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The Competition Commission should carefully scrutinise the proposed deal by Dubai-based courier group Aramex in which it intends to buy PostNet – partly because of concerns about the transaction’s impact on competition.
There are also concerns that the transaction would reduce the number of courier companies.
In a surprise move, Aramex announced on December 15 2014 that it had made an offer to buy PostNet, South Africa’s retailer from JSE-listed OneLogix [JSE:OLG], for R191m.
PostNet is the country’s largest privately-owned counter network in the document and parcel industry, with a chain of 287 stores that service 55 000 customers daily. It provides courier, copy and digital print services as well as stationery, mailboxes, etc.
Aramex argues that it targets companies such as PostNet which is a perfect fit to leverage its suitable, scalable synergies with its existing infrastructure.
However, OneLogix says PostNet is no longer a perfect fit as a courier. Express parcel delivery is a specialised area of logistics, which OneLogix chose to exit several years ago.
That said, the timing for the announcement of the deal brings to the fore many questions:
• Were the parties involved in this deal aiming to avoid public scrutiny by announcing the transaction during the festive season (when everyone was focusing on having fun and spending time with their loved ones)?
• Who stands to benefit from this deal - consumers? I doubt.
• Should we believe the companies involved regarding the rationale for the transaction?
The South African courier and postal services industry is not regulated - a situation which makes it necessary for stringent checks by the regulator.
Not so long ago I had to courier boxes weighing 100kg to my friend, who is starting a new job in Port Elizabeth.
On a Friday January 2 2015 I went to PostNet, which quoted couriering the boxes at R15 000 for an overnight delivery and R4 500 for a delivery on a Tuesday, excluding insurance.
Why such a huge price difference?
I felt the charges were excessive and ridiculous, especially because the items in the boxes were not worth more than R5 000.
Thereafter, I contacted RMS Courier and DHL, which both said I needed to bring the boxes to their drop-off centre to be weighed and measured before they could quote a price. It was too much for me to drive all the way to Sandton or Midrand from the south of Johannesburg.
I then opted to reduce the number of boxes and was left with 46.7kg. I called Aramex, which quoted an overnight delivery at R7 800, excluding insurance. This still appeared to be too much for my almost empty pockets.
To my surprise, when I complained that the price was too steep I was told I could send the boxes via economy on Monday 5 January, for only R616.55.
This was a serious shock. I was left wondering why there was such a huge difference in prices.
This is why the competition watchdog must scrutinise the deal to determine if the tie-up wouldn't result in a removal of another “competitor” in order to milk the consumers more.
I therefore implore the Competition Commission to look into prices being charged by courier companies before it can even consider giving the Aramex-PostNet deal a nod.
The study should also determine if there was any collusion in prices by courier firms. In the event that the watchdog finds any wrongdoing, it must act against the culprits.
It might be worth having a look at whether the industry is highly competitive or not.
However, investment consultants in support of the deal might add a tired narrative about an Aramex tie-up with PostNet.
They are likely to say that both courier firms are seeking to build a company with a bigger scale to compete against bigger rivals such as DHL and the South African Post Office.
Others, however, may maintain that such an unregulated sector shouldn't be allowed to have bigger monopolies as this could lead to the removal of choices for customers.
Such a move has the potential for bigger operators to feast on consumers and generate fat margins, without any significant benefits to customers.
Bottom line: Post Office must be fixed
This brings to the fore the issue of fixing the Post Office and making it more reliable, to ensure that customers benefit from competition in the sector.
Clearly a big stick is needed to regulate the courier industry and the proposed Aramex-PostNet tie-up could be a perfect opportunity for regulators to pounce on the industry and fix it now.
However, the Competition Commission might not be bothered by this transaction and it could be allowed to go ahead despite the concerns.
* Gugu Lourie is a former correspondent for Thomson Reuters, Business Report, Finweek magazine and Fin24 (writing a blog titled 'Googled'). He is the editor of techfinancials.co.za. Views expressed are his own. Follow him on #twitter @LourieGugu.
There are also concerns that the transaction would reduce the number of courier companies.
In a surprise move, Aramex announced on December 15 2014 that it had made an offer to buy PostNet, South Africa’s retailer from JSE-listed OneLogix [JSE:OLG], for R191m.
PostNet is the country’s largest privately-owned counter network in the document and parcel industry, with a chain of 287 stores that service 55 000 customers daily. It provides courier, copy and digital print services as well as stationery, mailboxes, etc.
Aramex argues that it targets companies such as PostNet which is a perfect fit to leverage its suitable, scalable synergies with its existing infrastructure.
However, OneLogix says PostNet is no longer a perfect fit as a courier. Express parcel delivery is a specialised area of logistics, which OneLogix chose to exit several years ago.
That said, the timing for the announcement of the deal brings to the fore many questions:
• Were the parties involved in this deal aiming to avoid public scrutiny by announcing the transaction during the festive season (when everyone was focusing on having fun and spending time with their loved ones)?
• Who stands to benefit from this deal - consumers? I doubt.
• Should we believe the companies involved regarding the rationale for the transaction?
The South African courier and postal services industry is not regulated - a situation which makes it necessary for stringent checks by the regulator.
Not so long ago I had to courier boxes weighing 100kg to my friend, who is starting a new job in Port Elizabeth.
On a Friday January 2 2015 I went to PostNet, which quoted couriering the boxes at R15 000 for an overnight delivery and R4 500 for a delivery on a Tuesday, excluding insurance.
Why such a huge price difference?
I felt the charges were excessive and ridiculous, especially because the items in the boxes were not worth more than R5 000.
Thereafter, I contacted RMS Courier and DHL, which both said I needed to bring the boxes to their drop-off centre to be weighed and measured before they could quote a price. It was too much for me to drive all the way to Sandton or Midrand from the south of Johannesburg.
I then opted to reduce the number of boxes and was left with 46.7kg. I called Aramex, which quoted an overnight delivery at R7 800, excluding insurance. This still appeared to be too much for my almost empty pockets.
To my surprise, when I complained that the price was too steep I was told I could send the boxes via economy on Monday 5 January, for only R616.55.
This was a serious shock. I was left wondering why there was such a huge difference in prices.
This is why the competition watchdog must scrutinise the deal to determine if the tie-up wouldn't result in a removal of another “competitor” in order to milk the consumers more.
I therefore implore the Competition Commission to look into prices being charged by courier companies before it can even consider giving the Aramex-PostNet deal a nod.
The study should also determine if there was any collusion in prices by courier firms. In the event that the watchdog finds any wrongdoing, it must act against the culprits.
It might be worth having a look at whether the industry is highly competitive or not.
However, investment consultants in support of the deal might add a tired narrative about an Aramex tie-up with PostNet.
They are likely to say that both courier firms are seeking to build a company with a bigger scale to compete against bigger rivals such as DHL and the South African Post Office.
Others, however, may maintain that such an unregulated sector shouldn't be allowed to have bigger monopolies as this could lead to the removal of choices for customers.
Such a move has the potential for bigger operators to feast on consumers and generate fat margins, without any significant benefits to customers.
Bottom line: Post Office must be fixed
This brings to the fore the issue of fixing the Post Office and making it more reliable, to ensure that customers benefit from competition in the sector.
Clearly a big stick is needed to regulate the courier industry and the proposed Aramex-PostNet tie-up could be a perfect opportunity for regulators to pounce on the industry and fix it now.
However, the Competition Commission might not be bothered by this transaction and it could be allowed to go ahead despite the concerns.
* Gugu Lourie is a former correspondent for Thomson Reuters, Business Report, Finweek magazine and Fin24 (writing a blog titled 'Googled'). He is the editor of techfinancials.co.za. Views expressed are his own. Follow him on #twitter @LourieGugu.
