Rivals aim to deliver the goods as Royal Mail strike looms

Click to follow

As the Royal Mail faces up to its worst industrial crisis for years and the very real prospect of a damaging strike, rival companies such as TNT, DHL and Business Post will be aware of an opportunity.

Such companies have increasingly "cherry-picked" the Royal Mail's business - a trend that was given a fillip on 1 January when the Royal Mail's letters monopoly was finally removed.

The state company's competitors had already been creaming off the bulk mailing business used by large financial companies, utilities and government departments. Under a gradual deregulation process, rivals had been allowed to handle batches of 4,000 items and more since 2002. Under a so-called "access" agreement, private sector competitors collect the post from the organisations concerned, then distribute it to regional centres where it is handed over to Royal Mail offices to be taken "the final mile". The state-owned organisation receives 13p per item it delivers under the access arrangement, whereas the figure goes up to an average 17p if it supplies the full service.

Since 1 January and "full liberalisation", Royal Mail's competitors have been introducing services for smaller batches of mail, eating further into the Royal Mail's bread-and-butter operations. Business Post's UK Mail division has recently launched a service for volumes as low as 250 letters a day.

Thus far, "end-to-end" collection and delivery services have interested only specialist companies such as DX which developed its business through handling legal documents.

In 2004-05, some 106 million items were collected and delivered by private companies compared with 22 billion by the Royal Mail. Private companies have no immediate plans to offer a mass market end-to-end service.

But Nick Wells, the chief executive of TNT Post, believes it will be increasingly possible to provide such services. His company recently acquired JD Williams' courier service, which specialises in delivering parcels and packages for mail order companies. TNT has taken over 194 permanent employees and a network of more that 1,500 self-employed workers who are currently delivering around 12 million parcels a year. Mr Wells plans a major expansion of the business.

More immediately, the commercial possibilities offered to rivals by short strikes at the Royal Mail are strictly limited. The scale of the operation is simply too vast to replicate.

Indeed, the industrial action will mean that the post collected by competitor companies will remain undelivered by the Royal Mail.

Perhaps the atmosphere of uncertainty engendered by the industrial action is of greater long-term benefit to the Royal Mail's competitors. The more the Royal Mail develops a reputation for unreliability, the better it will be for its rivals, the argument goes.

In recent years, Royal Mail has tried to get its financial act together - albeit with a massive £3bn subvention from the Government to rescue its pensions fund and to finance modernisation.

Last month, the state-owned company announced a 17 per cent increase in operating profit to £355m in 2005-06. The result triggered a £418 bonus for employees.

But the union is unimpressed with the bonus and the 2.9 per cent wage rise and treats warnings about the effect of industrial action with scepticism.

Norman Candy, a senior member of the CWU executive representing London, said: "I've worked in the industry for more than 30 years and they were warning about the dangers of competition growing because of industrial action when I was involved in my first dispute in 1979. They are still talking about it now. The scope of what people like TNT can do is so limited.

"Can you imagine them delivering to some of the estates in south London or to the remote parts of Scotland or Wales? They haven't got the infrastructure. There is always a Royal Mail office near where you live, but you won't find a TNT office."

If talks expected later this week involving the Royal Mail chairman Allan Leighton prove fruitless, more than 130,000 postal workers will begin voting on strike action on 10 July.

The Communication Workers' Union says it has conducted private polls which indicate support for industrial action in most areas of the country at more than 70 per cent - and at 92 per cent in London. The result of the ballot will be known at the end of July with strikes possibly beginning a week later. Ostensibly the dispute is over the 2.9 per cent wage rise imposed by management. But other issues such as job losses and changes to working practices are also exercising the minds of the CWU leadership and its members.

Most worrying for the union, however, is the spectre of privatisation. The CWU is determined to resist it at all costs.

Mr Leighton set the hare running last month when he revealed a plan to hand over 20 per cent of the Royal Mail to employees by giving each of its employees an estimated £5,000-worth of free shares.

The CWU's annual conference recently warned the Government that the union would withdraw funding from the Labour Party should ministers seek to privatise the Post Office.

The mood darkened further yesterday when Dave Ward, the union's deputy general secretary, called on CWU representatives to boycott meetings with Mr Leighton and the chief executive Adam Crozier. Mr Ward said the meetings - to talk about the challenges facing the organisation - had been called without informing the CWU's national leadership. Ironically, Mr Leighton organised the sessions as a means of enlisting the help of union representatives in beating the competition.

In his letter of invitation, he says three billion items will be processed by rivals this year compared with just over a billion last year. Mr Ward believes that CWU members and the public are being softened up for privatisation.

Management - and ministers - have consistently denied that a sell-off is being planned but the union leadership is taking the assurances with a large pinch of salt. Some managers at the Royal Mail believe industrial action will anger ministers to the point where a sell-off - certainly of the more lucrative parts of the organisation - may be actively considered.

Mr Leighton's more immediate concern is the impact of any industrial action on his customers and his competitors. If union members vote "yes" to strikes, the union is expected to call a series of one-day walkouts. The "benefit" of such a strategy to the union is that members lose only a single day's pay at a time, while the knock-on disruptive effect is felt for days afterwards.

Postcomm, the industry's regulator, is deeply concerned about the impact of any industrial action. "This is not just a question of Royal Mail's business being affected. Companies are not just competing with each other, they are competing with other forms of communication such as e-mail," it said.