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The Continent Is Still A Tough Neighborhood For Ups (Int'l Edition)


International -- European Business: EUROPE

THE CONTINENT IS STILL A TOUGH NEIGHBORHOOD FOR UPS (int'l edition)

Despite massive losses, it's vowing not to retreat

For United Parcel Service Inc., it's shaping up as another body blow. On Sept. 16, the European Parliament is expected to postpone opening bloated postal monopolies to almost all competition until 2003 or later. That's bad news for UPS, which charges that Deutsche Post, France's La Poste, and others are subsidizing express services through protected letter-delivery franchises. It also means that UPS, just after a painful strike at home, faces a steeper climb before turning around its European operations, which have lost over $500 million in the past three years.

The U.S. courier's woes underscore Europe's patchy progress toward a single market. While the European Commission is opening such areas as airlines and telecommunications, in other sectors--energy and postal services among them--it is barely budging. "We came to Europe because borders were coming down fast," says Colin Beesley, UPS's marketing manager in Britain. That was a grim miscalculation. While UPS is geared to global traffic, more than 90% of Europe's parcel business remains domestic. UPS does not now expect to see profit in Europe until at least 2000.

The courier's commitment has been huge. In the runup to the 1992 single market, UPS spent $1 billion on a European parcel-delivery network. But the monopolies hit back hard. Deutsche Post put $2.2 billion into 33 parcel-sorting centers around Germany. Critics say such lavish funding is possible because national governments, fearful of job losses, accept high prices. The German postal rate went up just this month to 1.1 Deutschemarks, about 60 cents, for a normal letter--almost twice the U.S. rate. "It's a blatant cross-subsidy, using profits from a monopoly to build up a parcel business," complains Anton van der Lande, UPS's Brussels-based vice-president for European affairs. Deutsche Post denies such charges and insists that it must provide universal service to every address in Germany.

UPS has fought back with more than investments. In 1994, it lodged an antitrust complaint with the EC against Deutsche Post. The new postal directive is likely to require monopolies to keep separate "letter" and "parcel" accounts, while barring cross-subsidies. But EC sources now say that it is about to withdraw its cross-subsidy charges. Even if Brussels does investigate Deutsche Post, van der Lande admits, "this is not a victory. It will take a long time to see real action."

Adapting to European habits has been another struggle. UPS forbids its drivers to drink on the job, but try telling a French driver to forgo his lunchtime wine. A more serious problem stems from lingering border controls. Because a value-added tax is levied where a package is delivered, UPS has to deal with 15 different tax regimes.

UPS is not alone in finding Europe tough sledding. Federal Express Corp. shut down its internal European service in 1992 to concentrate on transatlantic deliveries. "We found that people wanted express service from London to L.A., but not from London to Paris," recalls Cliff Morley, FedEx's European spokesman. But competition is still fierce. DHL is No.1 in express documents, while privatized and profitable Dutch PTT Post last year bought Australian-based TNT Ltd.--which made it Europe's leader in cross-border parcel deliveries. Says a confident Ad Scheepbouwer, PTT Post's president: "We are spending our time improving our market share, not building court cases."

WELL-POSITIONED. Although its market share is only 15%, UPS vows no retreat. Through 2000, it will spend an additional $1.1 billion in Europe on aircraft, vehicles, and a tracing system. UPS retail outlets are spreading, and the company assures delivery before 10:30 a.m. in 400 European cities. While the market is small, growth is now 15% per year--half again faster than the U.S. market.

As the market expands, UPS is well-positioned to offer its multinational clients the one-stop shopping they demand. "If we were going to become a global leader in express package delivery, we knew we must be in Europe and that we must be successful in Europe," says marketing manager Beesley. Fighting words. And it looks like UPS will back them up with deeds.By William Echikson in BrusselsReturn to top


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