Royal Mail USO needs funding says Lawson

Steve Lawson, editor for Hellmail the postal industry news site said it was ‘highly probable’ that Royal Mail would have to consider reducing the frequency of its deliveries or cutting back on some of its services if fuel costs continue to remain high and more business was lost to rivals.

“Royal Mail is providing a very expensive service whilst continuing to lose market share” he said.

“Raising stamp prices to meet increased costs isn’t something that Royal Mail is able to do at will either, and often theres a real lag between pricing and operating costs which puts Royal Mail at a real disadvantage. Present stamp prices are fixed until 2010 but that doesn’t take into account the sharp increase in diesel prices.”

“Royal Mail wants to provide the best service it can, as indeed do postal workers themselves, but the business is under huge pressure from Postcomm to reduce its operating costs. The six day a week service is an expensive one to provide, as is the universal service which guarantees a minimum collection and delivery service even to areas that are incredibly costly to provide. Sending a postman into the back of beyond to deliver a 34p letter isn’t exactly profitable. Add declining mail volume as well as business lost to rivals, and it becomes fairly obvious that maintaining such a high level of service is an enormous task. I doubt its sustainable unless stamp pricing becomes more flexible. It seems highly probable that some key part of its service will go.”

“We haven’t seen any real improvements in terms of services available to domestic and small business customers and frankly I don’t think we will. Royal Mail is being left to fund the universal service and whilst that framework is probably an asset from a business point of view, particularly through its downstream arrangements, it did report a loss last year and that alone should ring alarm bells. The universal service is the basis upon which the whole postal service depends. Trying to develop new ideas in order to compete and stay in business whilst being forced to focus on streamlining and slash its costs seems a tall order.”

“There needs to be a fixed funding for the USO if Royal Mail is to be able to compete on fair terms but no decision has been made on who should pay for it in the longer term. Postcomm has already said that it isn’t keen to share that cost between operators as that would effectively undo its own efforts to help stimulate competition. Postwatch too, suggested some contribution from all postal operators but to date, it remains unresolved and it wouldn’t surprise me in the least if Royal Mail reports an even bigger loss on the USO this year. Its not an issue we can ignore.”

“Introducing competition should in theory offer more choice and a greater range of services but for most of us that isn’t happening and I remain concerned that if anything we’ll see further reduction in service at the expense of trying to stimulate competition.” he said.