THEY MAY just seem like an abstract jumble of letters and numbers, but postcodes look set to spark industrial unrest at An Post as postal workers aim to resist the new system, which they argue will cripple the company financially.

According to the Communications Workers Union (CWU), postcodes will allow private operators to cherry-pick the most profitable parts of the state postal company's business, lumbering it with unprofitable services as it seeks to slash its €2bn pensions deficit.

The CWU's opposition to postcodes is in stark contrast to the warm welcome they look set to receive from the business community, which has been lobbying for years for their introduction. According to business lobby Ibec, postcodes will improve delivery times for businesses and allow Irish service companies to dump their expensive in-house technology for locating customers in favour of cheaper industry-standard systems.

Postcodes would also help An Post's private-sector rivals offer a wider range of services, including the handling of standard letters, to businesses. Despite these potential benefits, the CWU is already warning that many businesses could lose out from postcodes if the resulting increase in competition sparks a financial crisis at An Post.

"The competition will only benefit bulk posters, not ordinary customers such as small businesses and householders, who will be left with reduced levels of service if the private companies come in and cherry-pick An Post's most profitable operations," said Steve Fitzpatrick, CWU general secretary. "The process won't even be that gradual: in Britain, many government departments and utilities began bypassing the Royal Mail at the first opportunity."

According to Fitzpatrick, many of the private operators who have secured this business piggyback on the Royal Mail's infrastructure but can still significantly undercut it because the state operator's service charges have been set so low by Britain's postal regulations.

An Post, however, is far more positive about postcodes, even though industry sources have said there will be "huge" software costs involved in converting its sorting systems to handle them.

"We have always described postcodes as a major part of our national infrastructure, which will have a beneficial impact on everyone," said a spokeswoman. "Postcodes have multiple other uses besides postal delivery. In particular, they should benefit the public by allowing information to be cross-referenced easily between government departments and eliminating confusion over addresses."

She said postcodes would not accelerate competition as postal liberalisation was already a fact of life for the organisation.

"All the big international logistics players are already here, competing against us. This has spurred our increased focus on mail service quality because, to compete effectively, we need to become the supplier of choice for customers," she said.

The spokeswoman admitted that the consequences for An Post would be serious if it failed to meet the challenge of increased competition and said this could trigger changes to its pricing structure.

"We don't know what these would be, though. In a liberalised market, we have to compete with our competitors, who want to cherry-pick our business. The issue is that our profitable activities cross-subsidise the other parts of our business, so if you take chunks of it away, you would be left with an unviable operation," she said.

But postcodes are likely to bring a significant commercial opportunity for An Post and its rivals: the volume of direct marketing mail sent to Irish households is expected to increase. The volume of marketing mail sent to Irish homes is tiny compared to other countries: the average Irish household receives around 130 mailshots annually compared to British homes which receive over 1,000 a year. According to Michael Kileen, founder of advertising agency Dialogue, this is likely to change once postcodes are introduced.

"Postcodes will result in far better targeting of recipients: you'll no longer have situations where people in apartments will receive mail advertising lawnmowers. The consumer will receive more relevant mailings, which will obviously benefit the companies involved and increase confidence in direct marketing," he said.

Kileen is concerned that a foreign company may be awarded the contract for designing and maintaining the system due to the complexities of Irish addresses.

"Ireland is unlike any other country in that there are numerous different but accurate ways you could send post to an address. This means that, for postcodes to work, all our addresses have to be standardised. This results in some costs for direct marketing businesses but I'm more concerned about what could happen if postcode system contract fell into the wrong hands," he said.

Ibec agrees that the design is crucial but said that, if done properly, all businesses should benefit.

"The absence of postcodes is a significant competitive disadvantage for a number of business sectors, impinging on the type, quality and cost of services available to a very large number of consumers," said Ibec's director-general, Danny McCoy. "From a logistics perspective, the lack of a postcode hampers accurate collection and delivery commitments and limits the product portfolio offered to the Irish market. Competitive goods-to-market delivery efficiencies for exporters can also be impaired, adding costs that businesses in competing states do not face. It is expected that the introduction of a postcode could yield up to a 10% saving in express delivery shipments alone."