Change at a Snail (Mail) PaceSeptember 21, 2005
Deutsche Post’s takeover of British logistics company Exel, announced this week, is just the latest acquisition in a global buying spree that began in 1997. That was the year the German government embarked on a plan to privatize the old state-owned postal monopoly, and granted Deutsche Post permission to buy new firms and enter new markets. Since then, the company has acquired some or all of more than 50 firms, both at home and abroad, including such brands as Danzas, DHL and Airborne Express.
Monday’s announcement of the much-anticipated £3.7 billion deal made headlines around the world and burnished the company’s image as an emerging corporate titan. But who really benefits from Deutsche Post’s global buying spree?
Shareholders can be pleased. While some analysts maintained their existing ratings on the stock, Dresdner Kleinwort Wasserstein upgraded its rating to “add” from “hold,” and Goldman Sachs predicted an appreciation of 17% over time. Privatization is also good for the German government. In July, it sold its last directly held stake in Deutsche Post to the state-owned bank KfW, generating much-needed cash to help plug a budget deficit.
For ordinary German mail users, though, privatization hasn’t born fruit. That’s because Deutsche Post has yet to give up its lucrative monopoly on letter delivery in Germany, which bars customers from taking their business elsewhere. As a result, Germans pay some of the world’s highest postal rates — more than twice as much as fellow EU citizens in Spain.
Germans were promised otherwise. Deutsche Post won permission to expand by promising to give up its monopoly on letter delivery. Instead, the “yellow giant” leveraged the profits from its monopoly and other advantages — like billions of dollars worth of real estate gifted to it by the government — into global expansion.
The European Commission has investigated the company’s monopoly abuses twice and ordered it to repay Berlin €906 million. Last year, Germany’s Federal Cartel Office found that Deutsche Post had used its market dominance unfairly by refusing to offer its usual volume-based discounts to big mailers who, because they sell mail-processing services, are also competitors. In February the Cartel Office ordered Deutsche Post to offer the discounts; the company has appealed the ruling.
None of the warnings, though, has halted the company’s drive to expand and acquire. Last year Deutsche Post snapped up Britain’s Speedmail International and a majority of France’s Koba, both mail service providers. In June, wholly owned Deutsche Post subsidiary DHL bought Spanish transport company Alvarez Silva.
The Deutsche Post monopoly does have limits: It only applies to letters weighing less than 100 grams. And competitors are allowed to carry these lighter letters — so long as they charge three times Deutsche Post’s rate. The limit on monopoly-controlled letters will fall further, to 50 grams, in January. Nevertheless, the monopoly is not slated to be phased out entirely for two more years, and it still accounts for a whopping 20% of Deutsche Post sales.
Even for letters weighing more than 100 grams, it seems that there is little chance of competition taking root. The EU reported this year that few competitors were successfully going head to head on mail delivery with incumbent state monopolies. Even where markets have started to open up, the Commission noted, the old state bureaucracies have too many advantages.
For instance, in Germany and all but three EU countries, services provided by the old state postal monopolies are exempt from value-added tax. New competitors, on the other hand, must charge the standard VAT rate. That’s bad news for companies with plans to compete with Deutsche Post, such as the publishers of Bild, Handelsblatt and Die Zeit, and the WAZ newspaper group, who announced this month that they were teaming up to form a letter delivery company.
Consumers aren’t the only ones hurt by lingering monopolies. Deutsche Post skews the playing field in every market that it enters. At a time when the German economy needs stimulation, distorting the entire logistics sector in this way has just the opposite effect, putting well-run private enterprises out of business and discouraging new market entrants. While a campaigning Chancellor Gerhard Schröder accused free-market foreign “locusts” of contributing to German unemployment, the country’s own Deutsche Post is also causing a significant drag on the economy.
When Berlin transferred its last stake in Deutsche Post to KfW, it signaled that full privatization was going ahead. That’s good news. What Germany really needs, though, is an end to the stifling postal monopoly. Under the postal reform law passed in 1997, it was to be repealed by the end of 2002. Instead, Deutsche Post won an additional five years to exploit captive consumers, a right it explicitly defends: “Deutsche Post categorically refuses to accept a premature undermining of its exclusive license,” it said in a recent statement.
That’s too bad. Slow-motion privatizations hurt consumers and businesses, and at this point, a repeal of the postal monopoly can’t happen fast enough. Germans deserve better than what so far amounts to a bait-and-switch, pulled by the government and Deutsche Post at their expense.
Ms. Eaves is a Paris-based writer and a scholar at the Consumer Postal Council.