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Thursday, July 8, 1999 Published at 12:20 GMT 13:20 UK

Business: The Company File

Last post for old-fashioned carriers

Collecting and delivering your letters could soon be a small part of the Post Office's business

The image of the cheery postal worker hand delivering mail to every home belies the increasingly cut-throat nature of the international postal business.

The UK Post Office is keen to become a major player, and the proposals announced on Thursday by the government should enable it to start flexing some commercial muscle.

But it is already late into the game, as some of its Continental rivals have already built up big power bases as providers of postal services across Europe.

[ image: Deutsche Post has just announced a tie-up with Spain's Guipuzcoana]
Deutsche Post has just announced a tie-up with Spain's Guipuzcoana
In fact, as the Post Office was weighing up the consequences of its new role, the German service, Deutsche Post, was announcing yet another acquisition.

It has taken a 49% stake in Guipuzcoana, the Spanish and Portuguese parcel delivery company. Deutsche Post has now made nearly two dozen purchases in the past couple of years.

So what is causing this shift from cosy national mail service to acquisitive European conglomerate?

the state monopolies are under threat because of European Union deregulation due in 2003, which will open up postal markets to new carriers.

the increasing use of e-mail as an alternative to traditional letters means postal services must be ready to grab a share of Internet business.

US giants FedEx and UPS have already started to move in on Europe's parcel delivery business, estimated to be worth Ł17bn.

Like so many other industries, Europe's postal providers have realised they must adapt to survive.

Some have been quicker than others, notably Deutsche Post. It has a 25% stake in DHL Worldwide Express stake, and is now Europe's biggest parcel service.

Moving into e-commerce

It also has interests in shipping, warehousing and call centres, and has just launched an e-commerce website encouraging electronic traders to use Deutsche Post to deliver their goods.

[ image: Parcel Force could end up taking packages across Europe]
Parcel Force could end up taking packages across Europe
The Dutch post office has bought the TNT parcel business. It lost out to its UK rival this year in the contest to buy German Parcel.

That Ł300m purchase marked the Post Office's first foray into the international arena, but also raised some issues which look likely to recur.

There was concern that the Post Office initially refused to give details of the deal, including how it was funded.

That may change if it becomes a public limited company under government proposals, but the question of using the benefits of state monopoly to make fund private purchases remain.

[ image: UPS is one of the US carriers fighting for a share of the European market]
UPS is one of the US carriers fighting for a share of the European market
Deutsche Post has been accused of funding its purchases by having some of the world's highest postal rates. UPS has lodged a complaint with the European Commission.

Competition authorities are keeping a close eye on how the market develops, but that has not stopped the Post Office drawing up a Ł1.5bn shopping list with eight targets on it.

But the most important thing is guessing how we will all be communicating in the future. A survey suggests that the recent growth in letter volume is starting to slow.

Maintaining core business

And the Swedish post office is so convinced that everyone will soon communicate electronically, that it has given everyone over the age of six free e-mail addresses.

Also, for carriers like the French and British post offices, which are new entrants to the international field, there is the challenge of expanding while maintaining their core business.

As one observer noted, it is little use a post office ruling the world if customers in its home country are neglected.

And there are sure to be hungry rivals ready to pounce on any gaps that appear in this increasingly competitive market.

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