Postwatch concerned about zonal pricing: who wins?

The postal regulator Postcomm has today started to consult on Royal Mail’s application to price its bulk mail products differently according to where they are delivered. The Royal Mail wants to divide the UK into 4 zones according to the density of delivery points and in addition London where it claims costs are higher.

Postwatch, the watchdog for postal services, will be studying the proposals carefully before responding on behalf of customers. Clearly the implications of introducing zonal pricing need to be fully worked through and fully understood before being allowed.

Postwatch is concerned that there is a real risk bulk mailers will curtail mailing to rural areas and all or parts of London because those areas will attract a surcharge. Not only could this be detrimental to customers and businesses in those areas but it could also have an irreversible effect on volumes. This is at a time when Royal Mail itself is constantly expressing concerns about the decline in the amount of mail it is delivering.

Millie Banerjee, Chair of Postwatch, said: “We are concerned that this second attempt to persuade the regulator to allow the introduction of zonal pricing will be successful. It may pass the test of allowing specific product prices to be more closely aligned to their costs. But it may also result in an unfortunate lose – lose situation, where customers, competing postal operators and Royal Mail itself are all worse off.

“We are conscious that when the regulator last consulted on zonal pricing the concept received no support from the customers most affected – the large bulk mailers. Why does the Royal Mail want to introduce a pricing regime that it knows is not wanted by its largest and financially most important customers? Why does it want to risk reducing mail volumes?

“Large mailers will notice with horror that the ‘surcharge’ for London is proposed to start at a modest 2.5 per cent but that Royal Mail estimate that to be cost-reflective it should rise to 12 per cent. Likewise, rural areas will start at 4.8 per cent with 11 per cent being the likely long-term goal.”

1. Royal Mail is not proposing to introduce zonal pricing for those products within the Universal Postal Service. One price, go everywhere, stamps are not affected. Nor are there any plans that they should be.