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Business Postal Services Market Assessment 2008
Key Note Publications Ltd, July 2008, Pages: 94
In January 2006, the UK postal services market was fully deregulated. This means that any operator licensed by the governmental regulatory body — the Postal Services Commission (Postcomm) — can compete with The Royal Mail to deliver mail of any size or weight to any address in the UK. The Royal Mail no longer holds the monopoly on mail services in the UK.
However, the terms of the Royal Mail licence, unlike those of its competitors, oblige it to provide a service that will deliver mail from any given collection point in the UK to any address in the UK, at a flat rate. This is known as the Universal Service Obligation (USO).
Because of The Royal Mail's USO, as well as its position as the incumbent postal services provider, its delivery network (of collection and sorting offices, vehicles and personnel) is, of necessity, the most comprehensive in terms of geographic spread, which gives it the advantage in terms of final postal delivery — the `final mile', as it is known in the industry, i.e. the `downstream' sector of the collection and delivery chain. None of its competitors can compete on a national scale in this sector of the business.
However, because of its long standing in the marketplace, The Royal Mail's collection and sortation technology is not as up to date as that of more recent entrants into the market. This means that, although competitors in mail delivery (excluding express and parcels delivery) are unable to compete for `final mile' delivery, they are able to compete in the `upstream' postal collection and sorting sector. The Royal Mail is, therefore, losing many major business contracts from companies such as Tesco, the Driver and Vehicle Licensing Agency (DVLA) and British Telecommunications (BT) that all have high volumes of regular mail communications with customers, which can be counted in millions.
The Royal Mail is able to take advantage of its downstream strength by allowing access to its `final mile' delivery services to its competitors, but is encumbered with outmoded systems and working practices and a workforce that is rooted in an old civil-services wages and pensions system. The Royal Mail is unable to generate the kind of profits it needs to compete with its major competitors: the universal service providers (USPs) and prior monopolies in other EU deregulated markets. Whereas those companies, primarily the Dutch-owned TNT and German Deutsche Poste, are operating on a global scale, The Royal Mail is still trying to compete effectively in the UK. Independent companies here have, since the beginning of the deregulation process, been able to compete in the business-to-business (B2B) mail and bulk mail sectors and, with the downstream access (DSA) service, the market will see greater volumes of bulk mail handled by Royal Mail competitors. The Royal Mail, however, is the dominant player in the UK market and is likely to remain so for the foreseeable future.
The barriers to entry for mail collection and delivery are high, although, due to advances in digital printing, they are starting to come down. Competition has primarily come from the logistics sector, which also provides courier and express parcel-delivery services. New technology, however, could see new entrants from other quarters. Existing providers are already developing hybrid mail systems that allow users to e-mail their mail content, which is then sorted electronically before being sent, again electronically, to the nearest printing plant to the final destination point where the mail is printed, collated, put into envelopes, sorted according to Royal Mail's Walksort criteria and delivered in that location.
This not only saves time and money, but also reduces the amount of traffic on the roads. It is likely that a number of location-specific printing houses, using advanced mail-printing technology, will develop across the UK.
All competition has concentrated in the B2B and business-to-consumer (B2C) mail market: The Royal Mail continues to collect, sort and deliver mail from consumers through its Post Office services. The Post Office division of The Royal Mail's business continues to be unprofitable and, in 2007, some tough and unpopular cost-cutting measures were introduced with the start of a programme, continuing into 2008, that sees the closure of many post offices across the UK.
With strike action from Royal Mail postal workers over pay and working conditions in 2007, and threatened again in 2008, coupled with post office closures, the Royal Mail brand has received much negative publicity. However, its strength has cast it as a venerable UK institution and there are, as yet, no serious contenders to threaten its position.
Nevertheless, with full deregulation, the UK Government is committed to ensuring that the UK postal market is fully competitive, and has commissioned a review of the market and how it is regulated.
This Market Assessment report examines the market as it stands, as well as looking at how the mail markets operate on an international level, and suggesting how the market will develop in the future. Extensive research has been conducted using information from the regulatory body Postcomm, as well as individual companies and European and international information sources. We also invited key industry practitioners to take part in a virtual roundtable, to elicit views from within the industry itself. Their responses can be found in Chapter 8 — Industry Dynamics — of this report.
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