On June 12th, the German magazine WirtschaftsWoche wrote that the mailing division of Deutsche Post is planning to save $1.2 Billion within one year. This herculean effort, named “Project One” was said to comprise five day delivery, sale of the 350 remaining post offices, possibly lowering the next day delivery rate of currently 95% (only 80% required by law), and shifting work load to low wage subsidiary FIRST MAIL.
On June 14th, the German magazine “Focus” reported that the Deutsche Post mailing division’s 143,000 employees were anxiously awaiting a clarifying comment from the top. Initially Deutsche Post headquarters just stated “We won’t comment on this”, but then Jürgen Gerdes, head of the mail division, stepped up to the plate. He stressed the importance of savings due to declining mail volumes, caused by e-mail and text messages. Mr. Gerdes proclaimed “Much of what was reported is just not true”. He then indicated continuation of Saturday deliveries and that $1.2 Billion savings cannot be achieved within a year. “It has to be a multi-year process”, said Mr. Gerdes. He instructed his team to turn over every stone, looking for potential savings. “But the final results are not clear yet”, he added. Permanent employees don’t have to expect sharp cuts. But new hires can expect considerably worse terms. “The work contracts have to reflect the market and economy, since the wage differences vs. our competitors are an essential, if not the most important, competitive disadvantage”.
Compared to other postal operators, the mailing division of Deutsche Post still shows rather favorable results. In the first quarter of 2010 the Deutsche Post Mail Division posted a profit of EUR 390 Million (Approx. $470 Million, before tax and interest). We quote from a DP press release:
MAIL division: Revenues better than expected
In the first three months of 2010, revenue in the MAIL division totalled EUR 3.4 billion, nearly the same level as the previous year (2009: EUR 3.5 billion). While the phase of crisis-related reductions seems to be largely over, the trend towards the increased substitution of physical letters with electronic media in the traditional mail business remained unchanged at the beginning of 2010. By contrast, the PARCEL Germany business unit performed dynamically, with powerful growth in internet retail propelling revenue well above the previous year’s total.
At EUR 390 million, the division’s underlying EBIT for the first quarter finished 4.2 percent below the previous year’s level of EUR 407 million. As a result of strict cost discipline, the slight reduction in revenue as well as wage increases could be largely offset.
In 2009, CEO Frank Appel made almost EUR 3 Million (approx. $3.6 Million). The nine-headed Deutsche Post board split EUR 14.92 Million ($17.9 Million, including $6 Million in bonuses), with additional stock options. In 2008, USPS Postmaster John “Jack”Potter made a comparatively modest $857,459. Some may consider CEO Frank Appel’s compensation to be excessive, but in 2008 he was right on par with TNT’s CEO M. Peter Bakker.
Deutsche Post employees make on average around EUR 15 per hour. FIRST MAIL, the fast growing subsidiary of Deutsche Post, pays EUR 9.80 an hour. Our U.S. based readers might ask: “How would EUR 9.80 per hour translate for an U.S. Postal Service employee?”. Adjusting for cost of living, it roughly translates into USPS employees making around $10 per hour.
A German court shot down a minimum wage decree (EUR 9.80/hour) for postal workers in January 2010. In the eastern parts of Germany, competitors of Deutsche Post now pay wages as low as EUR 6.50 an hour. Deutsche Post stated that FIRST MAIL, which still pays EUR 9.80/hour, will only operate in the German state of Nordrhein-Westfalen. The operation of low wage subsidiary FIRST MAIL enabled Deutsche Post to take some business away from their even lower wage competitors.