Continuing uncertainty in postal market

The Dutch postal sector continues to remain unsettled, with newcomers attempting to break into the market. The new entrants were favoured recently in preliminary relief proceedings against the state concerning bottom-line employment conditions. Despite desires for wage moderation, TNT was meanwhile forced to agree to a pay increase. However, the trade unions had to concede to as many as 4,000 job losses. Moreover, TNT is at risk of being targeted by activist investors.

Employment conditions for newcomers

For years, ongoing computerisation across society has shrunk the postal market (TN0712017S). Nonetheless, this market was deregulated completely in the Netherlands with effect from 1 April 2009. However, the cabinet only agreed to this on condition that the new entrants, Sandd and SelektMail, allow their employees to be covered by a collective agreement as opposed to working on the basis of a piece rate. This was negotiated because studies show that the latter arrangement sometimes leads to wages below the statutory minimum. In preparation for deregulation of the postal market, Sandd and SelektMail therefore reached a collective agreement in November 2008 with trade unions affiliated to the Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV) – the Allied Unions (FNV Bondgenoten) and Abvakabo FNV – allowing for an initial phased approach (NL0904029I, NL0807029I). With effect from 1 October 2012, at least 80% of all postal delivery workers must be working in permanent positions at both companies. Agreement was reached with the trade unions on how this percentage would be achieved in phases. The first target of 14% was due to be attained by 1 April 2010.

However, the phased target percentages specified in the collective agreement are flexible. In other words, a higher or lower percentage could apply depending on the number of working hours specified in the employment contracts. The government found these agreements to be too non-committal and attempted to bring about more certainty based on an Order in Council (Algemene Maatregel van Bestuur, AMVB). The AMVB states that a percentage of 10% must be achieved by 1 April 2010. However, newcomers Sandd and SelektMail successfully contested this matter in court. The Minister of Social Affairs and Employment, Piet Hein Donner, and his State Secretary, Frank Heemskerk, have since lodged an appeal against this ruling. Should the appeal prove fruitless, the cabinet ministers have made it known that they would resort to a Royal Decree in order to assert their position in relation to the postal market.

Job losses at TNT Post

Meanwhile, a battle is underway at the former monopoly company TNT Post to adjust employment conditions in the opposite direction. In April 2009, TNT Post put forward a proposal to the trade unions – including Abvakabo FNV, FNV Bondgenoten, CNV Publieke Zaak and the Union for Postal Personnel (Bond voor Personeel PTT-Nederland, BVPP) – to accept a 15% wage reduction in exchange for three years of job security for all employees. After the trade unions rejected the proposal based on membership consultations, TNT Post announced a reorganisation, leading to some 11,000 job losses between now and 2012. Forced redundancies would then be unavoidable.

The trade unions themselves initiated a study into the situation at TNT Post, the findings of which emerged in October 2009. The study showed that job losses or worsening employment conditions would indeed be unavoidable. However, it was ascertained that the postal company would not have to be so heavy-handed. The trade unions gave their members a choice: to accept the zero line in terms of wages and retain employment, or to focus on achieving a pay increase, subject to potential job losses but provided that a sound redundancy plan could be drafted.

Agreement in principle was reached on 29 January 2010 on a new collective agreement between TNT Post and the trade unions. It mapped out a pay increase of 1.9%. Partly under threat of strikes, TNT Post agreed to the wage increase. In exchange for the pay rise, the trade unions conceded to the potential loss of about 4,000 postal delivery jobs at TNT Post – constituting about a quarter of the total number of postal delivery employees currently working at the company. The redundancy plan linked to the agreement contains a voluntary exit scheme for postal delivery workers. If they volunteer for alternative job placement counselling, they could receive up to 30 months’ salary. In addition, thousands of postal delivery employees could use the lump-sum payoff to bridge the pre-pension gap until reaching 62.5 years of age.

Threat of activist hedge funds

Since 2 December 2009, together with Canadian pension investor Aimco, hedge fund Jana Capital has owned more than 5% of TNT Post’s shares, and has been putting the postal company under pressure. Although it remains somewhat unclear what the shareholders want from TNT Post, it is generally assumed that the aggressive hedge fund aims to split up or acquire TNT Post. This was prompted by TNT’s decision at the beginning of December to suspend its plans for launching its postal division in the European market. The postal company has for years struggled to become a European contender by taking over smaller postal companies in Germany, Italy and other larger European countries. However, this strategy has only had limited success because market mechanisms there are hampered – for example, by keeping the former monopolist exempt from value-added tax (VAT), and because European deregulation keeps being postponed. TNT Post will therefore be withdrawing to operations in the Dutch postal market alone. Regarding the company’s express division, which is experiencing growth, TNT Post is adopting an entirely different approach, seeking to expand worldwide operations.

Given the contrasting strategies adopted for both divisions, the need to keep them together would vanish. TNT Post was already forced to hive off its logistics division in 2007. While the situation has yet to settle down, the threat of a further split has now emerged. According to analysts, if the express division was to be split from the postal division, it would become easier to assign a value to it, and selling it off to United States (US) competitors UPS or FedEx – representing about 80% of the US market – would become an option.

However, the Chair of TNT Post’s board, Peter Bakker, has put these uncertainties into perspective and asserts that no plans for such a split have been proposed to him. Mr Bakker also believes that splitting up the group would not serve TNT Post’s best interests.

Commentary

The history of deregulating the postal market stems from the early 1990s, when the first European-wide plans to deregulate the rigid national postal markets emerged. The target year set then was 2001. The subsequent process serves to illustrate how difficult it is to plan such extensive operations in advance. The question is whether enough account was taken then of the fact that the ongoing computerisation of society would significantly diminish the postal market. This in itself forms a serious barrier to deregulation. Moreover, politics in most countries prevent market mechanisms from coming to full fruition. For example, Royal Mail’s competitors in the United Kingdom (UK) may only take care of mail collection and sorting. Other obstacles emerged in Germany and Italy. As such, although TNT Post did manage to take over a number of smaller postal companies in these countries, the group was unable to achieve a firm footing. Finally, the entry barriers appear to be high: the former monopolists have worked so efficiently that competition only appears possible in relation to the wages earned by postal workers.

Marian Schaapman, University of Amsterdam, Hugo Sinzheimer Institute (HSI)