Royal Mail faces up to postal revolution

[TrueBlueTerrier]

http://www.guardian.co.uk/uk/2012/may/1 ... sfeed=true" onclick="window.open(this.href);return false;

TNT Post trial in west London is one of several challenges from which the national institution is seeking deliverance

Like many postmen who have pounded the pavements of London over the years, Michael Rigby carries out his round with a bundle of letters, an encyclopaedic knowledge of his route and a distinctive uniform. But Rigby does not work for the great British institution that employed his forebears, the Royal Mail, he is a new recruit at Dutch-owned TNT Post UK.

Even the letters, knowledge and uniform are different in their own way. Rigby's mail is franked with an alien logo, his walk is guided by a detailed printout including directions and timings, and his orange jacket is a stark sight in the west London drizzle. In the leafy streets of upmarket Chiswick, unsuspecting households are joining him in a revolution. This is the future of the postal market – a future that, according to the Royal Mail's chief executive, threatens a "spiral of decline" for a 376-year-old institution unless tougher conditions are imposed on competitors.

The TNT Post trial is one of several challenges that the government-owned Royal Mail faces as it prepares for a disposal or partial sale in 2014. The company has separated from the Post Office network, which will stay in state hands, and its £37bn pension deficit has been taken on by the Treasury. Solving the pension problem makes the business more attractive to investors, but TNT Post is a worry because if the trial becomes a nationwide operation it will take the most profitable business from Royal Mail.

The Royal Mail's core mail collection and delivery unit – picking up the post, sorting it and putting it through your letterbox – has lost nearly £1bn in four years. Mail volumes have fallen by a quarter since 2006, to 59m letters and parcels a day, leaving the company with an ever tougher challenge to make a profit. All the while it must carry out its universal service obligation to deliver mail anywhere in the UK, six days a week.

This is why Rigby and his TNT colleagues are a big problem. As he completes his round, crossing paths with a Royal Mail postman on the way, Rigby says he was inspired by TNT Post's pitch. "They got us all on board by telling us we were part of something exciting. That's what motivated us at the beginning."

Royal Mail's boss, Moya Greene, is concerned that TNT Post will cherry-pick profitable areas such as west London, thus reducing revenues that her company needs in order to fund deliveries to rural areas under the universal service obligation. TNT Post delivers business post only, for customers such as British Gas and Vodafone, which pay it to pick up their bills and direct mail. Apart from in the west London trial, that post is then sorted at TNT depots around the UK and handed on to the Royal Mail for doorstep delivery. The trial, however, creates a mini Royal Mail by doing the whole lot.

Chiswick is a profitable area for the Royal Mail because it is densely populated, meaning there are lots of houses and flats generating demand for mail. Because of the relative affluence of the area, those households are likely to receive larger volumes of letters and parcels – Sky bills or Amazon book orders – which means more revenue for the Royal Mail. The company also benefits from scale in urban areas because it has large, modernised sorting centres that can process mail more efficiently.

Rural areas, by contrast, do not offer the same benefits, but the Royal Mail still has to offer a service. Housing density is much lower, the sorting centres are not as modernised and the population tends to be less affluent. This means postal staff work longer routes for a lower return, in a loss-making spiral of high fixed costs and less revenue.

An early morning visit to the Nailsea delivery office in north Somerset, one of 1,400 across the UK, gives an insight into the challenges. The post for the town and neighbouring villages arrives here having been processed at 57 mail centres across the country. Staff sort it and deliver the mail to more than 10,500 addresses.

Kieron Lock, collection and delivery manager, says the job has changed hugely in the 26 years he had been based at the office. For a start, Nailsea has grown from a village into a small town and the number of delivery points has increased from 7,000.

The nature of what is posted has also added to the challenge. Back then most post was letters delivered by postal workers, typically on a bike. Now the advent of email and online shopping means fewer letters but more parcels have to be dealt with. The Royal Mail's new growth strategy, being thrashed out by Greene, is likely to focus on parcels. As a consequence in Nailsea, the bikes have been replaced by a fleet of 13 vans.

"Five years ago the average delivery took three and a half hours. Now it takes more like five to five and half hours," says Lock. Hinting at the financial impact of the universal service obligation, he adds: "Some delivery points are half a mile down a track – and you are using more petrol than the price of the stamp."

The Royal Mail is calling for the TNT Post service to be regulated. This could result in TNT Post, which is owned by the Dutch national postal service Post NL, being forced to balance deliveries to profitable areas with deliveries to places like Nailsea. Rob Jenson, UK director of collections and deliveries at Royal Mail, says: "If competitors are allowed to cherry-pick the profitable operations then that will put the universal service under threat."

Under that scenario, there could be further stamp price hikes or a reduction from six delivery days a week to five or fewer. Ofcom, the industry regulator, admitted as much in March when it announced a 30% increase in first-class stamp prices and warned that universal service was "fundamentally at risk" without further internal reform at Royal Mail.

The Communication Workers Union, which represents 140,000 Royal Mail employees, wants the government and Ofcom to get involved. "I cannot see how the regulator does not step in and say this is damaging the universal service," says Dave Ward, deputy general secretary of the CWU. But Nick Wells, chief executive of TNT Post UK, says the universal obligation is for national postal companies, not competitors. "The universal service obligation is for the incumbent operator, not for us or anybody else. You could never impose it because you would not get any competition, and perhaps that is what the Royal Mail wants."

In the meantime, Ofcom has warned that further stamp price increases could reduce demand for mail, locking the Royal Mail into a downward spiral of fewer deliveries and less income to service the 29m addresses that might want a next-day delivery. The message from the regulator is more focus on cutting costs. "Royal Mail needs to continue to push on with its cost-cutting drive. It needs to become more efficient. We think it is plausible that it can be done without a degradation of service," says Chris Rowsell, competition policy director at Ofcom.

Back in Nailsea, Lock says a postie's job is not as secure as it used to be. "When I came into the business I was sat down by the old postmaster and told this was a job for life. With competition picking off the best of the business I'm not as confident as I was then. The public still expects the postie to come every day and that's what we want to make sure we can do."

[DGP1]

But Nick Wells, chief executive of TNT Post UK, says the universal obligation is for national postal companies, not competitors. "The universal service obligation is for the incumbent operator, not for us or anybody else. You could never impose it because you would not get any competition, and perhaps that is what the Royal Mail wants."

Sorry, but you can't have all the rules in your favour, you either take on the business of you don't.........you don't see the major supermarkets saying they don't have to follow all the rules the others follow because they're not big enough.

[Lounge Lizard]

"Like many postmen who have pounded the pavements of London over the years, Michael Rigby carries out his round with a bundle of letters, an encyclopaedic knowledge of his route and a distinctive uniform." Well done Rigsby gaining "an encyclopaedic knowledge of his route" in the first month, not much need then for the "detailed printout including directions and timings"
Sloppy journalism in the Guardian now.

[demon]

how much are they payed might jump ship

[DGP1]

how much are they payed might jump ship

Minimum wage.

[NWpostie]

With the sale, the USO will be the first to go if its not already done so before then.

Royal Mail of old used to rely on volume, this means having an exclusive right to collect and deliver mail to retain that right we had to undertake to deliver to every address for a single uniform price, Town/Cities subsiding the countryside and the outer Scottish islands, take away our Postal Monopoly, the USO will be unsustainable as we are now discovering with competition encroaching on our business.

They can't have it both ways.

[barbario]

But i was under the impession that competition went in both directions.When are we going to start deliveries in Holland ,Germany ect. Its obvious that sooner or later,the USO will definitely go.

[Lounge Lizard]

But i was under the impession that competition went in both directions.When are we going to start deliveries in Holland ,Germany ect. Its obvious that sooner or later,the USO will definitely go.

We won't, because Royal Mail cares for its employees and wouldn't dare traeat us in the way that TNT and DHL does in Holland and Germany

[craigyboy4677]

at the end of the day everything turns into competition whether it be gas,electricity,water or mail, if royal mail want to stay in the game then they need to be more efficient and bring themselves up to date

[BELIAL]

at the end of the day everything turns into competition whether it be gas,electricity,water or mail, if royal mail want to stay in the game then they need to be more efficient and bring themselves up to date

:dcfo :ncfo :vcfo Absolutely ,how we have all reaped the benefits of cheaper gas ;electric and water, clearly the consumer has profited massively from increased competition and the modern efficient industries that have resulted ;lower prices ;simplified tariffs; greater inward investment ensuring there are no shortages even when mount Ararat is 30' under water
Are the pod people real?

[craigyboy4677]

no what i mean is royal mail shouldnt have the monopoly just like british gas or telecom etc, if other companies are doing a service then royal mail should do what needs to be done to stay in the game

[Lincox]

Craigboy, you must be music to Moya's ears. Look forward to seeing your pic. in the next version of the courier.

[chunk]

The message from the regulator is more focus on cutting costs. "Royal Mail needs to continue to push on with its cost-cutting drive. It needs to become more efficient. We think it is plausible that it can be done without a degradation of service," says Chris Rowsell, competition policy director at Ofcom.

if the regulator thinks we need more cuts! then he is so far out of touch with reality he is of no use.
Chocolate teapot.

[BELIAL]

I think Chris Rowsell should get his pay cut by 20% ;his pension slashed by 30% and up his productivity by 25% but then again ,what did Chris Rowsell ever produce ? Answers on a postcard

[borders]

no what i mean is royal mail shouldnt have the monopoly just like british gas or telecom etc, if other companies are doing a service then royal mail should do what needs to be done to stay in the game

do you honestly think that the opening up of the Postal Market is a ploy to make RM more efficient, do me a favour !!!!!