Modernise or decline: current challenges for the mail market

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Ever since the government announced a review of the UK postal services market in December 2007 there has been an underlying element of uncertainty within the mail market. Some of that was removed when Richard Hooper published his long awaited report: Modernise or decline: policies to maintain the universal postal service in the United Kingdom, on 16 December 2008.

The review was commissioned because the mail market has been declining. Royal Mail’s total mail volume has decreased by two percent each year over the last two years. One reason for this is e-substitution, which involves businesses offering customers alternatives to traditional mail forms, such as e-bills and mobile phone texting. Business customers send around 87 percent of Royal Mail’s addressed letter mail and given the current recession some business customers have said that they are seeking to reduce spending on advertising mail over the next few years.

To halt this decline Hooper made three key recommendations, which he said should be implemented as a package:

There should be a minority strategic partnership between Royal Mail and one or more private sector companies. The government should take responsibility for Royal Mail’s historic pension liabilities. The responsibility for regulating postal services should be transferred from Postcomm to Ofcom.

Some of these ideas, which Lord Mandelson, the UK’s Secretary of State for Business, Enterprise and Regulatory Reform, accepted in full, have been controversial, especially the idea of a strategic partnership for Royal Mail. Since the report was published, the media has carried lots of stories of the opposition towards this proposal, namely from Labour party backbenchers and the Communications Workers Union. We believe that this is a matter for the government, but a new strategic partner could provide the management skills, expertise and discipline that Royal Mail needs to improve its efficiency and be more innovative so that it can compete with digital alternatives and help sustain the universal service.

In the case of the change of regulator, we believe that in any transition, delay and disruption must be minimised and a smooth transfer of skills, knowledge and responsibility must be achieved. We are working with Ofcom to ensure that this happens. In the meantime Postcomm is still the independent regulator for postal services in the UK. Our statutory duties are to protect the universal service, regulate Royal Mail’s quality of service and its prices, monitor developments in the Post Office network, and license postal operators, of which there are now 25.

We also have a duty to further the interests of consumers where appropriate by introducing competition into mail services. Competition in the mail market has been limited, by and large, to the collection and sorting of mail. Royal Mail continues to deliver over 99 percent of all addressed mail. However with competition we have begun to see improved choice, lower prices and innovation in new products.

We have found growing convergence of electronic communication and traditional media, which will slow the decline in the mail market. According to Interactive Media in Retail Group (IMRG), one of the growth areas has been internet shopping, which increased by 19 percent in January 2009 compared with January 2008 despite tough economic times. IMRG estimates that in 2007 860 million parcels were delivered in the UK as a result of internet shopping.

Another example is hybrid mail, where people electronically transfer letter files to a hybrid provider who will print and then transfer it to Royal Mail for delivery. This is starting to take off in the UK, although it is mainly used by B2B customers. In addition Moonpig offers people the chance to send personalised cards, which are then printed and posted for a special occasion. Royal Mail recently introduced Matter, which is a targeted box full of marketing products from participating companies. To receive a Matter box, people have to register on the website and provide some personal details.

These examples demonstrate that there is still a bright future for mail if the market can adapt to technological change and provide innovative services to meet the new demands of customers.

Tim Brown is the CEO of Postcomm, the independent regulator for the postal industry –

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