RISKY DELIVERY Swiss Post’s Big Package

Postal firms can't just rely on delivering mail these days to make a profit. The longtime Swiss public mail provider is blazing a trail by increasingly competing in Germany as an external service provider for companies.
The headquarters of the Swiss Post in Bern, Switzerland.

Entry is only granted to visitors who have registered in advance. You then have to walk through two air-locked doors and vault areas that can never be entered alone. Anyone who does make it into Swiss Post's production hall in the southern German town of Bamberg might think they’re in Fort Knox.

If they could break the security, this hall would be an El Dorado for thieves. Every working day in this rambling building, printing presses produce up to 10,000 rail passes – ranging in price up to €6,890, or about $7,600.

Nearby, fuel cards are produced complete with magnetic strips and credit card numbers – an order from the Shell chain of gas stations. And Stuttgart has ordered contact-less public transport passes, which can also be used to visit swimming pools or libraries.

Swiss Post – a state-owned company founded in 1849 to transport letters, packages, people and money – has long ago moved beyond its traditional business areas and is pursuing new paths.

With many traditional postal carriers around the world struggling to adapt to the digital age of email and text messages, Swiss Post thinks it has a solution. It's gambling that muscling into new business areas will keep it profitable for the long haul. And they're not just looking at promoting customer loyalty with plastic cards.

"We now take care of document processing and invoice receipts for 40 percent of all [German blue-chip] DAX companies,” boasted Frank-Michael Pácser, chief executive of Swiss Post Solutions, or SPS, a subsidiary that is leading the push into new business areas.

The Swiss state-owned company decided to look for new business opportunities, and in 2007 found what it was looking for in Germany.

Gone are the days when this business was primarily about the sale of postage stamps. Instead, SPS now offers a whole range of services to German companies. It processes their incoming post, vacation applications and expense sheets. It does the same with the account data of customers and credit cards.

Experts call it outsourcing. But the services business – which includes competitors like Arvato, Xerox and rival Deutsche Post subsidiary Williams Lea – is considered risky.

“Returns of far below 5 percent are normal,” said Ekkehard Hahn, chief executive of Frankfurt-based competitor, Mail Professionals.

It's also a business model littered with failures and miscalculations. The U.S. document management giant Pitney Bowes pulled out of Europe two years ago. The Finnish post company, Itella, was also unsuccessful in Germany with the outsourcing of mail rooms and has gotten out of the business.

Before them, the Dutch post office tried to poach the document and letter management business from German companies. After a period without success, it finally unloaded its subsidiary, Cendris, to a Spanish company, Service Point. The Barcelona-based buyer is now bankrupt.

So far, Swiss Post has also had limited success in its new businesses. Its great hope, the SPS subsidiary, contributed less than 8 percent of the company’s €8.2 billion total revenues in 2014. Its operating profits of about €11 million translated to a meager return of 1.8 percent.

Swiss Post earned five times more with letters and packages, as well as with its bus travel operator PostBus and its financial business.

But SPS chief executive Mr. Pácser has a brighter outlook for the future. “After some initial development work, we made a profit in Germany in the last two years,” he told Handelsblatt.

Some recent moves have increased those prospects. A few weeks ago, SPS landed a new client – Germany’s largest utility, RWE. Swiss Post Solutions now operates all of the company’s mail operations, including printing, processing and dispatch of client mailings.

Other clients in Germany include Munich Re, the world's largest re-insurer, and the Ruhrgas subsidiary of utility giant E.ON.

The Swiss also succeeded in a coup by stealing a major client of rival Deutsche Post, the world’s largest postal service. Up until three years ago, the engineering giant Siemens had outsourced its 14 mail rooms to Deutsche Post. But now some are being operated by SPS, according to reports from the German trade union Verdi.

Swiss Post's gamble is partly due to the fact that, like many postal services around the world, it has lost confidence in its original core mail business. Letters and postcards are under increasing pressure from emails and text messaging. Even its business with packages no longer looks secure, now that Internet retailer Amazon increasingly handles its own deliveries – and could conceivably become a dominant logistics player.

As a result, the Swiss state-owned company began looking for new business opportunities, and in 2007 found what it was looking for in Germany. It bought the company GHP in Bamberg, a printer of mailings, which had become big producing telephone cards for Deutsche Telekom. Swiss Post then went about acquiring document processors in half of Europe.

“They bought up just about everything that could spell the word ‘post’ more or less correctly,” mocked a competitor.

SPS chief executive Mr. Pácser said the moves were only natural. “If we were already transporting information, why shouldn’t we process it as well?” he said.

Still, it's a major investment for the Swiss carrier. To meet the new demand, they wound up having to keep hundreds of workers with old contracts and high wages in their outsourcing projects.

“SPS urgently needs success stories to keep its parent company happy back in Bern (headquarters),” said Mr. Hahn of the competitor Mail Professionals.


Christoph Schlautmann covers the retail sector for Handelsblatt. To contact the author: [email protected]