UK Postal Services: Doors open on mail

The postal landscape is changing as Royal Mail finally steps aside to let new operators through.

Postal deregulation has been on the cards for years but is finally starting to happen. Some banks and utilities are switching to competitors of Royal Mail, a vote of confidence that could encourage other volume mailers to follow.

Full liberalisation was originally set for April 2007, with a staggered schedule that would give Royal Mail time to overcome its financial problems before facing the competition. However, thanks to the company's rapid recovery, the government was recently able to bring the date forward to the beginning of next year.

In practice much has depended on Royal Mail opening up its delivery network to competitors, as it is difficult for new entrants to set up an infrastructure from scratch. That has been a problem, postal experts say, as until recently it showed reluctance to do so.

"Royal Mail has an extremely defensive attitude, which has done it no favours," says David Robottom, director of postal affairs and industry development at the DMA. "It has a massive opportunity to develop a profitable wholesale business, and should embrace it."

Tough action by postal regulator Postcomm last year finally enabled would-be competitors to negotiate 'downstream access' agreements, in which they will collect and sort business mail and give it to Royal Mail for the final delivery.

First out of the blocks was UK Mail, a subsidiary of Business Post, which started operating for Powergen in May last year, and recently signed up Royal Bank of Scotland.

It has been closely followed by TNT Mail Services, a subsidiary of the Dutch postal operator TPG Post, whose clients include Sky and two high street banks. A third major player is the German postal operator Deutsche Post, which is operating in the UK under the name DHL Global Mail and recently started delivering mail for big clients in the retail and entertainment sectors.

Focus moves to DM

To date the new operators' focus has been on the transactional mail that makes up 60 per cent of the commercial market. The millions of statements pumped out by banks and utility companies each month represent steady revenue streams and are relatively low-cost to handle.

But at the present rate most of this 'low hanging fruit' will soon be acquired, and the operators will next be targeting direct mailers. These account for the next largest tranche of business, about 30 per cent of the business market with between five and six billion items a year.

Experts see a major advantage for direct mailers following liberalisation.

"Even if a business doesn't shift to a competitor, the threat of that happening will ensure that Royal Mail improves its service and keeps its prices low," says Ian Senior, associate director of Triangle Management Services, a specialist postal services company.

The single most important attraction is likely to be cost savings, although these will not be massive. Royal Mail's prices are already among the lowest in Europe, Senior points out, and the effect of competition will be to keep them down rather than to cut them further.

Nevertheless, private operators claim their prices are about five per cent cheaper, and as much as 10 per cent in some cases for very high volumes.

That would be extremely significant with large credit card campaigns, for instance.

Until recently this advantage looked as though it would be offset by the prospect of mailers with rival services having to pay VAT, from which Royal Mail is exempt. However, Customs and Excise is now said to have relaxed on the matter with operators charging tax only on haulage and management, which both account for a fraction of the total, so this is no longer a worry.

A more potent concern is whether Royal Mail's competitors are up to the job. A poll by Dataforce of its customers revealed that none were yet thinking of switching, citing issues of trust and coverage.

"One cannot underestimate the time it takes for any new service to build a reputation," says Steve Dole, solutions development manager of Dataforce.

"No business is going to put something as important as their direct link with customers into the hands of a business with no track record."

Customers still cautious

But some think the signs so far are positive. "These alternatives are still very new and there is bound to be some caution among consumers," says Mark Selby, logistics and distribution director of Vertis. "But the feedback so far has been good and there is no doubt that major wins for these new companies are helping to focus many other major posters' minds."

The operators are keen to dispel anxiety, arguing that they are able and motivated to provide a better service. Coverage is not an issue, they point out, since they are using Royal Mail's national network, and they claim their collection and sortation facilities are more efficient.

"Organisations are queuing up to talk to us about all the problems they have been having with Royal Mail," says Simon Dolph, head of marketing and communications at TNT Mail. "They are not given any choice, and have to adhere to its postal collection times. They also complain of appalling account management, and a lack of flexibility and innovation."

The biggest challenge for the new operators is dealing with the volume of mail as it increases through their own networks. The new operators insist that so far this has not been an issue. "So far we have shown we have the ability to handle it and scale up," says Dolph.

Averting delays

One of direct mailers' biggest gripes is the difficulty of guaranteeing that mail will arrive on a certain day. This makes it hard to get the maximum value from integrated campaigns.

A mailing that is delayed by a day or two can cause huge problems in call centres. Extra staff may have been laid on to deal with a response that does not come, until one or two days later when there is no one to take phone calls from prospective customers.

The operators insist they can do better. "A lot of companies are picking up on this," says Guy Buswell, managing director of UK Mail. "If they know when their mail is definitely going to be delivered they can then ensure it is injected on the right day."

A lot depends on operators' ability to put in place effective sorting systems. "We have been particularly concerned with this, taking the time to put in place sophisticated tracking information that uses automated documentation," says Andy Barrett, head of marketing, DHL Global Mail UK.

Services are also being offered that bypass Royal Mail's delivery network altogether. DHL owns a specialist B2B company, formerly known as Speedmail International. This currently delivers into 22 postcodes in central London, but over the next two years will be expanded into a nationwide network covering 80 per cent of businesses. For B2B marketers the cost savings will be about 10 per cent, Barrett says.

Since last summer TNT has been running a service to deliver non-time sensitive items, such as contact lenses, books and CDs. It has teamed up with Express Dairies, which is profiting from postal liberalisation to find another use for its delivery network as milk sales decline.

At present this service is limited to main conurbations, although TNT would like to extend it to rural coverage, and in the long-term plans to build its own network, say Dolph.

Experience in Sweden and New Zealand suggests that liberalisation does not make great in-roads into the dominance of the incumbent postal service.

Few expect Royal Mail to lose more than 15 per cent of its business.

But clearly the shake-up offers potential benefits to direct marketers, who can now see operators competing to offer them what they really need, rather than what they are merely willing to provide.

POSTAL SERVICE PROVIDERS

TNT MAIL SERVICES (www.tnt.com): Subsidiary of TGP Post, the Netherlands' state postal operator. Full licence to provide national mail services, operating since June 2004. TNT offers Business Premier, a two-day national business service delivered by Royal Mail. Also a weekly service to main conurbations in partnership with the Express Dairies network. Clients include Sky, Caudwell Communications, Readers Digest and major banks.

UK MAIL (www.ukmail.biz): Subsidiary of listed express delivery company Business Post. Full licence to provide national mail services, operating since May 2004. Offers Business Class, a national two-day business service delivered by Royal Mail. A late mail collection – up to 7.30pm – is available in some areas. Clients include Powergen, Royal Bank of Scotland, and major telecoms and computer manufacturers.

DHL GLOBAL MAIL UK (www.deutschepost.de): Subsidiary of Deutsche Post World Net. Full licence to provide mail services, operating since early 2005. Offers Citispeed, one-day, two-day, and three-five day national business mail services delivered by Royal Mail, and by its own delivery network in London for business to business clients. First regional mail hub opened in Warrington in April, covering the North-west. Major retail and entertainment clients.

LA POSTE (www.laposte.co.uk): Licensed in July 2004 to distribute UK mail worldwide. A UK-based subsidiary, Geopost is licensed to deliver mail in the UK, but is not yet active. It has partnered with a number of parcel and delivery networks, including Interlink Express, Interlink Ireland, Mailplus and Parceline. The company also partners at a global level, with major players, including Chronopost International and DPD.

POSTAL SERVICES TIMELINE 2000: Postal Services Act sets up a postal regulator Postcomm. This has the power to issue licences to postal operators conveying letters costing £1 or less per item or weighing 350 grams or less per item. Phased liberalisation is put forward, with full market opening proposed for April 2007. MARCH 2001: Postcomm grants Royal Mail Group a long-term universal service licence. MAY 2002: Postcomm starts consultation for liberalisation and licence conditions. JANUARY 2003: Competition in mail services introduced, restricted to 30 per cent by value of the letters market and to companies handling bulk mail in batches of 4,000 letters or more. The first licences are issued. JUNE 2004: UK Mail and TNT Mail Services agree terms with Royal Mail to provide 'downstream access' delivery. They begin operations for the first clients. FEBRUARY 2005: Full liberalisation brought forward by 15 months to January 2006. JANUARY 2006: Full liberalisation to be introduced, meaning that licensed operators can collect and deliver any mail, from single letters to bulk mailings, in competition with Royal Mail. Source: Postcomm.