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Postal Affairs in Europe

Postal issues are crucial for direct marketers since a major part of direct marketing communication is done by mail and postal services provide fulfilment logistics for most distance selling in Europe. Direct Mail represents the largest sector within Direct Marketing, and remains a fast growing and highly lucrative part of the postal market.
FEDMA’s Main Views on Postal Services
 
The European Commission started looking at postal services in the late 1980s and came out with a Green Paper in 1992 which proposed a gradual liberalization (i.e. removal of the monopoly) of the postal sector coupled with quality of service guarantees and national independent postal regulators. Their process started with a first directive on postal services in 1998, and a second in 2002. The final stage is now due to be reached under a third directive, now under discussion, which will remove the reserved (or monopoly) services for letter post in 2009.
 
Given the time thus debate has been going on and it could be expected that some considerable development would be evident at national level, however, current realities show that despite the step by step liberalisation of the postal market, little effective, end-to-end competition in the mail market has yet taken place. In its 2005 Study on Competition in the Postal Sector, Ecorys states that competition to date has only developed in niche markets, and that this will most likely not change in the future.
 
These findings were repeated in two further studies for the Commission by Price Waterhouse and WIK published in 2006. These reports recognised that it is not just an issue of the reserved, or monopoly, services and the guarantee of a Universal Service which would provide users (consumers and business) with a good quality of service or a regular basis every working day. A level playing field in the postal sector should be established in which both Public Postal Operators (traditionally the state-owned posts) and new entrants (operators, consolidators, and others) are able to compete effectively. As the Mail Manifesto, published by the Postal Users Group (PUG) in November 2006, has shown competition will also lead to more employment; approximately 2 million jobs are provided by the Public Postal Operators, but another 3.6 million jobs depend on a vibrant and growing mail sector.
 
FEDMA believes that several measures can be taken in order to develop effective, prosperous competition in the postal sector, a few of which are:
 
  • Liberalisation of the Direct Mail sector across Europe by 2009 at the latest. Without liberalisation of the Direct Mail sector across Europe, FEDMA has seen no convincing evidence of the good quality, reliable, integrated, innovative and costs effective end-to-end international mail services which direct mailers need when implementing cross border campaigns;
  • Liberalisation of cross-border mail, including in-bound cross-border mail. While the volume of direct mail has been growing in most EU domestic markets, this growth has been insufficient to close the gap between the volume of mail delivered to each household in Europe and the US. More alarmingly the percentage of mail that is cross border (3 %) is the same now as it was when the Internal Market programme was launched in 1992 i.e. no growth has taken place;
  • The abolition of unnecessary national downstream and upstream access restrictions and requirements on letter post, including for Third Party Access.
 
A task for the National Regulatory Authorities (NRAs) to stimulate effective competition including Access for new entrants
 
In the new proposed Directive the Commission further clarifies the roles of the National Regulatory Authorities (NRAs) and FEDMA welcomes this move. As presently structured many national NRAs are not sufficiently independent and fail to enforce rules on cost accounting and special tariffs consistently and effectively. NRAs have to see it as their task to provide new and value-added innovative products for users. As far as Access is concerned, FEDMA believes that in the current case where new entrants have difficulties in assessing the national postal markets, NRAs should create the means to allow fair access for third parties customers, operators and consolidators alike.
 
This does not necessarily entail strictly regulated access models; there is no one-size-fits-all model which could be applied across the whole EU. However, some kind of regulatory intervention by the NRAs is necessary to stimulate competition. Experience in various Member States has shown that the current PPOs have not voluntarily opened up parts of their postal pipeline to other competitive operators, be this in the upstream or downstream market. FEDMA welcomes the requirements for more statuettes in the new proposed Directive. Presently the NRAs are often unable to judge the market place and transparency is lacking.
 
 
Revise the scope of the Universal Service
 
The size of the Universal Service is one of the key issues in the debate of the 3rd postal directive. The larger the Universal Service Obligations are on the PPOs, the larger their financial requirements will be. These two issues will be the main elements of the debate now unfolding in the European Parliament and the Council of Europe.
 
Excessive Universal Service obligations can lead to a burden for postal customers, as well as for Universal Service Providers. For example, there is a danger that postal customers will finance unprofitable services through cross-subsidisation. This will increase costs to those postal users and thus they will be forced to reduce their mail volumes. Consequently, the economies of scale of the Universal Service Providers would be undermined.
 
FEDMA has repeatedly heard in various postal debates that large business users can take “care of themselves”, since they individually negotiate contracts with the Postal Operators. Because of this, it is argued, large business users do not need to be protected in the same way as individual consumers. FEDMA believes there is an overall need to further examine the current Universal Service Obligation (USO). Only when real competition develops can the scope of the USO be reduced.
 
 
The need for Reliable Postal Services
 
The objective of FEDMA during the debate on the new 3rd postal directive will be to stress the need for reliable postal services, which should be costs based and available to all users under similar conditions. For direct marketers these include work share discounts, downstream access, adequate compensation for delays in delivery and for losses, etc. There should be a direct relationship between the improvement of Quality of Service, with particular emphasis on delivery date reliability: Quality of Service incentives should be set up to ensure the improvement for both national and cross-border mail. Certainty and reliability of delivery is now of greater importance than frequency for direct mailers. Direct Mail would like to see more offers of reliable "on the day" delivery, rather than broad promises to improve the speed of delivery of priority mail.
There should be no sudden price increases by PPOs without accompanying these price increases with sufficiently innovative and attractive Quality of Service improvements. Direct Mail campaigns are mostly planned at least 3 – 6 months in advance, so surprise price increases can be disastrous.
Better interoperability is definitely needed - mail customers use different operators through the postal pipeline - and there should be more consistency and cooperation between different postal operators, whether they are the PPO or a Competitive Operator.
 
The Third Postal Directive Time-lines
 
The directive is now before the European Parliament, where it is due to be debated in 5 different Committees. It is expected that Parliament will complete its First reading in the Summer, if possible in time for the June meeting of the Council of Transport Ministers. In parallel with the European Parliament the government expects will be meeting to put forward their national views and propose amendments. After the First Reading it will be up to the Commissioner to come up with an amended position which will then go back for a Second Reading in the European Parliament, and, finally, for agreement by the Council of Ministers. This process (with some additional detailed steps which may or may not be taken) could in theory be completed by the end of this year, leaving Member States a year to implement the Directive and remove the reserved area by the 2009 date. As with any political issue there will be plenty of opportunities for this time scale to slip on way or another. In addition to the 3rd Postal Directive there are a number of other issues or postal services at the European level.
 
VAT on Postal Services: Create a level playing field for all operators
 
FEDMA is disappointed to see that the Commission’s proposed Directive on VAT on Postal Services has been blocked in the Council for over three years. We support the proposed Directive by the Commission and the amendments by the Parliament, especially on the need for a transitional period before the Directive can be implemented and the need for special refund mechanisms for organisations that are currently zero-rated for VAT.
These zero-rated organisations include charities and financial services which use direct mail for fundraising. Measures are necessary to protect these postal users from the real costs they will suffer with the application of VAT to postal services. There is no guarantee that the Member States will apply the reduced rate for these organisations as proposed by the draft Directive.
If the proposal were to be adopted by the Council in its present form, a level playing field would be created as all operators would be able to charge VAT. Currently, PPOs are at a competitive advantage over private operators, as can be seen in some countries. Therefore the current exemption for PPOs should be abolished.
It is interesting to note that the European Commission has taken court cases against the UK and Germany for their rules on VAT, which are creating distortions in competition between the public postal operators and new entrants.
 
Transparent and cost-based tariffs and Terminal Dues
 
Terminal Dues (the tariffs charged by the receiving country for cross-border mail deliveries) should be based on the real costs of handling and delivering the mail, but supplemented by Quality of Service incentives and measures to improve the efficiency of the Quality of Service. The tariffs must be non-discriminatory, which means that they are available to all customers under identical terms and conditions for similar mail types and volumes.
The current REIMS agreement still poses many problems such as the method for calculating the Terminal Dues, the existing problems related to Level Three Access, the lack of Third Party Downstream Access, as well as the lack of information on the International Direct Mail Agreement.

The postal operators are now preparing a Third REIMS agreement. The 2nd agreement having, officially, expired on 1st January 2007. We await with interest the results of the present negotiations, in the hope that the new agreement will be slightly more transparent than the previous agreements.
 
 
Postal Standardisation created to benefit all postal users
The European Standards Organization (CEN) has been working for nearly a dozen years on creating standards for postal services. FEDMA has been invited as an observer, along with the consumer body, ANEC, to the CEN meetings. However, much of the detailed work is still done by small groups of technical experts without input from the users. FEDMA strongly believes that only Quality of Service standards which are very beneficial to users should be created - for example, those which guarantee (and not only measure) consistency of delivery and reliability, and give information to all users in the case of Quality of Service problems. Standards on addresses, barcoding and RFIDs would also be useful.
We feel there is a need for more stakeholders, such as mail customers, like FEDMA, to be involved in CEN TC331. We also believe that once a standard is adopted, CEN should track the implementation of the standard, and consult all stakeholders on how this works in practice, and learn from practical experiences in the developments of future standards.
The Universal Postal Union (UPU)
The UPU is a UN agency based in Berne, Switzerland. In the past its work brought together government ministers and public postal operators from different countries, however in the 1990s, it started to open up its councils to users and other stakeholders in the postal market. At the Bucharest Conference in 2004 it setup a Consultative Committee (CC) consisting of these other stakeholders – the unions, express and courier services, and users – which is encouraged to become involved in the UPUs work and put forward concrete proposals to help the users. Presently, for example, we are working on change of address systems, address formats, downstream access.
 
FEDMA is a member of the CC and of its Management Committee: the CC is chaired by one of our Vice-Chairman. We are therefore very committed to the success of the new stakeholder involvement in the UPU. The UPU also runs an Advisory Board (DMAB) which FEDMA also contributes to.
 
 
For further information on FEDMA’s Postal Services, contact Mr. Wout van Wijk.