European Postal Directive: Is the current Universal Service Obligation sustainable?
In 2015 the European Commission will decide if the current Postal Directive must be amended.
The European Postal Directive is the regulatory framework for the European postal market. The directive for instance prescribes the minimum number of 5 delivery days per week and services obligatory under the Universal Postal Service Obligation for each EU-country.
Sustainability of postal regulation
The European Regulator Group for Post, a cooperation between all 28 regulators/supervisors, published a discussion paper on the provision of the Universal Service in the postal sector in view of the strongly declining market volumes. All stakeholders were requested to provide their views. The ERGP will then further analyse the situation and publish a report by the end of 2015. The CEO’s of the national postal operators where asked to comment on the sustainability of the postal regulatory framework in a meeting with the European Commissioner in September. The common message was that more flexibility in the obligations is needed to ensure a sustainable universal service. This means less obligations and possibly reduction of the scope of USO (Universal Service Obligation). For many operators this need is driven by the belief that the political willingness to guarantee financial compensation for providing the actual USO (either direct by government or through an industry fund) is disappearing rapidly. Please refer to the Position Paper of PostEurop on the subject.
Where does PostNL come in?
In the Netherlands there is an ongoing discussion on balancing the universal service obligations with the financial sustainability of this service. This means an USO that does not require additional compensation. The discussion will be easier if other European regulators, and eventually Brussels, do think along the same lines. Please refer to PostNL’s position paper on the subject. For PostNL’s activities abroad a reduction of USO and related compensation will diminish the risk for competition distortion and cross-subsidization in the incumbent’s activities.
The European Commission will send their so-called Application Report to the European Parliament in April. This report describes the developments in the postal market after the liberalization of 2011 and could propose policies in response. The Commission will also launch a consultation where all stakeholders (users, customers, workers etc.) can bring forward their input on issues as price, quality of service and other elements of the letter and parcel market.
This report and consultation could lead to a regulatory proposal of the European Commission by the end of 2015.
Additional regulation of international parcel services unnecessary
In the interest of the consumer, should there be rules for cross-border deliveries of Internet orders within the EU? No, is the emphatic response of the Dutch government. After all, consumers who shop online do not do business with the delivery service company themselves. Also, consumer rights in relation to online shops are already regulated in various European directives.
The 'no' of the Dutch cabinet is in response to the 'Green Paper concerning an integrated parcel delivery market for the growth of e-commerce in the EU'. Through this Green Paper the European Commission takes stock of how the Member States view cross-border parcel deliveries within the EU. The underlying question is: can and should the European Commission encourage the EU market for e-commerce?
E-commerce is booming. The European e-commerce association, Emota, anticipates sales of 350 billion euros for 2013, 17% more than in 2012. Internet orders placed abroad still only make up a small percentage, but that percentage is growing rapidly. For the coming five years, Emota foresees a total sales increase of 65%, but the sales of orders placed abroad will almost triple.
Green PaperThe questions raised by the European Commission through the Green Paper include whether online shops should inform consumers about the contact details of the delivery service company, the delivery options and the delivery price. The European Commission also puts forward the suggestion to publish price comparisons for delivery services. PostNL does not believe this is necessary. After all, the growth of e-commerce will also see the growth of the number of delivery services that focus on these business-to-business consumer markets. The consumer will benefit as a matter of course from this competition. Additional regulation is therefore unnecessary. That is also apparent from the current market situation. For a company like Amazon.com, Europe is already one market where delivery, which is largely in the hands of global operating companies such as DHL, UPS and TNT Express, is absolutely no problem.
It is remarkable that the Green Paper seems to assume that consumers choose their own delivery service company when shopping online. In reality the situation is completely different. The delivery of ordered products is part of the transaction with the online shop. They also determine how the delivery costs are locked into the price and which delivery options they provide. The delivery price is often invisible to the consumer because it is, entirely or partially, locked into the price of the product. What is also surprising is the suggestion by the European Commission that the consumer would benefit from a new universal service obligation for the delivery of parcels within the EU. The Dutch cabinet has a clear vision in this respect too. The cabinet does not see any reason to assume that competition is not working properly. Furthermore, there is already a universal service based on the Postal Directive for parcels up to 10 kg, and the Dutch cabinet has received no indication that the universal service is currently lacking.
In the meantime, 27 European postal companies are trying to strengthen their market position through improving the delivery of international parcels. Within the IPC cooperation services are being developed for return deliveries, tracking and tracing, flexible delivery frameworks and quality improvement. The European Commission considers it a good initiative because starting web shops are mostly dependent on postal companies owing to the small number of parcels that they send. On the other hand, the market also has a solution in that area. The SMEs can send their orders through so-called e-fulfilment companies who prepare consignments from various companies and present them as one batch to a delivery service.
Modernisation of the Dutch Universal Service Obligation
In the Netherlands the Universal Service Obligation (USO), the basic postal service that ensures postage remains accessible and affordable for all, is provided by PostNL. Since 2006, postal volume has fallen by 40% and this decrease is continuing. People increasingly use social media, text messaging and e-mail. And therefore they are sending fewer and fewer cards and letters.
This decrease in volume requires PostNL to adapt its infrastructure and delivery procedures. Our reorganisations and innovations are urgently needed for this purpose. An adaptation of the network of postal outlets and letterboxes is also needed. To make this possible the Dutch Postal Act has been amended. The new laws and regulation governing the USO have entered into force per 1 January 2016. This includes changes to the requirements concerning the geographical distribution of letterboxes and post office branches in the Netherlands.
Number of letterboxes
Compared to other European countries, the Dutch letterbox network is especially dense. By the increase of statutory maximum distance to a letterbox in urban areas from 500 metres to 1,000 metres, the number of letterboxes can gradually be reduced. If we place letterboxes in smart locations – at locations people regularly pass by – we can continue to offer virtually the same service with fewer letterboxes and lower costs.
Number of post office branches
With a total of 2,000 post office branches, PostNL has a nationwide retail network in the Netherlands. By keeping the demands for the spread of branches throughout the country but dropping the demand on the minimum number, the network can be changed by introducing new commercial propositions in line with customers demand.
Cooperation with interest groups
Law and regulation demand that PostNL consults interest groups before implementing changes in the network. PostNL therefore has created a platform for this consultation. Interest groups representing the elderly, the physically challenged, rural areas, city councils and state institutions take part in the discussions. This has resulted in an agreement on the general policy and the involvement of interest groups in the process of local implementation. This process has started in January 2016.
European Postal Markets – 2016 An Overview
We have prepared for you a comparison of selected European mail markets and their principal postal players (ppo’s). We included amongst others mail volume development, mail density, quality, and regulatory status. We see variations in the way ppo’s are regulated, receive subsidies or have to deal with pension obligations. This creates differences between postal companies and their financial strength.
In addition to mail related information we have included some basic facts on the e-commerce market, parcels density and also a comparison of the composition of revenues and operating profit.
What is the best way forward for the postal system?
Interview with Arno van Bijnen
This year the Dutch Ministry of Economic Affairs stated that PostNL should have the freedom to close over half of the 19,000 existing letterboxes and the majority of the 2,500 existing post offices. So how can you post a birthday card to your grandchild if you are less mobile? ANBO (organization representing the interests of the elderly) lobbyist, Alex van Scherpenzeel, puts that question to Arno van Bijnen, Commercial Director of PostNL.
Your company is doing well on the stock market. Plus, PostNL expects profits of between 50 and 90 million euro this year. So then why did you decide to reduce the number of letterboxes so drastically?
"Because at the same time we are seeing that people send a lot less mail. We anticipate a decrease of around 9 percent a year. This is not just due to the fact that people are sending fewer and fewer letters because they are online. For example, companies are increasingly sending out their bills by e-mail. Fortunately, we generate a good turnover from the distribution of parcels. However, we need to reduce costs to keep the delivery of mail accessible, affordable and reliable in the future."
How much should the operation generate?
"The reduction and relocation of letterboxes will generate cost-savings of 12-13 million euro. Those costs lie in the fact that our people need to empty letterboxes every day. You must realise that there are thousands of letterboxes that receive barely any mail. Occasionally, when our people empty them, they only find a single postcard. The reason we operate those letterboxes is because the Dutch Postal Act prescribes, inter alia, that in towns and villages with 5,000 residents or more, there must be a letterbox within 500 metres of each resident's front door. That's why we entered into consultations with the Dutch Ministry of Economic Affairs, to determine the smartest way to tackle this."
The cost-savings will be at the expense of the elderly and people who are less mobile on account of a disability.
"But I don't need to tell you that most old people use the Internet too?"
That's correct. At the same time, the survey we took among our members, as prompted by your plans, revealed that they still send letters by mail. I assume you still do too?
"Definitely, especially birthday cards and Christmas cards. We are very aware of the fact that we fulfil a need. PostNL would be shooting itself in the foot if it reduced the number of letterboxes too drastically. Fortunately, we can improve by placing letterboxes at smarter locations. For example, at train stations, supermarkets or right at the entrance of a neighbourhood."
But we're talking about more than half of the letterboxes and post office branches! We are afraid that a group of people who really rely on the letterbox around the corner are being forgotten. There are people who are not all that good with the Internet and who also have reduced mobility. They are wondering how they will be able to get their mail out the door. Conversely, there is a chance that they will receive less mail if their children or grandchildren no longer have a letterbox in their street. That's the way to increase social isolation.
"Most elderly people still do their own shopping. Many of them travel by public transport. By placing letterboxes in locations where people pass by several times a week, we expect to provide a good alternative to the 'letterbox around the corner', also from a social point of view. For young people and the elderly. Of course, that will take a bit of getting used to. That's why proper communication about these changes is essential. We are really thinking this through. We are talking about an operation that will be completed in 2018, so the changes will take place gradually."
But what about after 2018?
"We are taking a close look at how to maintain optimum accessibility. We are also discussing this with ANBO. The starting point is that there will be a letterbox within a radius of one kilometre of every home. So, that is a bit further than the 500 metres that is currently in the legislation. Furthermore, we are going to make strategic decisions about where we place letterboxes and in doing so, naturally, we will take the interests of the elderly into account. They will certainly remain in place at residential care complexes. Plus, we are looking into the options for combining functions. In Leeuwarden, for example, we are experimenting with placing drop-off boxes for small electronic devices under the letterboxes.
We are also giving careful consideration to the strategic division of the number of post offices. At present you sometimes get a number of post offices in the one street where you can use any service, from fishing permits to transferring your licence. There will certainly be fewer of those scenarios. On the other side of the coin, there will be a significant increase in the number of 'mini-post offices' in Bruna, Albert Heijn and Jumbo stores, where you can buy stamps or collect and submit postal parcels. The importance of parcels will continue to grow, for the elderly too, due to the increase in online shopping."
The new Dutch Postal Act
Among other things, the Dutch Postal Act provides the maximum permitted distance from one's front door to a letterbox. At present, there must be a post office within a radius of 500 metres from one's front door in towns and villages with more than 5,000 residents. The cabinet wishes to change that to 1,000 metres, at the request of PostNL. The maximum distance will remain 2,500 metres in districts with fewer than 5,000 residents. The law also provides the radius within which there must be a full service post office for most residents: 5 kilometres.
Survey: ANBO members & the letterbox
In June last year ANBO conducted a survey of over 1,300 members in relation to PostNL's plans. Here are some of the results:
- Virtually all members (some 94.4 per cent) use letterboxes. Half of them go to the letterbox seven times or more every three months.
- More than 70 per cent of them expect to be inconvenienced by the halving of the number of letterboxes. Old people in small villages are especially worried. They anticipate less inconvenience if the remaining letterboxes (and outlets) are situated in a central location.
- The vast majority already use the Internet. Some 30 percent expect to use e-mail more often if PostNL goes ahead with its plans.
Did you know…
- the first Dutch Postal Act dates back to 1850? It replaced the French Postal Act from 1810. The installation of letterboxes meant that citizens no longer needed to go to the post office to post their letters.
- the first Dutch postage stamp appeared in 1852? Stamps costing 5, 10 or 15 cent were affixed to letters, depending on the distance. You now pay 64 euro cent for a postage stamp.
- the Dutch Postal Act also provides that there must be a post office in every municipality?
- mail used to be delivered several times a day? In the '20s, when the number of daily visits by the postman was reduced to three, this led to protests.
- there are over 30,000 postal workers in the Netherlands?
- on average, 11 million letters are delivered every day?