Some elements of the risks described in our risk profile section occurred in 2019. Below is a summary of the main events. No unforeseen significant events, which were not included in our risk profile 2018, occurred in 2019.
Within Parcels in the Benelux, where competition is already strong, we continue to experience competition from both established logistics players and new entrants, attracted by growth in the e-commerce market. Our largest competitors are investing heavily in their network capacity. In addition, our largest customers achieve high growth leading to a change in market dynamics. The slowdown in volume growth during the second half of 2019 in our Parcels segment is mainly attributed to a slower growth in the e-commerce market, rather than to the effects of competition. Performance in our Cross Border Solutions business did not show the expected improvement in 2019, which was due to fierce price competition, as other major European players offer similar propositions at a lower cost. In Europe, international mail volume is declining faster than expected. This can partly be explained by substitution, while the remaining effect is a result of competition. We are continuously assessing the impact of the Brexit decision on our UK cross-border business activities.
Cyber-attacks and online fraud attempts have become more attractive for criminals in recent years and the likelihood of this risk materialising is increasing. Cyber security is an essential element in our IT strategy, which ensures appropriate attention to cyber risks in all stages of the IT development process. We continuously monitor external developments for potential threats and cyber security incidents and strive to improve our monitoring capabilities. In addition, we are collaborating with governmental institutions, businesses and research bodies to combat internet crime and closely follow technological developments in this area. We also organise attack simulations and awareness programmes on phishing, hacking and social engineering. Furthermore, we aim to increase the resilience of our IT environment in Operations, also called Operation Technology (OT). In 2019, appropriate measures were taken to implement the same process and standards in our OT as with the rest of our IT infrastructure. Despite these efforts, it is impossible to completely eliminate this risk. These are the main events related to cyber-security that took place in 2019:
Ransomware infection. One of our suppliers was affected by ransomware. Due to this incident they had to reinstall their applications. The effect on our operations was relatively small.
Credential stuffing. An attacker received login information from PostNL customers. We were able to reset the passwords quickly, which minimised the impact of the attack. We informed our customers about the incident immediatelly.
A number of important changes were successfully implemented in 2019 that help us realise our cost-saving initiatives, such as the implementation of the new coding system and the combibundel as part of the New mail route delivery model. The project has a considerable impact on our customers, operations and our employees. Additional information on these initiatives can be found in the chapter 'Customer value.'
The sale of Postcon and PostNL Communicatie Services and the acquisition of Sandd were completed in 2019 and we aim to complete the integration of Sandd in the first half of 2020. These events played a major part in the realisation of our strategic change programme in 2019. The operational integration of Sandd required extraordinary commitment and effort from our employees, and put considerable pressure on our change and operating capacity. The risks related to this operational integration have been successfully managed as part of the integration project. For this project we had to utilise most of our remaining change capacity, which may result in delays in other ongoing or new change initiatives.
The volume growth in our Parcels business continues to put pressure on our network, especially during peak periods. However, we have exceeded our target for parcel delivery quality as a result of multiple improvements in the second half of 2019. These include the increased capacity through our new sorting centres, a new cross-dock, and better capacity planning with large customers. For Mail in the Netherlands, the final four months of 2019 proved very challenging, which mainly coincided with the first mail volumes from Sandd delivered through our network.
In 2019 we experienced scarcity in the labour market and ability to retain qualified personnel. To increase PostNL’s attractiveness as an employer, we are investing in branding as well as training and development of our staff. In addition, we make use of innovative online recruitment techniques and are continually improving the employee experience.
An overview of the most important developments related to the total cost of employment can be found in the chapter 'Social value'. In 2019 the main events related to this risk were:
In February, PostNL decided to stop contracting and start working with temporary workers at parcel sorting centres to provide clarity in the social discussion on contracting. In addition to the many permanent employees at PostNL, flexible staffing remains a necessity at the sorting centres. The wages of temporary personnel are based on the collective bargaining agreement for temporary workers (ABU collective labour agreement) and - accordingly - the user company remuneration under the PostNL collective labour agreement. A number of PostNL's parcel sorting centres already work with temporary workers and the last parcel sorting centres will make the switch in 2020.
PostNL and trade unions Bond van Post Personeel (BVPP), CNV Publieke Diensten and VHP2 reached agreements regarding a new PostNL collective labour agreement (CLA) and a new CLA for Saturday deliverers following consent from their members. The members of FNV did not agree with the outcome of the collective bargaining consultation.
At year end 2020 all remaining conditional soft pension benefits of our CLA employees have to be funded towards the pension fund. Based on the financing agreement with the fund, the costs are based on Q3 2019 parameters. Interest rates were at a multi-year low during Q3 2019 and negatively impacted the amount of the final payment, which would amount to approximately €300 million. Taking into account the interests of all stakeholders, PostNL has initiated discussions with the fund on options for a solution smoothing the impact of the low interest rate in the determination of the final payment. A possible solution might be to apply pricing based on expected returns in combination with a mark-up to the actuarial costs per 31 December 2020 capped at a maximum amount. This could lead, should interest rates develop beneficially, to an outcome that the required overall payment can come down and/or phased differently. The entitlements of the employees will not be affected, as payments will be based on a cost effective premium. We aim to conclude on this process in Q1 2020.
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