Trouble in the post for Consignia

Trouble in the post for Consignia
PostComm this week will vote on whether to end Royal mail's 350-year-old monopoly on delivering most letters. Kevin Brown looks at the implications
Published: September 9 2001 19:29 | Last Updated: September 9 2001 19:36

Graham Corbett, chairman of the newly fledged Office of Postal Communications, is an unlikely revolutionary. Wheelchair-bound, he presides over Britain's newly liberalised postal system with much of the gravitas of a high court judge.

But later this week Mr Corbett and his six colleagues on the PostComm board will decide whether to overturn 350 years of postal history by ending Royal Mail's legal monopoly on most letters.

If the board gives the go-ahead – and the signs are that it will – its decision will have enormous implications, not least for Royal Mail, once an arm of government under the wing of the Post Office, now part of the state-owned Consignia group.

In spite of the growth of electronic communications, Consignia's 200,000 workers deliver more than 80m letters to 27m addresses every day. And the postal market is growing by 2 or 3 per cent a year, largely thanks to business mail.

If liberalisation works, innovation and new technology will transform postal services. But if it goes wrong, as Consignia warns it may, there could be a communications meltdown.

When PostComm's board gathers on Friday afternoon, the key item on its agenda will be an application by Hays DX, a subsidiary of the Hays business services group, for a clutch of operating licences.

Hays, one of Britain's 100 biggest companies, is asking for permission to collect and deliver mail overnight in the business districts of London, Manchester and Edinburgh. Its prices will undercut Royal Mail's First Class service and it claims reliability will be close to 100 per cent.

Royal Mail managed to deliver just 86.5 per cent of items overnight nationally in the quarter to June and significantly less in many postcode areas. Postwatch, the consumer watchdog, says it loses 1m items a year.

Hays' licence application is for one year only, while PostComm consults on how to introduce full competition without destroying the universal service – mail deliveries anywhere in the UK at the same price.

But granting the licence would send a powerful signal that PostComm intends to open the market quickly by licensing competitors in specific localities, such as a single city, or in business sectors, such as overnight corporate mail.

This is anathema to Consignia, which claims such a framework would allow private sector companies to pick off its most profitable markets, leaving it with the costly business of ensuring nationwide deliveries that no one else wants.

"The regulator seems intent on pursuing a course which risks undermining the universal service," says Stuart Sweetman, Consignia's group managing director for strategy. "There will be classic cream-skimming."

Consignia is promoting an alternative, under which the licensed part of the market would gradually be reduced from its present level of 350g maximum weight.

It argues that as the threshold fell, chunks of the market would open to free-for-all competition. The European Union is likely to adopt this model when it gets round to a long-delayed liberalisation of European rules.

PostComm, however, seems to have accepted counter-arguments that few competitors would come forward. This is because even a 20g threshold would leave Royal Mail with 75 per cent of its monopoly. Private sector operators think businesses would be unwilling to segregate their mail, so the market opportunity would remain small until the monopoly virtually disappeared.

For Consignia, the local licensing option opens up a nightmare scenario in which competitors pop up all over the country, taking advantage of low entry costs. Senior executives talk gloomily of the so-called "Scousermail" operation, in which two men with a couple of vans and a garden shed offer local deliveries to Liverpool businesses for, say, 10p a letter. Some say 30 per cent of Consignia's letters business could be at risk.

Consignia's problem is that almost no one has any sympathy for it. Indeed, PostComm was established precisely to shake up Consignia after both the Conservatives and Labour backed away from privatisation. The company has a legacy of under-investment and a cadre of slow-moving middle managers who have never faced competition.

It also has horrific industrial relations, which cost tens of thousands of working days last year. Disputes continue to flare up as managers try to implement an efficiency deal agreed by the Communication Workers Union but bitterly resisted in many local offices.

Industrial relations are so bad that the company and the union jointly commissioned Lord Sawyer, the former Labour party general secretary, to chair an independent inquiry in the summer. His report, replete with bullying managers and truculent local union officials, makes Consignia look like a throwback to the 1950s.

There has been some progress. John Roberts, Consignia's chief executive, accepted Lord Sawyer's call for a new start and the efficiency deal has been implemented in all 88 main sorting centres. Still, more than a quarter of 1,200 delivery offices have yet to sign, including most of London's. A temporary freeze on implementation avoided further disputes in August and Mick Linsell, Royal Mail's service delivery managing director, will this week meet Billy Hayes, the CWU's general secretary, to see if common ground can be found.

Consignia is also restructuring rapidly to prepare for competition. It has outsourced its catering operation and is trying to find partners to run many ancillary operations, including 40,000 vehicles. The company is building new parcels hubs and expanding internationally through a deal with Singapore Post and TPG, the privatised Dutch postal group. On Friday it signed a commercial deal with the government, locking in £1bn worth of business.

Consignia says it is standing by a forecast in March that efficiency gains and new markets would help it turn last year's net loss of £264m into a £300m profit by 2003-04. But that was before it became clear that Mr Corbett was preparing to fire the starting gun for local competition. If he pulls the trigger on Friday, the only certainty is that Consignia will have to raise its game or face potential disaster.