EU Postal Operators The Big Squeeze

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Strained relationships between the Communication Workers Union and the Royal Mail could result in a return to strike action although it is unclear whether any industrial action would be extended to national strikes. The union, which is continuing to fight plans to privatise the Royal Mail in 2012, is to discuss plans by the Royal Mail to 5overhaul key London mail centres at the CWU conference in Bournemouth on Tuesday.

Despite a three-year agreement in place, union members are said to have little confidence in ongoing revisions to working practices and many are said to be furious that colleague shares are now apparently worthless. However, any move towards strike action is likely to be something of a double-edged sword with an equal risk that postal workers could lose any remaining support from the public and backing for strike action on a large scale is likely to be patchy with many grass root members still disgruntled over what they see as a wasted opportunity during the last period of strike action.

More recent suggestions to boost the health of the Royal Mail point to dumping the paying back a state loan for modernisation. However, presumably that would just prompt competitors to complain to the EU that the loan was not, in principle, on wholly commercial terms as required and that not paying back the loan would put the Royal Mail at a distinct advantage. Any kickback could depend on who actually buys Royal Mail next year but under EU rules, any money originating from the state to prop up a postal operator does have conditions attached if it is to pass anti-competitive criteria. In addition, with the government set to take on a proportion if not all of the enormous £8bn pension deficit, adding yet more to the UK's national deficit, finding additional cash to keep the Royal Mail ticking over and raise its commercial value, poses something of a problem. For the CWU, this is about avoiding being short-changed or seeing agreements quashed.

What is clear is that Royal Mail needs more money than envisaged in order to transform at the pace now needed. Even with mail centre closures and cuts to operating costs, the last 12 months have been difficult for Royal Mail and continuing to provide a service has depended heavily on asking far more of its workforce. Like so many delivery firms, heavy snow also hit Royal Mail's most profitable quarter with some items taking several weeks to arrive at their destination. There appears to be no actual master plan for reshaping the network to make it lean, with changes being made as and when it identifies further cost savings. Even so, reducing overheads also has a financial price, not least of which is the cost of building new super-hubs and the installation of equipment to replace those that are closed. The changes also create logistical teething problems that in some areas have been difficult to eradicate.

Across Europe, with mail volume in decline, 'consolidation' has been the only option for postal operators and whilst each will post an upbeat view of their financial results over the last 12 months, all are mostly treading water with less resources and this has an impact on post offices too which are desperately trying to reinvent themselves. My view remains the same on this - you cannot have a liberalised postal industry and not reflect this change across post office networks. Liberalisation has merely favoured the big players and on the whole, domestic users are paying far more for far less. Even small business often lacks the buying power to make any real savings on postage and despite there now being at least 55 licensed postal operators in the UK, Royal Mail remains the sole provider for the Universal Service and choice for consumers is very limited.

There has been an explosion in desktop postal services and for those that can make it pay, franking services, but by and large post office networks are still heavily tied to state operators. New entrants into the market are usually dependent on other operators with the bulk power to buy into Royal Mail's final mile service but this can leave some new entrants with so many hops along the way, it can delay deliveries considerably. For those so affected, complaining often falls on deaf ears.

Critics argue that competition is something of a misnomer anyway, with the entire infrastructure still rooted in Royal Mail's final mile and no real alternatives other than city-based or B2B services. The difficulty comes with establishing a price that is somewhere between what Royal Mail think it should be paid for handling mail from competitors and what the competitors think it should cost. The danger in trying to establish a magical level playing field is that it will drive up postage costs still further and in the process accelerate volume decline.

Competition has been mostly about displacement in an declining market and with so much business lost to rivals, state operators are faced with an enormous challenge in providing a universal service, pushing the boundaries of what constitutes a minimum service level. At the moment it is centred around a one collection, one delivery a day model but clearly (and the United States is a great example of a country faced with some difficult decisions on mail provision), the daily mail delivery may be reduced to as little as four or even three days a week. This is all about being squeezed and who gets squeezed the most I suppose, but in the end it will be postal users that pay for it all.