Appendix A
Understanding internal data
Getting the data from the systems, and thus monitoring the in- and outgoing flows, is not very easy. Currently, there are two systems from which data, regarding cost, can be taken. One is called GND; this is the operations/commercial database, which contains all transactions coded by so-called disposal codes.
As an example, a typical disposal code is BRTR3NAG.
“BRT” means that the origin depot is Brussels.
“R” indicates the type of mail, in this case registered.
“3” indicates the individual number of this particular mail.
“NA” is the destination, North America
“G” is the size of the mail, in this case grand, as opposite to encombrant and petit.
By looking up these disposal codes in the GND system, one can see which contract was used, and which contract type was used, i.e. Hand Delivery, Local Injection or ABC. Furthermore, it is possible to learn the sum of the total weight, the sum of the total items, both relevant regarding the IC-DC rates. Also, the sector line haul and TaNaT line haul, which make up line haul cost, and the total postage cost are visible in this system.
On the other side of the organisation, the Business Line Review team, use a system which registers the actual incurred revenue, sorted on a customer level. Per
customer the revenue is known, the % of the postage, the % of the line haul and handling costs, which all end up in the contribution margin, or 1st margin. Note that the handling costs are not known in the GND system, but are relevant to 1st margin computing. Also, no link exists between customers, and their associated revenue, and the cost per disposal code. Only grand totals of cost per customer are known. It is not possible to trace customers back to disposal codes.
Therefore, it is not always possible to retrace revenue, 2nd margin or EBIT per supplier, but these parameters can be traced per customer. This makes it difficult to compare.
Another difficult part lies in the allocation of overhead. Large customers can, by their sheer size, negotiate small margins. However, per euro revenue, they consume little time of the sales people, i.e. overhead .Moreover, even with their low contribution margin, they fill the network, leading to greater efficiency at the moment. Concluding, they get less overhead cost allocated, so even with their lower contribution margin, they can lead to favourable EBIT.
Appendix B
International mail sizes
Within the international mail world, 3 official sizes exist for mail. These are petit, grand and encombrant. Extra emphasis is placed onto these sizes within REIMS countries.
• The standard Petit (P) format is: Minimum dimensions 90mm x 140 mm, Maximum dimensions 165 mm x 245 mm, Thickness 5 mm, item Weight up to 100 gram.
• The standard Grand (G) format is: Minimum dimensions 165mm x 245mm, Maximum dimensions 305mm x 381mm, Thickness 20mm, item Weight up to 500 gram.
• The standard Encombrant (E) format is: Maximum dimensions H+W+T=900 mm and be less than 600 mm (longest authorised length) Weight up to 2000 gram.
The major part of the mail sent by Company A is ‘petit’ size, followed by ‘grand’.
These figures are based on the 3rd quarter of 2004.
Standard totals origin Belgium
Grand , 19%
Encombrant , 2%
Petit , 79%
Premium totals origin Belgium
Petit , 75%
Grand , 22%
Encombrant , 3%
Appendix C
Premium and Economy service
The difference between a ‘premium’ and an ‘economy’ or standard service level is striking, for the majority of the customer choose a premium service, as can be seen in the figures below, based on actual sales in the 3rd quarter in 2004.
Difference w eight
Economy, 23%
Premium, 77%
Because of the different mail sizes, there is a difference between the number of items and the weight.
Difference Item s
Premium 89.5%
Economy 10.5%
As said before, this raises question on the justification of the name ‘premium’, because when almost every item is a ‘premium’ item, maybe which can be renamed as standard, and a real premium service level can be introduced.
Appendix D
Legislation
UPU
International mail is regulated by numerous institutions, of which the UPU is the best known. Established in 1874, the Universal Postal Union (UPU) with its Headquarters in the Swiss capital Bern is the second oldest international organisation after the International Telecommunications Union1. With 190 member countries, the UPU is the primary forum for cooperation between postal services and helps to ensure a universal network of up-to-date products and services. In this way, the organisation fulfils an advisory, mediating and liaison role, and renders technical assistance where needed. It sets the rules for international mail exchanges and makes
recommendations to stimulate growth in mail volumes and to improve the quality of service for customers. However, as a non-political organisation, it does not interfere in matters that fall within the domestic domain of national postal services. For example, PPO’s set their own postage rates; decide which and how many postage stamps to issue, and how to manage their postal operations and staff.
The UPU became a specialised agency of the United Nations on 1 July 1948. Since then its relations and active cooperation with other international bodies have grown and intensified. This has resulted in a number of Memoranda of Understanding and other Agreements with United Nations agencies and programmes, and with other international organizations.
Under the Universal Postal Convention (UPU Convention) members of the UPU, involving almost all countries in the world, agree to provide domestic delivery services for incoming cross-border mail. The obligation is a mandatory part of the UPU and underpins the worldwide postal network which exists today. Originally, PPO’s did not compensate each other for cross-border mail, because mail flows between countries were assumed to be in balance. However, in the 1960’s, large imbalances in the flows of cross-border mail occurred with the result that PPO’s in some countries were incurring delivery costs for incoming mail without generating sufficient revenue from the outgoing mail to cover these costs.
In the UPU congresses of 1906 and 1920 this subject was brought up, but the issue did not gain momentum until recently. It was in 1964 that the congress requested a study on this subject, to find a way to compensate the imbalances. In 1969 a system was adopted allowing PPOs to receive 0.50 Francs-per-kilogram from PPOs from which they received more mail than was sent to them. In 1974 this rate was set to 1.50 Franc-per-kilogram. However, these rates were set rather arbitrary, and the UPU set about to examine the relationship between these terminal dues and the postage paid.
Until then, the franc2 was used as a monetary unit. This currency was demonetised, and the need arose for a new monetary unit for calculating the terminal dues. This became the Special Drawing Rights, or SDR. This is a basket of the currencies of the
1 http://www.upu.int/about_us/en/glance.html
2 National currency of France
five leading export countries during the past five years, and now consists of the Euro, Yen, Dollar and Pound Sterling. The IMF re-evaluates the coefficients for calculating the SDR every five years. The value of one SDR itself, however, changes every day.
In 1999, the UPU3 adopted a two-tiered system for determining terminal dues paid to UPU Postal Administrations that became effective January 1, 2001. The tiers are distinguished based on whether a country is classified as ‘Industrialized’ or
‘Developing’. This system also saw the introduction of the so-called Quality of Service improvement Fund, or QSF. This made a connection between the postage paid and the quality of service. These self-imposed price barriers skim the legal boundaries as laid by the European Commission, and sometimes, as will be explained later, cross them.
Industrialized countries pay terminal dues to other industrialized countries based on charges specific to the destination country with per item and per kilogram
components.4 REIMS I
In the wake of the IECC complaint, IPC5 was asked, together with PostEurop,6 to establish a new terminal dues system (co-chairmanship of the Working Group).
The work started in 1992 resulted in a multilateral agreement (REIMS I) signed by 18 postal operators. This stands for Remuneration Exchanges of International Mails. The REIMS system was cost-based (80 percent of domestic tariffs), addressed quality-of-service concerns, and included a transition period to reduce the new
system’s impact on international postage rates tariffs. It was abandoned on 8 July1997, notably due to quality-of-service-related issues. REIMS I was founded upon the former CEPT system, with the terminal dues rates scheduled to be
increased progressively by 15 percent in 1997 and 1998 and by 20 percent in 1999 and 2000. A final increase was to have brought terminal dues levels to 80 percent of domestic rates. However, these increases were to be linked to quality-of-service results. At the time, operators could only receive an increase in their terminal dues if they met their quality-of-service objectives. Whether quality of service had improved or not was not the issue, but only whether the targets had been met.
3 http://www.state.gov/p/io/rls/rpt/2003/25052.htm
4 1999 Beijing UPU Conference
5 International Post Corporation is a cooperative association of 23 national Postal operators from North America, Europe and the Pacific.
6 Association of European Public Postal Operators
REIMS II
Any improvement in quality of service is now taken into account under REIMS II for the setting of terminal dues rates. The REIMS II agreement was signed on 9 July 1997. A first amendment adopted on 5 September 1997 established that until 31 December 2000, terminal dues rates would be calculated using the domestic tariffs in application on 1 September 1997. Later, in a second amendment, the transitional period was modified for the first time and set at 55 percent of domestic tariffs in 1998, 65 percent in 1999, 70 percent in 2000 and 80 percent in 2001. Following notification (1997), new discussions were organised with the European Commission and led to a second transitional period proposal: CEPT rates until the end of the 1st quarter of 1999, 55% of the domestic tariffs in the last 3 quarters 1999, 65 percent in 2000, 70 percent in 2001 and 80 percent in 2002. One year later, on 22 September 1998, a first additional agreement to REIMS II was signed. The new agreement also
contained measures designed to bolster quality of service and customer satisfaction.
Quality of service targets were set for both incoming non-priority and outgoing priority mail, with penalties for non-compliance in the case of incoming non-priority mail. To further encourage posts to improve quality, rises in percentage of domestic tariffs were linked to the Quality of Service results respecting delivery times. In addition, a system for handling customer queries and complaints was established. The
Agreement was notified to the Commission in 1997 which exempted it on 15 September 1999 until the end of 2001 and limited the exemption to a level of Terminal Dues not higher than 70 percent of the Domestic Tariffs. Three additional supplementary
agreements to REIMS II have been signed since. The second supplementary agreement accord, signed on 14 January 2000, was adopted to implement the Commission’s conditions set forth in the 1999 Exemption Decision and to take into account the accession of Swiss Post to the agreement. It also introduced
compensation, retroactively effective 1 January 2000, for international business-reply correspondence, and retroactively introduced penalties for not meeting quality-of- service requirements, effective 1 April 1999.
It also established that CEPT terminal dues rates would, until 31 December 2001, the end of the transitional period, constitute the lowest level of remuneration, even for countries where the CEPT rates exceeded 80 percent of domestic tariffs. The key features of the third supplementary agreement accord, signed on 4 April 2000, were mainly to ensure end-to-end Quality of Service7. Targets for outgoing mail were also set, to take effect in 2002, with penalties for failure to meet these new requirements.
The European Commission also granted an exemption, which stipulated that terminal dues would be based on 70 percent of the domestic tariffs until 31 December 2001.
The fourth supplementary agreement accord, which was signed on 7 June 2001, was to extend the transitional period by another 3 years. It changed the percentages of domestic rates at which terminal dues would be fixed during the transition period.
Terminal dues would be set at 73.3 percent of the domestic tariff in 2002 and 76.6 percent in 2003, reaching 80 percent in 2004. This fourth accord did not benefit from an exemption from the European Commission. In addition, to extending the
transitional period, it was agreed to freeze the domestic tariffs used as a basis for the
7http://www.postinsight.pb.com/files/REIMSTerminalDuesCrossBorder_4_23_03.pdf
calculation of Terminal Dues for 2003 and 2004. Therefore, increases of Domestic Tariffs after 1 September 2001 will not be taken into account.
However, decreases of domestic tariffs, on the other hand, will be taken into account.
Finally, “geographic coverage” was introduced. If a party whose domestic market is liberalised can prove that the geographical structure of incoming mail from a sending PPO has changed to such an extent that the percentage of the domestic tariff used under the REIMS II Agreement is insufficient to meet the costs incurred by the Party in question as a receiving PPO for the delivery of that mail, the Party can ask for a re- negotiation of the Terminal Dues paid by the Sending PPO. This introduction of
“geographic coverage” has strong consequences for the use of ETOEs, a phenomenon which will be explained later on.
The fifth supplementary agreement additional accord that was signed on 24 January 2003 modifies the duration of the Transitional Period and the Domestic Tariffs percentages to be applied. It set 31 December 2006 as the end of the transition period, and once again adjusted the percentage of domestic rates used to calculate terminal dues. Under the new agreement, terminal dues would represent 73.3
percent of the domestic tariff in 2002, 74.5 percent in 2003, 75.7 percent in 2004, and 78.5 percent in 2005 and 2006. After this transitional period, the percentage from 2007 would be 80.
The European Commission has in its decision of 23 October 2003 exempted the REIMS II Agreement until 31 December 2006
Appendix E
Historical background
The pioneer period of modern remail began in the late fifties when the then Japanese company Overseas Courier Service (OCS) that has been founded in 1957 and the Dutch airline KLM started their remail business. In 1958, KLM provided a remail
service for the first time. KLM flew magazines for the American publishing company McGraw-Hill as airfreight to Amsterdam and distributed them from its mailroom at Schiphol Airport to customers in Europe via the Dutch Postal Service. The delivery of the magazines was faster and cheaper than by ‘normal’ U.S. mail. This went fairly unnoticed by the large PPOs8. The remail volume increased considerably in the mid- eighties at the same time when the integrators9 COMPANY I and DHL express and logistics companies became interested in the remail market. Their worldwide business operations initiated a globalization of the international mail market. These private remailers dominated the market for about ten years. This period ended when the Dutch public postal operator (PPO) bought COMPANY I in 1996. Not all PPOs were moving towards international presence, but COMPANY B, then PTT, was. The consolidation and ‘remail’ of mail was a very lucrative business, as it was a niche market, not yet discovered by the regulating authorities and most PPOs. During the Nineties the PTT was privatised and became listed on the Amsterdam stock
exchange. In 1996 PTT put out a friendly bid on COMPANY I, and bought the
company. In 1998 the KPN (Koninklijke Posterijen Nederland) and COMPANY I Post Group split up, and formed the listed companies KPN and COMPANY B. Due to international anti-trust laws, the new company had to sell COMPANY I International Mail Netherlands to Swiss Post.
One of the latest examples for the globalization of the mail market is the formation of the joint venture Company A by three PPOs. On March 9, 2000, COMPANY I Post Group N.V. (COMPANY B, or the Dutch PPO), the British Post Office and Z Post have signed an agreement to start a global joint venture in cross-border mail. In 2001 it structured its international operation in a new company, Company A.
8 PPOs : Public Postal Operators. The gouvernment-owned national monopolist postal companies.
9 Integrator: Company, not a PPO, who provide faster service for specific market segments, and have infrastructure for collecting, sorting and distribution.
