Minimum wage plan scuppers Deutsche Post rivals

[TrueBlueTerrier]

By Nicola Leske

FRANKFURT, Dec 4 (Reuters) - German government plans for a minimum wage in the postal sector have made rivals rethink their challenges to Deutsche Post when its monopoly on domestic letters drops away next year.

One of Deutsche Post's main rivals, mail delivery company PIN Group, said on Tuesday it will have to cut more than 1,000 of its 9,000 jobs in Germany due to Berlin's plans to put a floor under wages in the sector.

The government last week agreed to set minimum pay rates of up to 9.80 euros ($14.45) per hour, depending on an employee's level of responsibility. The law will apply from Jan 1, 2008.

The sum is far more than competitors to former state monopoly Deutsche Post now pay their staff.

Contrary to other European countries, Germany does not have a nationwide minimum wage. Instead, the government can set minimum wages for individual industry sectors.

German Chancellor Angela Merkel opposes a blanket minimum wage, reasoning that a statutory minimum wage would create new problems and could put jobs at risk.

So far, only builders, electricians and industrial cleaners are covered by a statutory minimum wage.

Merkel told German TV channel N24 on Tuesday that the government would keep a close eye on developments in the postal market and draw lessons from it for other sectors.

Rivals argue that 20,000 to 60,000 jobs will be lost as a result of minimum pay and criticise the legislation as an attempt to protect Deutsche Post from competition, industry association DVPT said.

"Only TNT and PIN would have been able to offer nationwide letter delivery next to Deutsche Post," the association said.

It also said it expects small, local companies to pull out of the market because they cannot deliver enough letters to offset higher labour costs.

PIN Group, which is majority owned by German publisher Axel Springer, said it will now sound out options for its future with the help of a consulting firm.

The news comes a day after Dutch mail and logistics company TNT said it had put on hold a cooperation deal with Hermes, the logistics arm of German mail order house Otto's.

Higher wages would make it harder for TNT to compete and be profitable in Germany, where Deutsche Post's market share is more than 90 percent for letters, TNT argued.

TNT is also in talks with Springer's PIN about merging their German businesses in an effort to challenge Deutsche Post next year, a source familiar with the matter told Reuters last month.

But according to a media report the talks have broken down after a minimum wage was agreed.

A Springer spokeswoman declined to comment on the negotiations but said the Berlin-based publisher is considering exiting its postal business after the government's decision.

Springer bought a majority stake in PIN for 510 million euros ($749.2 million) earlier this year in anticipation of the liberalisation of the postal market in Germany

[jemima]

What I don't understand, in this postal liberalisation debate, is why the wages paid are such an issue. I thought the prime motivation was supposed to be to improve efficiency in the postal sector? Yet it must already be operating at maximum efficiency if new companies can't compete without paying their workers less.

Choosing to reduce the standard of living for the working population is not the best way forward for any economy. It can only lead to general economic contraction as people spend less. There's the political aspect to consider too. Each person affected will know if their current government has failed to protect them. One person, one vote in a democratic society. A government needs to be popular with people, not with business.


From http://www.bloomberg.com/apps/news?pid= ... er=germany

"Axel Springer Still Reviews Options for Pin Mail-Service Unit

By Simon Thiel

Dec. 10 (Bloomberg) -- Axel Springer AG, Europe's biggest newspaper company, said it hasn't decided about the future of mail-services unit Pin Group after Financial Times Deutschland reported the business will be shut down.

The company is still considering ``all options'' for Pin, Axel Springer spokeswoman Edda Fels said via phone today. ``No decision has been made.''

Berlin-based Springer said last week that it may continue its mail business, cooperate with other companies, change the business model, sell the unit or close it.

German newspaper FTD, citing unidentified people close to the company, reported today that Springer plans to shut down Luxembourg-based Pin Group as the unit can't pay as much as 15 million euros in expenses and some wages before Christmas. The closure may lead to a writedown of about 600 million euros ($880 million), the newspaper said.

Pin Group said on Dec. 4 it will fire more than 1,000 workers because of plans by the German government to introduce a minimum wage for the industry. The ``excessive minimum wage'' will lead to the loss of several thousand jobs in Germany's private mail-service industry, the company said.

Several private mail companies planned to expand in Germany next year when Deutsche Post AG loses its legal monopoly on delivering letters weighing less than 50 grams (1.8 ounces). On Nov. 29, Chancellor Angela Merkel's government backed a pay contract brokered by mail carriers and the Ver.di union that sets a minimum hourly wage of at least 8 euros.

Reaction to Plan

TNT NV, Europe's second-biggest express-delivery company, said Dec. 6 it was reviewing options for its German operations following the government's minimum-wage plans. Pin also had expansion plans for next year.

Springer Chief Executive Officer Mathias Doepfner last week said that the minimum wage plan by the German government has made it ``almost impossible'' for private mail-services operators to compete with market leader Deutsche Post.

Springer's shares dropped as much as 4.29 euros, or 3.9 percent, to 106.04 euros in Frankfurt and traded at 106.50 euros as of 12:30 p.m. The stock has lost 21 percent this year.

Pin was founded in 2005 when Springer, WAZ Media Group and Georg von Holtzbrinck Publishing Group combined their press delivery services. Springer holds 64 percent of Pin Group. Luxembourg-based private equity firm Rosalia AG is also a shareholder.

To contact the reporter on this story: Simon Thiel in London at sthiel1@bloomberg.net . "