consumers’ expense.

By acquiring companies like DHL and Airborne Express, Deutsche Post has expanded ambitiously abroad since privatization. Some critics maintain that Germany’s monopoly consumers have subsidized such aggressive ventures into foreign markets, and in 2002 the EC levied substantial fines against Deutsche Post for such behavior.

Despite bumps in the road, Europe’s postal liberalization has real potential to deliver for consumers. The example is instructive for postal leaders in America, where labor unions are relentlessly fighting against efforts by Postal Service management to cut costs.

Instead of avoiding real reform by consistently raising prices for ordinary consumers, the United States ought to look to Europe for inspiration in finding ways to adapt to the rigors of a changed postal market.

Don Soifer is executive director of the Consumer Postal Council in Arlington, Va.

Don Soifer