It's deliver or die time
It's deliver or die time: The Post Office has been given one last chance to reform before facing the full blast of free-market forces
From THE GUARDIAN, April 12th, 2001
By DAVID GOW INDUSTRIAL EDITOR The last thing a normal business riddled with wildcat stoppages and
presiding over a deteriorating service would do is to raise prices –
especially when, after 350 years of monopoly, it faces genuine
competition for the first time. Yet that is exactly what the Post Office, rebranded to hoots of
derision as Consignia, has done, provoking the wrath of the new
consumer watchdog, PostWatch, and the scarcely veiled anger of the
new industry regulator, PostComm. But the PO is no ordinary business. For one thing, it has a (now
legal) universal service obligation to deliver mail to Britain's 27m
addresses at a single price. For another, it is the country's
second-biggest employer (the NHS comes first), with more than
200,000 staff. Unlike other public services or utilities such as electricity, gas,
telecoms and water, the PO has experienced the advent of competition
unaccompanied by privatisation. Consignia plc may have won greater
commercial freedom from government but the state remains its single
shareholder and the Treasury still exercises tight control over its
balance sheet and borrowings. Late trains 'We are changing this business at a speed we have never achieved
historically," John Roberts, chief executive, says. 'We're not just
changing the machines but the working patterns of 160,000 postmen
and women and doing that without the cathartic shock of
privatisation.' But the shock of the new culture is barely evident. The quality of
service is declining: 89% of first-class letters (40% of the 28m
delivered daily) arrive the day after posting, compared with an
agreed target of 92%. An embarrassed Mr Roberts, who says 1% of this
is due to late trains after the Hatfield crash and an equal amount
is down to disputes, has accepted new targets imposed by PostWatch
of 92.1% this year and 92.5% next. The PO's industrial relations record is appalling (see below). John
Keggie, deputy leader of the Communication Workers Union, wants a
change of culture, too, and is working with PostComm's chief
executive, Martin Stanley, senior Consignia managers and union
activists to achieve it. 'We've got to change and are prepared to change,' he says. 'But
there are sinister forces on the [Consignia] board that are putting
out the message that the CWU has lost control and that favour
privatisation. That's why we need an independent review of
industrial relations.' This cuts no ice with Peter Carr, PostWatch chairman and former
managing director of Debenhams. Denouncing the proposed price rises,
he says: 'It makes you wonder if this is a viable business any more.
If your product is under attack from alternatives such as e-mail and
not growing at the rate you want, the last thing you do is put the
price up. Normally, you do the opposite. 'They've got to attack their cost base – staffing levels, the lot.'
He thinks the PO should in the meantime scrap the second delivery,
streamline management and, like the privatised utilities, raise
morale by increasing pay while sacking some staff and retraining
others. Sitting in his fifth-floor suite at Consignia HQ on the edge of the
City, Mr Roberts admits the scale of the problems but insists he and
his board can overcome them: through growth, greater investment and
improved efficiency. Growth is coming through international expansion (in parcels) and
domestic deliveries (up 10% in two years). But, from March 26, the
PO has lost its monopoly over items costing pounds 1 or more and the
European Union plus PostComm will eventually cut that further, from
350 grams to 50 or even 20. The regulator, says Mr Roberts, might
also encourage geographical competition, opening up the service to
rival operators. PostComm does not expect real competitors to emerge for, say, two
years while it gets to grip with the PO's finances and draws up a
pricing formula – on the RPI minus X model – to manage them. That
gives the PO a grace period to get its house in order. Mr Roberts says price rises are essential to rectify chronic
under-investment: an pounds 800m funding gap, he estimates. Capital
spending (on new automated sorting offices and the like) will be
pounds 400m this year and pounds 360m next but has been pounds 100m
short each year for eight years. The PO, which lost a net pounds 264m last year, largely through a
failed computer system for paying benefits, says it has contributed
pounds 1.72bn to Treasury coffers in recent years – money in
government stocks on which it can draw down interest at ministers'
say-so. 'Switch customers off' Mr Roberts wants government approval to re-engineer the balance
sheet to take on some pounds 2bn in debt and then borrow in the
market-place at commercial or preferential rates rather than go cap
in hand to the Treasury. Through productivity growth of 3% annually, he expects earnings
before interest and tax to rise to pounds 300m a year over the next
three years, and to help fund the investment programme. That means
cutting working days lost – under 0.1% of the PO's 50m working days
a year – to 'zilch'. 'If people get the choice of competition and we are not reliable
enough or good enough they will vote with their feet,' he admits.
'Unjustifiable strikes will quickly switch customers off and lead to
a loss of business and jobs.' That is the prospect motivating board, union and even the regulator
to try to act in harmony. PostComm's first licence for the PO was
relatively benign: a 'capitulation' in consumers' eyes. The
regulator appears ready to allow, eventually, merely a handful of
niche operators to challenge the PO in the hope that Consignia gets
into shape and improves the universal service. Otherwise customer loyalty will be so severely stretched that the
corporation is broken up or even, like British Gas and BT, given the
cathartic shock of privatisation.
Copyright 2001 The Guardian.
Source: World Reporter (Trade Mark) – FT McCarthy.THE GUARDIAN, 12th April 2001
