Royal Mail: Universal Service under threat
One of the promises made by the Government at the privatisation of Royal Mail late last year for a knock down price was that the universal service and six days a week delivery would be safe-guarded.
And only a year later, it seems that both are under threat. Royal Mail posted some poor results and diminished profits yesterday and that has not only hit the share price but also seen Royal Mail raise the question (albeit obliquely) that they would like to be released from these requirements or see them also applied to competitors such as Whistl.
Here’s the comment from Royal Mail that has caused alarm:
“We believe the current regulatory framework does not fully address the problem posed by unfettered direct delivery competition. We think there is an urgent need for a new framework that will secure the sustainable provision of the Universal Service for the future.”
Of course, sceptics said at the time that there was a very real risk to the universal service that ensures delivery of post to all parts of the UK for the same rates. But it was a quid pro quo for the commercial freedom that Royal Mail claimed it could only enjoy if privatised. Now it seems that they want the goal posts moved.
Any such end to the universal service would be a real blow to ecommerce and a real problem for those who live in remote and rural areas who really depend on the Royal Mail.
This is a total disgrace from Royal Mail.
The reason their profits are down is due to a commercial miscalculation in overpricing their parcels.
They’ve had to climb down with a temporary price drop until Xmas.
The real story here is the greed and ineptitude of R M management.
Any supposed threat to the universal service must be snuffed out at once by politicians of all parties.
The point of privatisation was that R M would be subject to commercial competition.
So if Moya whats-here-name is now complaining that the competition is too tough, she can fly back to Canada!
I live in the Orkney Islands and both my husband and myself run e commerce businesses. We told everyone who we could get to listen that this would happen once RM was privatised.
But we were repeatedly told that the universal service was protected by law and would be preserved. I take no pleasure in being proven right and worry even more about the future of our family.
Unfortunately the reality of a competitive world means that Royal Mail needed to be privatised regardless. The USO can be seen as an uncommercial benefit for people and businesses like yourself but shouldn’t have impeded a decision to privatise RM.
RM had been badly runs for years now, a lack of competition and being in public hands has made it lazy and inefficient and it is only normal and expected that fast heeled rivals in the private sector have begun to chip away at RMs business. This is a good thing services will improve, prices will better reflect the market.
What the USO does is subsidise rural businesses and homes at the expense of the majority. You already have to pay more to travel (to and fro to get to things) so I don’t see why you believe you should be subsidised for mail as well.
Online retail is such a fast growing and important part of the economy that market forces should be allowed to take their course.
That being said secretly I hope the USO remains in place for a while and only because I want to see RM competitors get one up on RM to help break their monopoly over the letter and small parcel market. The faster this happens the better for all of us and USO will help speed that along (in the short term). NOT because I think it’s a viable or competitive long term option
The cheap sell off was outrageous, but the loss of the Universal Service was inevitable post-privatisation – did anyone believe it was safe? Bad news for Scotland/Wales/rural areas/e-commerce sellers.
Strip them of the “Royal” title and treat them the same as the hideous Throw-It-Over-The-Back-Fence Yodel. Shame, I’ve got great RM posties.
James seems to be a “true believer” in the almost mystical powers of The Market. A knowledge of economic history will show that Britain, the United States and China (and other economies) became the leading economies of their day under strong protectionist policies and subsidies.
Regarding the post/mail, someone in China can send a small parcel to my UK town for far less than I can. Last month I bought a key ring from Hong Kong for 99p including postage. And UK ecommerce is expected to compete with this?
I fail to see how breaking the Universal Service will improve the UK’s business infrastructure and help us to compete for our own market and internationally.
I think you have a misunderstanding of how the UK runs today.
The UK is a pretty open country and is successful because it is so readily open to the free market. Strong protectionist policies and subsidies have a place, but usually to encourage nascent industries rather than developed industries. Besides – logistics is hardly an underdeveloped industry that needs to be protected or subsidised in the UK.
Regarding China to UK – this is a separate issue and falls under the Universal Postal Union treaty (google it for a better explanation) and although a shambles of an agreement (for western economies) – is still a separate issue
Scrapping USO would help reduce costs for sending mail to the majority of people (assuming Royal Mail had the means, desire or capability to do so). For example if I am in London posting to London, why should this cost the same as me posting to someone in the Shetlands? There are 8 million people in London and 22k people in the Shetlands and yet to provide those in Shetlands with the same service, 8 million people will have to pay a higher cost for their mail service through Royal Mail (this applies to most densely populated towns / cities in the UK).
It lacks efficiency of costs. The vast majority of your customers will live in semi or densely populated regions in the UK and could in theory have access to cheaper postage. Some would lose out, yes but the majority would in theory gain.
Boiling it to knowing the price of everything and the value of nothing isn’t the right approach.
The USO is a principle that I think has value: it’s about saying everyone can get mail and parcels wherever they are in the nation.
We need people to look after our rural areas and remote outposts. The least we can offer our farmers, soldiers, vital service workers maintaining these communities is a decent postal service.
It’s likes roads for me: We keep those going for the good of the nation at enormous national expense. The USO is analogous.
The government cannot know the price of everything – it is impossible which is why the market is better at getting closer to a “truer” price. Anything and everything you sell – the price is determined by the market – what someone is willing to pay for it and what you are willing to sell for it – but this value is only obtained through the market and is made more accurate with competition.
USO is nice in theory but at a cost to the majority. Like most of these schemes the majority end up worse off to keep the minority happy.
On this argument, we will not only have to sort the type of mail Letter/Lge Letter/small Parcel/Med Parcel/Lge Parcel we will also need to sort the destination in the UK, hence prices will vary of location.
This will be a nightmare and require us to employ more staff to do the post.
I also do not see the day when RM reduce any of it’s prices (except for corporate/lge posters to compete with whistle) just another excuse to up their prices, which of course pays straight into the hands of their competitors…..
A few comments:
1. Allowing a change to the RM terms regarding the USO might be politically ‘impossible’.
2. RM might seek to vary the USO not on price but on service. Some locations could, for example, get deliveries just 3 days per week rather than 6.
3. The USO for the majority would not be advantaged all that much by abandoning the USO. The quantity of mail to urban areas far far outweighs that to the more far flung bits.
4. A way of getting out of a small part of the USO might be to ‘buy off’ a small number of very remote individual locations. In return for a one-off payment, a very remote location might agree to collect mail from a less remote location. Perhaps a Post Office or store.
I live in a small village in deepest Cornwall. So I am a part of Rural Britain that might be ‘bought off’. In my case while there are green fields all around my village we do have a Sorting Office about 10 miles away and a Post Office about 3 miles away(although the one I use is about 4 miles away-The staff are friendlier).
However what about those in such as the Highlands of Scotland where the nearest Sorting Office might be 30, 50 or more miles away and the nearest Post Office is 10 or 20 miles away. The costs of travelling even once or twice a week will far outweigh whatever ‘bribe’ they are given to accept that they will no longer see a friendly postie.
Remember that if the daily deliveries end it will mean that everybody in the area will lose their postal services. So each and every one of them will be forced to make one or two journeys per week to collect their post. Will exceptions be made for the old and the infirm? Or will 98 year old Mrs Smith who is blind and housebound also be forced to drive the 50 miles to the nearest Sorting Office or 20 miles to the nearest Post Office each week?
If exceptions were to be made for some why not keep the system as it is now? What about Official Post from such as HMRC or the Council still be delivered? If not will the fact that it is stuck in a Sorting Office or Post Office be accepted as justification for not having filled in and returned the Official Forms?
We as a Society owe it to ALL of our Citizens to keep the RM daily deliveries going to every single house, farm and community in the land. So when RM ask to be allowed to vary the rules the answer must be a resounding NO.
So how do you manage without a delivery on a Sunday?
Do you still have a ‘friendly’ milkman on a daily basis?
I wasn’t thinking of anything of ‘village’ proportions. Just a small number of individual locations. And ‘buying off’ would have to be mutual, not compulsory.
Whenever I hear a highly paid executive like ‘Lady Moya’ bleating to the press and leading a PR campaign in the media to wriggle out of obligations like the USO because they are struggling to compete I turn my propaganda filter onto full sensitivity.
Ofcom currently believe that the USO is not under immediate threat given the level of taxpayer subsidy to support the USO obligations within RM and its delivery infrastructure.
The real reasons for their fall in profitability are that RM has badly mis-priced their business packet services and simply failed to invest fast enough in new systems and cut costs quickly to maintain their competitive position.
The USO and limited piggy backing on their delivery infrastructure (usually in their most efficient urban areas anyway) by competitiors is not the real reason they are struggling.
Time for ‘Lady Moya’ to earn her very large salary, pension and relocation benefits and stop whinging and get on and make this business a great deal more efficient fast.
i really dont understand how Royal Mail NEEDED to be privatised, i dont really understand why anything needs to be privatised. everyone seems to be under the impression that publically owned = inefficient and badly run. why? perhaps it was inefficient and badly run i dont know, you dont need to sell it to fix it. just fix it.
our energy prices have all gone up, not down.
the train fares all increased tenfold, dont think service improved much more than it would have.
bus fares increased tenfold, with many rural areas cut out or cut down in service, now its really only the main routes get a ‘proper’ service.
okay so now some individual is making profit from us, instead of any proceeds being re-invested in the service, or going to the nations coffers. how is this better?
to be honest i think a lot of these things are run into the ground on purpose, just so the government can pawn it off for some quick cash. less objections if its a money-loser when its sold. (not that they care if we object, we did, they sold it anyway.)
and we’re told prices will improve, like the trains and gas and electricity and…. we know they won’t. they cant. Royal Mail ships from one end of the country to the other quickly and effeciently, for 50p. and for anyone, not just big-contracts; old Mrs Murphy who’s 92 and only buys a stamp once a year to send a birthday card can still send it hundreds of miles away for 50p. Please do tell me that she’ll be able to do so for less than 50p after privitisation? no? didnt think so.
– in fact she’ll probably need to open a membership with yearly subscription, book the stamp three months in advance, and only be able to use it between certain times, in order to qualify for the base rate, otherwise for a 1-off over the counter anytime nationwide stamp? that’ll be £3.95 thanks.
Why? Most publicly owned companies are run inefficiently because they lack the profit incentive to compete efficiently. I presume you’re an online retailer right? You see competition every day, people drop and raise prices, improve their services etc. Where is the incentive for a publicly run company to do the same?
Inflation and global energy prices has caused an increase in energy prices. You’re assuming that they would be lower if controlled publically – but they would likely only be lower if the state was providing a subsidy which would come out of your taxes anyway. Otherwise there is sufficient competition in the market and the prices are probably lower than they would have been if still in Public hands.
Re Rail – this is a longer more extensive topic because each line is effectively a monopoly with no competition. I doubt the government would have been able to run it better or more efficiently or for a (true) cheaper cost, however in standard government fashion the sector has been poorly regulated (you know the government cant even get regulation right – what makes you think they can run a service correctly).
Why is profit better? Incentive and competition as above. Royal Mail needs to improve and fast before it loses business to private couriers. This means i) Better tracking systems ii) Laying off useless staff iii) Better sorting systems iv) Better delivery terms v) Better route planning and more etc.
In the states hands Royal Mail would have slowly either i) lost to the competition or if it was protected ii) cause loss to the taxpayer in terms of deadweight loss propping up an inefficient business by either protecting it from competition or pouring money into a badly run service.
No she probably wont’t be able to and she should’t be able to. If Mrs Murphy was in London posting to London 50p is probably reasonable and less would be better if RM reduced prices based on locational delivery. Why should Mrs Murphy pay 50p when the true cost to RM or any other courier is (say as an example) £1. RM isn’t a charity and the rest of us pay to keep Mrs Murphy happy. If she wants cheaper prices she can move.
James is right. There is no good reason why RM could not be publicly owned and profitable.
The arguments in favour of privatisation apply equally well to an arms length publicly owned RM.
The difference is that the profits would flow back to taxpayers instead of being p*****d away to shareholders.
Same with the railways
British Gas etc etc
Payouts for friends in the city instead of benefitting the nation as a whole.
In the case of the railways, the taxpayer is still actually partly subsidising these dividends to shareholders.
Communism has not really worked very well in the past
Keeping Royal Mail in public ownership, with the profits returning to the public purse, is communism? Read too much Ayn Rand, perhaps?
public ownership of a service where any profit or the product is returned and managed by the state ,is at best socialism , which is not a way to run a business
if the USA ,Australia, Canada , and a dozen other bigger countries with remote community’s can manage why cant we?
Those who proclaim the wonder of markets should look at the banking crisis, which led to massive subsidies to the banks, as well as the finance industry as whole, due to the emperors new clothes economics being played out. Those in the city have and are aware of the ability of the state to underwrite and therefore subsidise the financial institutions in the city of London etc. and therefore protect there wealthy investors. The true market argument would have allowed for the failure of these institutions (remember those involved the crash new Govt’s would never allow them to fail so never worried) without the fail safe of state intervention, this in turn would have led to wealthy investors losing all, runs on banks without the provision of state backed insured deposits to the value of, and indeed the possible collapse and value of currencies , aka Germany in the 30’s.
Money is after all is just a symbol of trade or tokens of valuing products.And is frequently dependent on state intervention and subsides hence the protectionism in Japan and the common market in the 70’s & 80’s allowing European countries and Japan to build up so called wealthy economies’ . No surprise that since these protections have been removed that their economies and the subsequent demise of manufacturing trade balances have weakened their economies.
With regard to Royal Mail, the shares were deliberately undersold so that the large financial hedge & wealth funds etc. Would buy, pushing up the price and therefore allowing the Company to be valued as a top 100 FTSE Co, once the Company entered this Market, Pension Hedge funds etc. are compelled to buy, mostly from the institutions which were subsidised by the state with undervalued shares! once again financial institutions were subsidised and protected within the market by the state.
The Problem Royal Mail has is with the regulator – again an institution which should not exist in a free market. However regulation is being imposed only on the Royal Mail via the USO legislature terms. The regulator is however failing in its duty to protect the USO by allowing whistl (ex TnT) to cherry pick the profitable urban areas only,and operate outside the 6 delivery day week to addresses as per USO terms (Whistl delivers every other day over 6 days) . Indeed recent press releases by whistl then TnT clearly pitched the efficiency model argument (a simplistic value that fails to recognise the true parameters of the USO efficiency) proclaimed by OFCOM. This was a press release which spouted efficiency from a Company that operates in the USO market without the need to produce efficiency targets!, unlike Royal Mail why – FiFaisms maybe in play.
If Royal Mail was allowed to operate freely in the market without the restrictions placed on it by OFCOM the regulator then it would prosper, Royal Mail would also prosper if those terms of regulation were correctly and equally enforced on Letter Mail operators such as Whistl. A level playing field will ensure that a socially responsible organisation (hopefully) will be able to continue to provide a necessary service to many of the nations SME’s that are the back bone of this countries real market economy.
However the European Union maybe about to once again impose so called free market ideologies that will reduce the requirements of the USO agreed by the parliamentary legislation.
As always many who speak of the free market, speak with forked tongue.