UPDATE 2-TNT's Dutch rivals lose labour costs battle

* Sandd, Selektmail must move to labour contracts-court

* Sandd existence at stake if contracts applied-Sandd CEO

* Most of TNT employees already on labour agreements

(Adds TNT, analyst comments, more Sandd CEO comments, detail)

By Greg Roumeliotis

AMSTERDAM, April 13 (Reuters) - A Dutch appeals court dealt a blow to cut-price competitors of mail and express group TNT TNT.AS by upholding a requirement to give labour contracts to more of their workers, diminishing one of their cost advantages.

Keeping labour costs down while avoiding strikes of the kind that paralysed Britain's Royal Mail during the past year has emerged as a major challenge for incumbent European postal operators facing a more liberalised sector and the rise of electronic communications. [ID:nLDE6272AP] [ID:nLU721303] [ID:nLU656016]

Privately-owned Sandd and Deutsche Post (DPWGn.DE) unit Selektmail had argued against a government decree calling for them to employ 80 percent of staff on a permanent basis by October 2012. Most of their employees work on casual terms.

"If we have to go to labour contracts, then there is no Sandd," Chief Executive Gert-Jan Morsink of Sandd told Reuters.

"We cannot offer such contracts to 80 percent of our stuff based on current pricing and volumes in the mail market."

Sandd would try to offer permanent contracts to staff but was objecting to a fixed government target, particularly as some of its employees had turned down such agreements, Morsink said.

Sandd would continue negotiations with trade unions but it was not clear what would happen if Sandd and Selektmail failed to comply with the ruling, Morsink said. "This is a grey area, nobody knows what will happen."

Both Sandd and Selektmail have targeted lucrative high-volume segments in mail, such as business post from banks, insurance firms and the government, taking business away from incumbent TNT, Europe's second-largest mail company, which has an obligation to provide a universal postal service.

The ruling underscores the competitive landscape of the Dutch postal market, which saw TNT earlier this month announce its was carving out its mail unit as it considers a possible listing or partnerships for the business. [IDnLDE63707R]

"This is a logical ruling," a TNT spokesman said. "We believe that there should be a floor in labour costs in order to have socially acceptable working conditions."

TNT ended a drawn-out conflict with postal unions earlier this year, clinching a deal that calls for small wage increases in exchange for deep job cuts. [ID:nLDE60S13B]

PAID PER ITEM

While the vast majority of TNT's postal workers are on permanent contracts, Sandd and Selektmail employees are paid according to how many items they deliver.

TNT has some 80,000 employees in its mail operations. Only 700 of them work in Netwerk VSP, the unaddressed mail subsidiary of TNT, where temporary contracts are offered, and 50 have permanent labour agreements, the TNT spokesman said.

The switch to labour contracts would move Sandd's labour costs from 8 euros per hour to 11 to 12 euros per hour, Morsink said. Sandd made earnings before tax, interest, depreciation and amortisation of 4 million euros in 2009.

With TNT exploring options for its mail unit, Morinsk suggested that a sale to private equity is likely. He pointed to the example of CVC Capital Partners buying into neighbouring Belgium's national postal service provider, De Post - La Poste.

Sandd itself had put itself up for sale last year but was no longer actively exploring that option, Morinsk said. The company is owned by Dutch investment firm Trimoteur, NIBCapital Principal Investments and Fortis Private Equity. [ID:nL2584720]

"In a couple of years, I believe there will only be room for two players in the Dutch postal market," Morinsk said.

"Sandd is certainly stronger than Selektmail," said Petercam analyst Thijs Berkelder. "With TNT now exploring partnerships for mail in Germany, it is possible that Deutsche Post says 'Let's stop fighting each other and focus on express.'" (Editing by David Cowell and Sharon Lindores)