RM revises access contracts; reviewing volume, zonal pricing

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Royal Mail revises access contracts; reviewing volume, zonal pricing

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Royal Mail is changing its downstream access prices and mail contracts, but has decided to delay a pricing system rewarding customers making certain volume commitments.

New downstream access contracts will be available as downstream access prices change from 2nd April, but extra time is being granted for customers to continue using existing contracts.

The British universal service provider has told customers it will review whether lower equivalent postal rates should be offered for customers sending mail nationally, compared to those mailing to only certain regions.

However, a Royal Mail spokesman insisted yesterday that the move was not an attempt to head off potential new competition in the end-to-end delivery market.

Royal Mail has about 33 downstream access customers – rival postal operators and major mailers who sort mail before handing it to Royal Mail for the last stage of delivery. Although Royal Mail keeps most of the revenue from overall downstream mail income, the company has said it lost £ 800m through the Access market since 2001, and with volumes declining it needs to revise pricing.

Volume commitments

The British universal service provider consulted with stakeholders last autumn on plans that would have seen access customers offered lower prices when committing to provide certain volumes for Royal Mail final mile delivery across the whole country.

The underlying premise was that since the liberalisation of the UK postal market, nearly half of all UK mail is now downstream access mail – passing through the hands of another processing company before entering the Royal Mail network – and therefore a volume commitment was needed to protect Royal Mail from unexpected drops in mail volumes, to protect the sustainability of the universal service.

But writing to customers earlier this month, Royal Mail said feedback had suggested customers needed more time to implement such a system because of the “complexity of the arrangements”.

“Therefore, we will continue to work with the industry during 2013 with a view to introducing some form of volume commitment pricing (or other incentives connected to volume) into the new contracts,” said Royal Mail network access director Jenny Ledgar in the letter seen by Post&Parcel. Ledgar added that further proposals would be announced “in due course”.

New contracts


Royal Mail is offering 2.44% lower prices for access customers that switch to the new contracts
As a result of concerns from customers at the time needed to switch to new-style contracts, Royal Mail said it would not be making “major changes” to its existing downstream access contracts.

From April, downstream access customers providing at least 6m items a year will be able to choose to use existing “C9″ contracts, or switch to new contracts within which terms and conditions have been revised and updated.

Customers are being given an incentive to switch to the new-style contracts, which will be available at prices 2.44% lower than the new prices within the C9 contracts. Royal Mail said the lower price reflected the higher value the new contracts represent for its business.

As the existing contracts did, the new contracts offer a pricing plan for nationwide mailings, and a different zonal pricing plan for regional mailings.

Ledgar said in her letter to customers that Royal Mail was currently continuing to maintain price equivalence between the national and the zonal pricing plans. However, she said this was under review.

“We believe that the value of the commitment given by these different pricing plans to Royal Mail may well differ, and we will review whether it is appropriate for these pricing plans to be set at the same level in the future,” explained the Royal Mail network access director.

The new nationwide pricing plan – National Price Plan One – includes requirements for a minimum volume of mail to be sent to urban post codes in each standard selection code area across the country, otherwise surcharges will apply. Some in industry have suggested that Royal Mail is trying to counter the threat of rivals “cherry picking” the most profitable urban delivery routes with new end-to-end mail services, discriminating against customers that hold back some mail for delivery by rivals in certain areas.

Reviewing whether zonal pricing should be equivalent to nationwide pricing would appear to strengthen the incentive on mailers to use Royal Mail for all post code areas, rather than end-to-end rivals like TNT Post UK.

Ledgar also mentioned in her letter that Royal Mail was reviewing its zonal plans to “reconsider the degree of zonal disaggregation” allowed in zonal contracts.

However, Royal Mail specifically denied this was the case, speaking to Post&Parcel yesterday. Spokesman James Eadie said the new contracts had simply been revised because they had not been updated since 2004.

“The current contracts have been in force for more than eight years and needed amending to better reflect changes in the postal market. We recognise that the new terms have real commercial value for Royal Mail and we will price the new contracts at 2.44% less than the current agreements,” said the Royal Mail spokesman.

Parcels

Royal Mail is also revising its downstream access parcels arrangements, separating out packets/parcels from standard access contracts, with the intention of moving to provide more bespoke contracts, tailored to individual customers.

Bespoke pricing is more common in the bulk parcels market, but Royal Mail said for its downstream access customers – who must have at least a £ 1.2m annual spend – the move to bespoke contracts would better reflect actual costs of delivering customers’ individual volumes and weights.

Royal Mail has said it will continue to offer parcel services for items up to 2kg in weight separately while it finalises bespoke costing.

For items above 2kg in weight – and below 5kg in weight – Royal Mail said it has decided to stop providing downstream access services as of the end of July 2013 for lack of demand.

Ledgar said: “The parcels market for these heavier items is very competitive and we have received very little volume in the time that it has been available.”