Delivery In The Post

Postal services have been government-owned for so long that it is difficult for us to imagine them in private hands. The deal under which KPN, the partly-privatised Dutch post and telecoms company, is to buy Australias TNT transport group, reminds us that things were once different "" and will be again.

Privately-owned multinational mail and parcel services have a long history. In 1489, Maximilian I gave Franz von Taxis the right to carry mail throughout the Holy Roman Empire. For nearly 400 years, the Thurn und Taxis family ran a Europe-wide postal service, employing at its peak some 20,000 couriers.

 

In the 19th century, growing governmental ambition swept away this early service-sector multinational. Its local operations were nationalised one by one, remembered today only by the Thurn und Taxis heraldic device, a golden postmans horn, which they bequeathed to their state-owned successors. The last Thurn und Taxis holdout, in Prussia, succumbed to the government in 1867.

Now, over a century later, the wheel has come full circle. Postal monopolies are under threat everywhere, from fax machines as much as from deregulation. If yesterdays transaction goes through, a privatised postal service will own one of the four global private-sector express delivery companies.

So far this industry has been impressive more for its scale and ambitions than for its profitability. The four competitors "" Federal Express, United Parcel Services, DHL and TNT "" have managed to build worldwide networks of sorting hubs, aircraft, delivery vans and couriers. Their service has become a vital part of business for any internationally-minded company.

But the road has been bumpy: FedEx, for example, was forced to scale back its European ambitions in the early 1990s. The steady profits of the large domestic US markets, which give FedEx and UPS their appeal, have been scarce internationally.

The deal between KPN and TNT offers a way out of this dilemma. It backs the global ambitions of the merged global express business with the stable profits of a domestic postal service. The resulting global leader in time-sensitive distribution and logistics is buttressed still further by the 23 per cent profit margin of KPNs other operating subsidiary, PTT Telecom, the Dutch phone company.

KPNs postal subsidiary, PTT Post, has always been the most internationally minded of Europes mail services, bidding aggressively for the business of the regions bulk mailers.

PTT Posts international business is already twice as high, as a proportion of revenues, as that of other European post offices. Now, says Mr Ad Scheepbouwer, PTT Posts managing director, it will be able to combine its own remailing operations with those of TNTs comparable Mailfast service. The short-term test of the new groups success will lie in parcels, where it will be number one in Europe, rather than documents, where DHL leads the pack. KPN and TNT already share (with the Swedish postal service) an operation in cross-border shipments; they will now be able to fight more effectively in domestic markets.

Though the business is growing "" at 10 per cent a year internationally, 5 per cent a year in domestic markets "" competition is tough. Prices fall every year; and all four global express companies compete aggressively on price and service.

Against such a background, others may seek to emulate KPNs deal with TNT. The scope for straight-forward mergers is limited: few other postal services can boast KPNs advantages of a public listing and a telecoms cash-cow. But other kinds of alliances between global express businesses and national postal services and possible. The visceral mistrust between the two is fading: TNT has a contract with Deutsche Bundespost to ferry parcels between the German post offices sorting hubs, for example.

For all four global giants, however, the most exciting opportunities lie in the hectic growth of the logistics outsourcing business. This ill-defined industry has roughly $12 billion of annual revenues in Europe, growing at 20 per cent a year, says Mr Scheepbouwer. Typically, a logistics outsourcer takes over part of a companys supply chain, managing any or all of the businesss warehouses, components supply, spare parts distribution and customer service.

The business is benefiting from two mutually reinforcing trends. Manufacturers are striving to focus on what they do best, contracting out the rest of their activities. They are also pushing themselves towards regional integration in both Europe and Asia, concentrating their activities in fewer, bigger factories. Handling the logistics of such regional networks is a natural task for outsourcing.

Such developments help ensure that over the next few decades, the physical delivery of objects "" paper, packets, parcels "" will become a fully integrated global business. Individual segments, such as personal letters, bulk mailing, document delivery, logistics and so on, will each have two or three dominant companies. Some companies will straddle segments; others will specialise. The size and scale of the US will give its companies a significant, though not decisive, edge in this competition. Most competitors will be mainly or partly in the private sector; the remaining state involvement will come through residual shareholdings or lingering regulation.

This high-technology, jet-and electronics-based industry will be a long way from the lonely horse-back couriers of the Thurn und Taxis empire. But the new barons of the global delivery industry will be the spiritual heirs of the business on which Maximilian set the imperial seal five centuries ago. Some will even carry the golden post-horn on the side of their delivery vehicles.