Pitney Bowes delivers . . . showing Royal Mail the route

EVEN Sir George BainAos review of the Royal Mail seems to have got lost in the post. Widely tipped to come at the end of November, the Department of Trade and Industry says the former head of the London Business School will now not reveal his views on the future of the Royal Mail.

Delivery is everything and the Government-sponsored research will, however, begin to surface in various policies just as the Royal Mail faces the toughest challenge in its 345-year history. On 1 January it loses its monopoly as part of cross-European liberalisation which will open the market to full competition.

Firms such as Pitney Bowes, with a market value of $9.62bn (GBP5.56bn, E8.20bn), will be looking for more opportunities in the British market along with FranceAos Neopost, and Francotyp-Postalia of Germany. Pitney Bowes is a good example of an old-fashioned company that has transformed its business to capitalise on the diverse ways we receive our messages. It is more commonly associated with inventing the franking machine and has now diversified into data management, electronic billing and commercial printing. The Royal Mail is also modernising but not at the same pace. Allan Leighton, its chairman, and chief executive Adam Crozier, have made some progress in turning the business round. But in terms of items handled per employee and the use of sorting technology, the Royal Mail lags its continental peers Deutsche Post and TPG of the Netherlands.

It also has a GBP4.5bn pension fund deficit and a final salary scheme open to new members. Any efficiency gains have been returned to employees in higher salaries and bonuses rather than used to cut the deficit.

Pitney Bowes, a similar, former, single-purpose-business, with a perception of being old-fashioned, has found new opportunities in the changing market place. It is taking some of the Royal MailAos market share and sorting mail cheaply and efficiently in Britain.

Credit card firms give it their statements and energy companies their bills which it inserts in envelopes and then franks. But the Fortune 500 firm has also negotiated with the Royal Mail to sort these millions of pieces of mail, pooling them together from all its combined clients, and separating it into post code areas.

This cuts out some of the work Leighton and his team have to do, and in return Pitney Bowes is given a discount on the cost of sending each piece of mail. Some of this discount gets passed on to clients who would not have been able to benefit from the same scale of discount without their mail being pooled with that of other Pitney Bowes clients.

Postcomm, the postal service regulator, is forcing Royal Mail to open up its national postal network. While Pitney Bowes will not compete directly, it will work with partners who will eventually offer a door-to-door alternative to the trusty postie.

A newly competitive Royal Mail will need to spearhead some of the other initiatives Pitney Bowes is using to grab market share. For example, Pitney Bowes is in talks with government vehicle licensing departments in Europe to take responsibility for sending out registration documents, but at no cost. The trade off is it will shoulder the cost of the mail-out and postage in return for governments allowing it to insert marketing material.

Already in America Pitney Bowes has teamed up with car manufacturers so drivers who have just sold their Ford car are sent a mailshot for the latest Ford models with their change of ownership documents.

It is also about to announce a deal with Ebay in Europe where postage for items bought and sold are paid for over the internet and customers can then just print out the equivalent of a postage stamp in the form of a unique bar code which can be attached to the package and sent.

Michael Critelli, chairman of Pitney Bowes, told The Business: AuThe Royal Mail has begun to be a lot more commercial. It is being forced to move faster and the market liberalisation will start to accelerate this. But the market wonAot sustain a partial liberalisation and privatisation.Au The details of how The Royal Mail will embrace new competition will be delivered shortly. Much rests on whatAos in BainAos postbag.