Royal Mail warns of rivals “cherry-picking” most profitable routes

Royal Mail hit out at private sector rival TNT Post UK yesterday as the Dutch-owned company launched its end-to-end delivery trial in West London. The British postal service was concerned its rivals would “cherry-pick” its most profitable delivery routes, with the loss of business posing a “significant risk” to the universal service.

The UK postal market has been liberalised since 2006, but Royal Mail currently provides about 99% of last mile deliveries. Although 40% of UK letters and 70% of bulk mail are collected by private sector competitors, those rivals currently pass the mail on to Royal Mail for the final stage of delivery.

TNT Post UK has been seeking to challenge the current near-monopoly on full end-to-end delivery since running a trial in Liverpool in 2009, and this week launched a second trial, this time in London. It still believes Royal Mail’s VAT exemptions on postal services pose a barrier to a rival running a full end-to-end service.

Royal Mail yesterday described the West London trial as “modest”, but said the service could be replicated in other highly populated areas to leave Royal Mail with only unprofitable areas.

The company, which is expected to be privatised next year, is worried that rivals will be able to pick up some of the largest mail customers, and also be able to run an end-to-end delivery service without the requirement to deliver six-days-a-week.

Regulators Ofcom have the power to impose universal market conditions, and Royal Mail will no doubt be pressing it to do so if a full rival service emerges. It said yesterday it would be “monitoring the TNT Post UK pilot closely to understand its impact on our ability to deliver the Universal Service”.

Royal Mail insisted it was not opposed to end-to-end competition as long as Ofcom ensures all providers must meet the same service requirements.

It said the threat to universal service comes as the UK’s letter volumes have declined 25% since 2006, while the number of addresses to which it delivers mail has grown from 27m to 29m since 2003.