Royal Mail 'was given its chance, but failed to deliver'
Six years ago a merger between the ailing Royal Mail, then called Consignia, and TPG, the Dutch postal group now rebranded as TNT, was attempted by the Government.
The idea was that a more commercially savvy organisation would inject more money and a better business sense into Royal Mail.
Six years on the plan has been revived for the same reasons.
According to The Times, Royal Mail has made only relatively small changes to its business while its commercial environment has become tougher and its competitors have become sharper.
Royal Mail is often compared unfavourably with its European rivals. A little like an elderly relative who struggles with technology, the state-owned UK postal operator is seen as slow, operating an unwieldy structure and lacking in mechanisation.
Last year Royal Mail was loss-making and ranked last in a list of 13 Western European operators’ profit margins. Its potential saviour, TNT, was top at 14.8%, followed by Deutsche Post with 12.9%.
Royal Mail’s trailing position in terms of mechanisation, efficiency and profitability are exacerbated by the group’s heavy structure. It embraces essentially non-profit-making operations such as rural post offices alongside a general post office network, which is attempting to survive and carve a niche as a banking operation in a difficult financial market.
Despite implementing thousands of post office closures, the network still needs public money – and will continue to do so to fulfil its social obligations.
Royal Mail’s sorting and delivery network is also viewed as unwieldy, with twice as many mail centres as it needs, according to the Hooper report.
While European competitors have radically reduced their mail centres and delivery offices to concentrate work in fewer sites, Royal Mail’s network is largely unchanged since six years ago when it began a government-backed “renewal plan”.
It has 69 mail centres and 1,365 delivery centres. In 2002 these figures were 71 and 1,377. In Europe, over a similar timeframe, operators have generally reduced their operations by between a fifth and two thirds.
Royal Mail also bears the sole responsibility for the universal service obligation – a commitment to deliver mail to any UK address for a flat fee. This is lucrative when the mail is being sent down the road, but loss-making when going from one end of the country to another.
Along with Labour backbenchers, unions have reacted with alarm to the Hooper report, fearing job losses and substantial restructuring.
They may also be concerned about pay. TNT’s labour costs are 32% of their sales, while Royal Mail’s are 66%. Some of that can be attributed to mechanisation but some reflects pay levels and the higher number of part-time staff that TNT employs.
TNT, or another commercial company, will be a minority partner in Royal Mail. Arguably, however, they will be in the driving seat of a major overhaul of the British postal system.
