UK Royal Mail hit by defection of big customers to rival operators
Royal Mail is set to lose some of its biggest and most lucrative customers with a string of government departments, high street banks and insurers preparing to defect to rival postal operators.
The Department for Work and Pensions (DWP), the Inland Revenue and several large banks are understood to be close to switching from Royal Mail to one of the new breed of competitors which have moved in after the liberalisation of the pounds 5.8bn postal market.
Losing the DWP, in particular, would be a serious blow for Royal Mail as it is the biggest postal user of any Whitehall department. The DWP has already removed about pounds 400m of business a year from Royal Mail by paying state benefits direct into bank accounts rather than through the Post Office branch network.
Several high street banks are also thought to be preparing to switch mail supplier over the next six months. Royal Bank of Scotland, the country's biggest single postal user which sends out about 600 million mail items a year, has already deserted to the rival operator Business Post. Most of the other big banks are set to follow suit, with HSBC, Lloyds TSB, Barclays and HBOS all thought to be close to decisions.
Business Post's UK Mail division was launched only a year ago but is already handling between 1.5 and 2 million items a night out of the 83 million sent in total. Its other big customer wins include Powergen, Vodafone and Dell. UK Mail has set a target of reaching an annualised volume of one billion letters a year by next April, compared with the 22 billion items Royal Mail handled last year.
The Dutch postal operator TPG, through its UK subsidiary TNT, and Deutsche Post, through its UK division DHL, are also in the bidding for the postal business of the two government departments and the banks.
Business Post and the Dutch and Germans have all chosen to compete with Royal Mail by securing access agreements which enable them to collect, sort and transport letters but have them delivered through the letter box by the Royal Mail's 90,000 postmen and women.
Royal Mail charges Business Post 13p for every letter it handles this way compared with the 21p price of a second-class stamp and the 17p a large business customer such as RBS would pay for handing pre-sorted and franked post to the Royal Mail.
TPG and Deutsche Post have signed up on the same terms and the French postal service La Poste and Express Dairies are seeking to obtain similar access agreements.
The Royal Mail does not charge VAT, whereas private postal operators have to levy it at 17.5 per cent, making them less competitive. To counter this, the rival operators have set up special contractual arrangements which allow their customers to pay Royal Mail its 13p direct, so reducing the VAT element.
Royal Mail is likely to use the threat of increased competition to justify another rise in the price of first and second class stamps. It will argue this is the only way it can continue to guarantee the one-price-goes- anywhere universal service as competitors cherry-pick its most profitable bulk mail customers.
The industry regulator Postcomm will set out its initial proposals later this week on how much Royal Mail should be allowed to charge for deliveries for the three years beginning next spring.
First past the post
– Royal Mail delivered 22 billion items last year " 5 per cent up on 2003-04. Each night the UK postal system handles 83 million items.
– The total UK postal market is worth pounds 5.8bn and Royal Mail still has more than 98 per cent of it.
– Royal Bank of Scotland is the UK's biggest mailer, sending out 600 million items a year. Other top ten mailers include BT, HSBC, Barclays, Powergen and the Department for Work and Pensions.
– Last year, RBS became the first of the big postal users to defect from Royal Mail to a rival supplier. Others that have switched include Vodafone and Powergen.
– Three rival postal companies " Business Post, TNT and DHL " have so far signed 'access' agreements with Royal Mail, allowing them to collect, sort and trunk the mail to local delivery centres where it is then delivered by the local postman.
