Jersey could have postage rate controls abolished, says regulator

A regulatory review of the GBP 74m postal market on the island of Jersey has suggested that moving to a four-day delivery week is unnecessary. But to maintain Jersey Post’s profit, the postal service may have regulatory price controls abolished, and some post offices may have to close.

The Jersey Competition Regulatory Authority said this week following a review of the industry, ordered by island ministers in June last year, that even with increased competition in the bulk mail segment, an ongoing 5% annual decline in mail volumes and the expected additional loss of volumes from the island’s troubled fulfillment industry, Jersey Post can fund the universal service obligation.

It said moving to a Tuesday-Saturday delivery week could better suit the needs of Jersey postal customers, abolishing Monday rather than Saturday delivery, which ended in May 2011.

However, the Authority said it believed there was currently “no justification” for dropping any more delivery days.

The regulator did suggested that Jersey Post may want to reconsider the density of its post offices and post boxes, which was higher than many other comparable areas. With 22 post offices, Jersey Post’s retail network is only just breaking even.

And, the Authority said will look this year at whether it might abolish Jersey Post’s price controls entirely for its mail services, considering the continuing decline in mail volumes.

“Given the continuing trend of declines in letter volumes and the pressure that this places on Jersey Post’s profitability, together with the likelihood that higher prices will accentuate the move to electronic forms of communication, the JCRA intends during 2012 to consider whether to lift price controls on Jersey Post entirely,” said the Authority.

Following a poor response from customers, Jersey Post is already preparing to abolish the two-tier nature of its mail delivery service.

Commenting on the report, the Authority CEO John Curran said Jersey Post had improved efficiency in its services that meant it was “well positioned” for the future.

Curran said: “As postal customers, we all need to accept that some changes, managed appropriately, can still deliver a postal service that will continue to serve Jersey well for the future.”

Bulk Mail

April’s forthcoming termination of Low Value Consignment Relief, the VAT exemption on low-price items being shipped into the UK from the Channel Islands, will force a “considerable” reduction in Jersey Post’s mail volumes and its revenues, the review suggested.

Jersey is home to about 20 major fulfillment companies working in the e-commerce industry storing goods, receiving orders, packing items and shipping them to consumers in the UK. Internet retailers Amazon (via an affiliate) and Play.com account for about 80% of Jersey’s fulfillment activity.

The regulator said the UK government’s decision to end the LVCR for items under GBP 15 in value from 1 April will have “enormous consequences” for the industry’s future in Jersey. Forecast figures were kept confidential.

The move is expected to see more fulfillment activity for UK e-commerce sales taking place in the UK and other EU countries like Switzerland when Jersey loses its advantage.

“It appears inevitable that the removal of LVCR will vastly reduce bulk mail exports from Jersey to the UK,” said the review.

Jersey Post, which handles about 98% of Jersey’s mail at present, has already seen mail volumes decline 25% since 2006, and now expects that the 79.9m items it delivered in 2011 will reduce further to 30.3m in 2014.

The Authority said Jersey Post’s budget projections for 2012 showed that it should remain profitable even if its bulk mail volumes disappear completely. Jersey Post, which employs 460 people, made an operating profit of between GBP 1.2m and 4.3m in 2011 (the exact amount remains confidential).

Previous company estimates suggested Jersey Mail’s bulk mail services were providing GBP 5m a year in cross-subsidies for its other activities, but this amount has now largely reduced.

One area of new business for fulfillment companies on Jersey could be shipping to continental Europe, the regulator said. It is proposing to expand the number of operators licensed to ship bulk mail direct to Europe, rather than via the UK, proposing the required licences for TNT Post UK and a DHL partnership.

However, in terms of shipping services to the UK, the Authority said sufficient capacity is already available, and is proposing a moratorium on new licences until 2015.