Postal competition the Swedish way

Swedes choose between competing mail companies

By the BBC's business reporter, Brian Milligan

Today the UK's postal service not only changes its name to Consignia but also officially opens its doors to competition.

The new UK postal regulator, PostComm, will issue licences to postal operators effectively ending a 150-year monopoly for the Post Office.

PostComm wants to introduce competition into the British market as quickly as possible, along the lines of what already happens in Sweden.

If you want to run an industry efficiently you have to use as little resources as possible

Lennart Grabe, Chief Executive, Sweden Post

The Swedish island of Gotland, in the middle of the Baltic sea, looks back to more than a thousand years of trading heritage.

It has also become an unlikely testing ground for a free-market in postal services.

Customers here, for instance, are free to chose from two competing mail companies, each with their own post box.

Successful rivals

Sweden Post is the established service, but its rival delivers down the same forest roads and many customers have turned to it because its stamps are cheaper.

Many new mail companies have failed as customers demand a cheaper service

Since 1993, a hundred such mail companies have been set up, but three-quarters of them have gone out of business as customers proved slow to switch their loyalties.

"It was very difficult for people as you have your own stamp, they couldn't understand you have your own mail boxes," says Haaken Malmros.

"People don't understand in the beginning but they learn."

Competition in Sweden's cities is even sharper.

Citymail, owned by what is now Consignia, delivers commercial and business post only, but it hasn't made a profit yet, and has won only 5% of the market.

Big benefits?

Nevertheless its mere presence has meant big benefits for business customers - the price of business mail in Sweden has fallen by 50%.

On the other hand, competition in Sweden has meant big price rises for ordinary customers.

In one year alone, the price of a stamp went up 30% and since deregulation it has actually gone up by half.

Sweden Post says it has been necessary to raise prices because of the high cost of delivery to remote rural areas.

Increased efficiency

But it has managed to maintain that service by increased efficiency, which has meant losing 30,000 jobs, or nearly half of its employees.

The chief executive, Lennart Grabe, believes that is an achievement to be proud of.

"If you want to run an industry efficiently you have to use as little resources as possible of course. So we have invested heavily in automation and also in having very efficient processes."

Ordinary Swedes are not totally convinced with many believing the new mail companies provide a poorer service.

The new British regulator has cast deeply into Swedish waters, and likes what he has found.

But reaction from trade unions is already frosty as jobs and profits will be cut and Consignia will find itself in unfamiliar territory.

The wind from the Baltic will no doubt blow up some controversy.