| BUSINESSWEEK ONLINE : MAY 31, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- EUROPEAN BUSINESS
Who'll Get Stomped in Europe's Postal Wars? (int'l edition) Traditional mail services are battling each other and couriers for E-commerce deliveries When Klaus Zumwinkel took over as chief executive of Deutsche Post, the German state post office, many of his employees were ex-Communist bureaucrats just as used to opening customers' mail as they were to delivering it. But nine years later, the post office is acting more like a hot-shot growth company than a haven for apparatchiks, and Zumwinkel has gone on an acquisition binge, creating Europe's biggest parcel service. ''We completely reinvented the Post,'' Zumwinkel says. All over Europe, old-style posts are remaking themselves--and for good reason. Their two basic businesses--delivering letters and delivering parcels--are both under attack. E-mail is threatening to make old-fashioned letters obsolete. The Internet and the euro are revolutionizing mail order. At the same time, U.S. market leaders Federal Express Corp. and United Parcel Service Inc. are battling it out with the state post offices for control of Europe's $27 billion fast-growing parcel service. Europe's big postal bureaucracies--which will lose their domestic letter monopolies in 2003 because of European Union deregulation--must change their ways fast. They especially need to capture a hefty slice of the booming Internet business or slip into irrelevancy. NOT WITHOUT A FIGHT. The newly revitalized Europeans are fighting back by cutting prices, acquiring companies outside their national borders, and investing heavily in new Internet services. Their resilience is a shock to UPS and FedEx, whose executives thought they could sweep aside the lumbering Europeans with ease. Instead, the Europeans are challenging the U.S. giants for global supremacy. Deutsche Post is leading this costly charge. Since 1997, the state-controlled company has shelled out $4.4 billion on more than 20 acquisitions, including a 25% stake of DHL Worldwide Express. The eventual goal, says Zumwinkel, is to offer one-stop shopping to anyone who wants to sell or ship anything in Europe. A key part of his strategy is to exploit the explosive growth of the Internet. Within three years, sales conducted over the Internet in Europe are predicted to rise from only $3 billion last year to $68 billion. Zumwinkel wants to be the prime shipping service for products ordered online as E-commerce supplants traditional retailing. On May 15, the company inaugurated an E-commerce Web site known as eVITA, which hosts online sites for merchants and encourages them to choose Deutsche Post to deliver the wares they sell electronically. Other services include an Internet link, warehousing, call centers, and traditional delivery. The British, Dutch, and French posts are almost as active as Deutsche Post. They're buying out rivals and expanding internationally. Britain's Post Office made its first foreign purchase last year, picking up German Parcel for an estimated $500 million. The goal: to be among the only four or five full-service European mail and parcel services that industry insiders predict will still be standing a year from now. The survival strategy calls for ramping up online services, just as Deutsche Post has done. The Netherlands' TNT Post Group introduced a Quickshipper service in March that allows customers to place orders and track their packages online. Within five years, the company expects half of all TNT orders to be placed on the Web--up from 3% today. OLD-LINE ONLINE. Europe's old-line shopkeepers and manufacturers are avid to try the posts' new E-commerce services. Fiat now goes online to order components from suppliers. TNT is linking up with the E-commerce sites of local retailers such as Dutch book and CD chain Bruna. ''We let them put our logo right on their site,'' says Louis du Pre, director of TNT's Internet operations. In return, TNT manages all the company's warehousing and deliveries. Fancy E-commerce services are not enough, though. The resurgent Post Offices are cutting prices for their larger customers of parcel services. Indeed, UPS accuses Deutsche Post of selling below cost and financing its acquisitions by charging some of the highest prices in the world for regular mail--60 cents for each letter, almost twice the price in the U.S. UPS has lodged complaints with both the U.S. Justice Dept. and the European Commission. Deutsche Post denies the charge and says it got the cash for its purchases by selling excess real estate. European antitrust authorities are watching the battle among the parcel delivery services closely. In March, for example, the EC opened an investigation into Deutsche Post's plans to boost its stake in German shipper Trans-o-flex Internationaler Schnell-Lefoerdienst from 25% to 75%. The deal arouses fears that Deutsche Post will have a quasi-monopoly of the German parcel market. Deutsche Post says it is postponing the purchase to allow more time to answer the EC concerns. Some analysts wonder whether the posts can compete in a truly open market. Deutsche Post, for example, still has a bloated workforce of some 250,000, and competitors say it has overpaid for its recent acquisitions. UPS Europe President Randy Pulito also thinks the posts will have some trouble integrating their new purchases into a coherent network. ''It won't be easy for a German brand such as Deutsche Post to sell in France or a French brand like La Poste to sell in Germany,'' he insists. U.S. INVASION. The Americans are far from giving up. FedEx shut its operations within Europe back in 1992 but has been building up in the past three years. It has expanded its hub in Paris and doubled its workforce to 6,000. UPS is trying to boost margins this year by refusing to match Deutsche Post's cut-rate prices on regular parcels and focusing instead on delivering premium packages for high-tech companies such as Gateway Inc. and Dell Computer Corp. These command higher prices because they offer a firm time commitment and a free money-back guarantee. ''Europe is a tough market, but we're here for the long haul,'' says UPS' Pulito. Over the next few years, a shakeout among the big delivery services looks inevitable. TNT and Deutsche Post's DHL look strongest in Europe and Asia but remain weak in the U.S. FedEx and UPS dominate in North America but trail elsewhere. Rumors of a blockbuster merger or takeover abound. TNT CEO Ad Scheepbouwer predicts a transatlantic tie-up. ''We're getting ready to play our final hand of cards,'' says Scheepbouwer. As the endgame approaches, the old-fashioned posts look surprisingly strong. By William Echikson in Amsterdam, with Jack Ewing in Bonn and Inka Resch in Paris _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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