The adoption in 2008 of the Third Postal Directive in the European Union has set 2011 for the major national postal markets in the EU to eliminate reserved areas completely, thereby completing the first full step toward Full Market Opening (FMO) in the EU postal sector.
In other parts of the world, while FMO is not envisaged, similar trends toward commercialization of the Postal Operators (POs) and competition are evident as inter mod al competition from electronic substitutes for traditional mail products has made business as usual in the postal and delivery sector untenable.
This introduction of direct competition occurs at a time when intermodal competition is causing large declines in mail volumes. For example, the US Postal Service, while retaining a solid reserved area protected by law, has seen its volume decline dramatically from its peak of 213 billion pieces in 2006 to 177 billion in 2009. Moreover, the decline was precipitous in the last two years as its volume was 212 billion pieces in 2007, only a very slight decline relative to 2006.
The pie is now shrinking fast and the monopoly is offering USPS and other POs little protection against the cold winds of recession and electronic competition. POs continue to act as Universal Service Providers (USPs), as the public and their legislative representatives have continued to demand the retention of the Universal Service Obligation (USO).
Against this background, this presentation describes a few of the major issues facing the postal sector. The primary focus will be on the role of regulation to accommodate changing business models by the postal incumbent to retain delivery economies of scale under competition.
Background reading: Competitive Strategies under FMO and Intermodal Competition (269 Kb)
Michael A. Crew, Rutgers University
Paul R. Kleindorfer, INSEAD
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