25 February 2002

Will Consignia be left at the post?

This article appeared in IFW on 25 February 2002

Postcomm has released its proposals for introducing competition into the UK postal market. The postal regulator has decided that it wants to open the market quickly. If it achieves its initial goal then 40% of UK mail volumes will be available for competition as soon as April 2002. This is 32 million letters every day, a figure that looks like a huge opportunity for new entrants. But to what extent will new entrants be able to establish themselves in the market? Let’s face it – the postal market has a growth rate of only one or two percent, all the talk is about substitution by email and the Internet and, perhaps the most significant point, mail prices in the UK are very low. Apart from the fact that Consignia’s poor service quality and industrial relations record are creating opportunities for its competitors, this isn’t an immediately attractive market.

Postcomm’s main proposal is a licence that will allow private operators to deliver bulk mail. Initially only mailings of more than 4000 pieces will be available to private operators. They will be able to deliver this mail themselves or pay Consignia to deliver some of it. Superficially this licence looks attractive. Pick up costs from bulk mailers are low and the mail is generally presorted. Also, direct mail volumes are continuing to grow quite strongly. However, volumes of transaction type mail (statements, invoices etc.) are under threat of substitution. The challenge for private operators will lie in the delivery. For any single operator the ideal mailing would comprise only letters for delivery within the area covered by its own network. This would remove the problem of what to do with “out of area” mail. Examples of this would be local authority mailings or advertising mailings by local businesses.

Most other bulk mail has to be distributed over a much wider area. Transaction and direct mail are mailed nationally so any single private operator will only be able to deliver a part of each mailing itself. Postcomm has already recognised this problem and has imposed access conditions in Consignia’s licence that mean that Royal Mail must deliver mail on behalf of operators. However, the price for this service is still to be determined and Consignia’s Chairman, Allan Leighton, has indicated his determination to resist access prices that he thinks are too low. The logic is that Royal Mail does not want its competitors to handle all the easy, profitable mail whilst it is left to deliver the cost intensive mail at low prices. This logic appears to have been applied in other countries where access prices are high, if they exist at all. If there is a lesson to be learnt, it is that private operators should not rely upon access agreements as the means to break open the postal market.

Lacking cheap access to Royal Mail’s last mile delivery private operators will be forced to come up with other ideas. In other countries some customers have been reluctant to divide their mail between the post office and its competitors. Doing so raises complexity and costs. If private operators want to gain control of the customers they might want to consider helping mailers split mailings into Royal Mail items and “private” mail. This happens in Sweden but why not go a step further and offer to run customers’ complete mail operations, including printing?

In the long term private operators will probably want to have their own delivery networks so that they maintain end to end control of the mailing process. This will mean recruiting letter carriers across the country, a major undertaking even if the employment market were considerably looser than it is now. Delivering mail is not a job that appeals to everyone, particularly at current wage rates.

The private operators will naturally view Royal Mail as their main competitor. They should keep on eye on each other at the same time. There could be a tendency for them to all run after the same cherries in the postal market, creating high levels of competition in limited areas of the market. Elsewhere competition has tended to emerge geographically and private operators have started to develop networks between themselves so that they can offer national coverage.

Perhaps the private operators will think that it’s not worth the bother. Even Postcomm does not think that they will win more than 10% market share. Unless Royal Mail fails to get its act together quickly the competitors will have to be very clever to establish themselves.

Royal Mail, its likely competitors and major customers are going to be debating these issues at the UK Mail Summit on March 12th and 13th. Come along and form your ideas about the future of this industry.

Triangle Contacts:

Triangle Links:

To find out more email Paul Jackson at PaulJ@triangle.eu.com or call him on +44 (0)870 950 7900 .

• The Mail Show •
• UK Mail News •
• Top Mail & Express Vacancies •
• UK Mail Awards •