Post strike is no red letter day for Royal Mail rivals

Nearly all mail delivery companies will be hit by the strike thanks to its dominance of the "final mile", says Alistair Dawber
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The Independent Online

If ever there was a moment for the private sector postal companies to pop the champagne corks, it should have been yesterday as the Communications Workers Union said a majority of its members had voted to walk out for the second time in as many years.

After a series of local disputes and other disturbances to the postage system in recent months, news that letters, parcels and other post will again be left gathering dust should be the final straw for those that rely on the service and result in them ditching the 350-year-old Royal Mail in favour of a new, sharper private operator. Not a bit of it.

While some segments of the market, such as the smaller-scale couriers and parcel delivery groups, will have opportunities to make gains, on the whole the private sector has been left frustrated by monopolies that still exist in the supposedly deregulated industry.

Since full deregulation in 2006, the private sector has been allowed to compete with Royal Mail in areas such as parcel delivery, as well as courier services, in which it has long offered an alternative.

Many, such as TNT, Business Post and Home Delivery Network, have thrived in recent years, in many cases by offering a more efficient and cheaper service.

And even before yesterday's strike was confirmed, Royal Mail acknowledged that its business postal service, which makes up 90 per cent of all the parcels and letters it delivers, is under threat and that the strike will do nothing to help. "We are very worried about the effect of the strike on our customers," a spokesman for Royal Mail confirmed. "Nine out of every 10 items we process are for business customers and we are already seeing the mail bag falling by 10 per cent year on year. The strike is really not going to help the situation."

But it is unlikely that private sector groups will have the opportunity to cash in on the strike.

Almost all post, regardless of whether it is collected and processed by the public or private sector, is ultimately delivered by Royal Mail, which is paid by companies for putting it through letter boxes and handling the so-called "final mile". The result is that during a strike, all post is equally late.

Private companies argue that they do not have the infrastructure to compete, although one, TNT, did confirm yesterday that it is testing a delivery system in Liverpool, although it is on a very small scale, it says. One area in which companies like TNT may have more success stealing business away from Royal Mail is in parcels, where higher margins make deliveries possible. Indeed, Amazon, the online retailer that relies on the postal groups, is understood to have asked one company, Home Delivery Network, to take over some of its parcel deliveries after becoming concerned that it will be unable to meet Christmas demand, a move that will put its £25m-a-year contract with the Royal Mail at risk.

As well as Amazon, eBay, the online auctioneer, said it would switch to other providers if customers demanded it.

"While they [customers] work with a variety of postal suppliers, many rely on Royal Mail for their deliveries and are understandably concerned that further postal strikes will continue to cause huge disruption at a time when they can least afford it," said Mark Lewis, eBay's UK managing director. "Our businesses tell us that Christmas typically accounts for a fifth of their annual sales and ... while we appreciate the complexity of the issues at hand, the Royal Mail, the Government and the Union must work to bring this dispute to a swift end."

But even parcels presents problems for many in the private sector. "Everyone in the parcels industry already runs at full capacity and so it is impossible to add 30 per cent capacity over night," says Guy Buswell, the chief executive of Business Post. "The strike is actually a real problem for everyone in this industry. Post volumes are falling across the board and industrial action like this will only persuade people to question whether they actually need to send something through the postal system at all."

Others agree, and even though some groups like Home Delivery Network may benefit from one-off deals, the consensus is that, even in the parcels sector, the strike will not be beneficial. TNT, the Dutch group, said yesterday that its postal arm was unlikely to see a big uptick in demand because its packages are just as unlikely to be delivered as those of other companies.

However, the group's courier arm, TNT Express, which charges customers a premium to deliver post, said it often sees an increase in demand when a strike is called. "We always see a spike in demand in the one or two days before a Royal Mail strike," a spokesman for the company confirmed. "This always lasts for the duration of the strike and then gradually falls away again when the strike comes to an end, but there is always a residual number of people that stay with us."

The spokesman conceded, however, that the courier groups lack the scale to take major amounts of business away from Royal Mail.

Some in the private sector argue that the strike will help to paint a picture of Royal Mail incompetence in the minds of some potential clients, but most dismiss that that would help win many contracts, especially with all post ultimately being delivered by Royal Mail anyway. More likely, they say, is that most companies will ultimately look for ways of avoiding postage altogether.

Delivered: The less than open deregulated UK postal system

The UK postal system was finally fully deregulated in 2006, with the private sector given the opportunity to collect, process and deliver letters, parcels and packages, on an equal footing, for the first time in more than 300 years.

Three years earlier, those wanting to compete with Royal Mail were given their first chance when 30 per cent of the system was opened to competition, giving Britain one of the first deregulated postal systems in the EU.

A number of companies, such as TNT, jumped at the opportunity to take a slice of Royal Mail's pie, with many targeting the business sector as one where they could offer a more efficient service, and charge clients more.

The theory is fine, and indeed a number of private operators have attracted a great many clients, often at the expense of Royal Mail.

However, despite the intentions of many, Royal Mail still delivers more than 99 per cent of all "mail" – described by the regulator Postcomm as items weighing less than 350 grams or costing less than £1 to send – meaning that no matter how efficient the private sector may be, it will always fall victim to a strike.