MAIL WARS

DIRECT MAILERS mounting campaigns across international boundaries may be the beneficiaries of the increased competition for their postal business.

A wave of mergers and acquisitions within the distribution and postal services sector has demonstrated how important this business is considered to be for the future. Visitors to the International Direct Marketing Fair in London in March noticed the presence of Deutsche Post for the first time. Last year saw the Dutch marketing their services, and alongside both, Royal Mail International was flying the flag for the British postal administration.

The irony of this competition is that, for the moment, activity aimed at establishing credible global distribution services for mailers probably substantially outweighs the volume of cross-border mailings. The drivers in this sector are privatization and deregulation-two years ago, the Dutch Post Office was privatized and Deutsche Post will follow suit this year. The British post office has just been granted greater commercial freedom, which will allow it to acquire more supplier companies and enter joint ventures.

“It has happened very quickly. If you look back two or three years, competition was not at a significant level. Now you only have to look at the marketplace and see that it is,” says Stephen Davie, director of communications at Royal Mail International. The United Kingdom is a critical battleground because “the marketplace for international mail is fully liberalized. In all other European markets there are some restrictions.”

That explains the presence of the Germans and Dutch (and the French, to a lesser degree). Pending its privatization, Deutsche Post has been assembling a substantial position in the global logistics and distribution market. It has just purchased Danzas and Nedlloyd, two shipping and trucking combines, which it’s rolling into a unified service.

Already, the new acquisitions are being used to support international direct mail services out of the United Kingdom. “We use Danzas on trucking from the United Kingdom via Liverpool to Germany,” notes Graham Rothery, U.K./Ireland sales manager for Deutsche Post’s International Mail Services (IMS) division. This shipping capability is important for supporting mail order companies, bringing customer order forms back to the United Kingdom and then sending out goods.

Rothery sees international mail order companies as the prime sales targets for IMS. “A number of American mail order companies have set down in the U.K. and are looking to use it as a springboard into Europe. We already have Lands’ End as a major customer,” he says. Deutsche Post has helped the cataloger establish a call center in Germany, and handles all the logistics of its fulfillment operation to German customers.

Because of the size of the domestic mail order market, Germany is likely to be one of the first targets for exports out of the United Kingdom. This gives IMS its opportunity to nibble away at domestic carrier Royal Mail International’s customer base. Price is naturally a major basis for competition, with the German service claiming it can be up to 50% cheaper than Royal Mail for A4 items. (A4 paper is a standard-size-8-1/2-inch by 11-inch-unfolded sheet.)

Rothery explains that the reason for this is the sorting technology used by Deutsche Post. “In the United Kingdom, you pay for every weight step-the heavier the item, the more you pay.

“In Germany, the pricing structure is based on the format of the mail piece. If it’s A4, it costs twice the price of a DL item, regardless of weight,” he says. (DL paper is an 8-1/2-inch by 11-inch sheet folded three times-the size of a standard envelope.) This is because the sorting equipment puts A4 items through at half the rate of DLs. But weight does not affect sorting speeds, so it is not reflected in the price. That gives the service its advantage.

There are other benefits of using the domestic carrier within a destination country. One of them is the appearance of being a local company.

“It is a proven fact that, although people like to buy from British companies and there is a benefit of having a British postal impression, in reality, Germans like to buy from people they see as German,” says Rothery.

As a result of reunification, Germany probably has the most modern postal infrastructure in Europe. It has also just completed Projekt Brief 2000, which has seen the recoding of the whole country’s postal codes. Combined with 83 new letter-sorting centers, Deutsche Post can now offer a single delivery standard at one price, rather than a two-tier service.

Davie recognizes that for the U.K.’s postal service, the major challenge is preventing too much defection to alternative deliverers. “There has been an impact from competition. In any European market where other postal administrations are competing, they go in there and take a percentage of the business,” he says.

But he tackles the issue of price as being a short-term gain which will soon be ended through regulation.

“One of the things we are working with other postal administrations on is the European Union’s postal directive. We are keen to see transparency of cost. The U.K. post office for a long time has had to be very transparent in its cost. We are not allowed to cross-subsidize from national to international services,” says Davie.

He believes that rivals will have their current advantages ultimately removed. In any case, Royal Mail’s view is that the real ground on which business will be won is customer service.

“There is a lot of need for account management and working to provide tailored solutions. For national postal services where they are dealing with 90% of domestic mail, large volume services are not easy to tailor,” Davie says.

Royal Mail has certainly got its eye on the opportunities for building value-added services through acquiring additional companies.

“General Parcel [a company recently acquired by Royal Mail] is a good place to start for linking to the parcel market. We are looking to consolidate and to bring in companies that really add to our service,” says Davie.

PTT Post (the Dutch post office) was the first postal administration to go down this route aggressively. Following its privatization PTT bought courier service TNT Worldwide, out of which a new company-TNT Post Group-was formed. It now operates two brands: PTT Post, which manages domestic services (including international mail out of the Netherlands, which is handled by PTT Post International), and TNT, which offers international logistics and direct mail out of other countries.

For international direct marketers, the TNT offering has been an attractive alternative because of the depth of services it provides. This includes European parcel distribution, international business reply services, and Global Collect, an outsourced invoicing and payment operation which collects money on behalf of clients.

But while the company has been busy picking up business in markets outside the Netherlands, PTT Post International has also had to face up to competition in its home market. The German, French and British postal services are all now actively courting Dutch direct mailers that want to send items abroad.

Anne Maartje-Metz, product manager for international direct mail at PTT Post International, says competition is about providing a full service.

“We position ourselves as reliable, high quality and offering a value-added service. We help customers figure out other areas of direct mail, such as addresses and address management, print and mail, and response systems,” she says.

Price is important, but depends on the type of activity. “We see ourselves as faster and more reliable. It is a price-quality relationship. We are at the high end of quality, but we are not the highest-priced service,” says Maartje-Metz. To date, the main destination countries for international mailers from the Netherlands are the key European markets of Germany, France, the United Kingdom and Belgium. But Maartje-Metz predicts an increased role in servicing demand from the United States and Canada.

What is unusual about international direct mail service is that it is one of the few postal sectors in Europe where competition really does exist.

This is especially the case in the United Kingdom, which has liberalized that service completely. For some time now, clients have been free to choose their carrier.

This has given rise to the international postal consolidation sector, which does not exist in any other country; effectively, international mailing houses group mailings together in order to negotiate better deals on shipping in destination countries. Theoretically, these mailers are now competing with the overseas postal administrations that have entered the U.K. market, although the mailers also work with those same postal authorities to find solutions.

Simultaneously working alongside and competing with each other is also part of the new reality for postal services. Although they may be fighting for clients’ business, they have to handle the items arriving in their own country as well. Davie says that in this respect, the postal system is a remarkable international achievement.

“On a day-to-day basis, postal administrations work hand in hand,” he explains. “For all its faults, the international delivery service is a tremendously effective system, considering you have 189 different countries involved. There aren’t many systems that work as efficiently and effectively given all the potential problems.

“Where postal services are concerned, it seems we really are one nation under the stamp.”