Post competition

The biggest threat to the future of the Royal Mail, Consignia’s postal operation, lies in inertia. That is the clear message from Postcomm, which today publishes its proposals for opening the postal market to greater competition. The regulator has set out a tough but manageable four-year timetable for ending the monopoly that has allowed Consignia to stagnate as alternatives to the post proliferate.

Consignia’s failures are well known. It has missed its first-class delivery targets for the past six years and acquired the worst strike record in British industry. Last year it produced its first operating loss, having failed to control costs, which have been rising faster than revenues.

Those opposed to greater competition suggest that competitors will “cherry-pick” the most lucrative deliveries, leaving the least profitable mail to Consignia. However, Postcomm has found that Consignia is making a profit where it already faces competition – on the heavier and more expensive items. The profits are eaten up by greater losses on the lighter and cheaper deliveries where it retains a monopoly.

Nor is Consignia forced to be loss-making by its requirement to provide a universal service – a daily delivery and collection each weekday at a single price across the UK. Postcomm’s figures show that none of the main categories such as first-class mail or rural deliveries is loss-making in aggregate. The main identifiable losses come from certain types of mail such as odd-shaped packets and misaddressed items.

Far from being a source of competitive disadvantage, Consignia’s universal service is a commercial strength. Good managers should be able to turn it into a commercial opportunity as universal service operators have done elsewhere. In countries such as Germany and the Netherlands, the former state monopolies have retained more than 90 per cent of the market after liberalisation by becoming more flexible and innovative.

To succeed in a competitive market, though, Consignia will have to deliver the 15 per cent cost savings it has promised over the next 18 months. Postcomm has given it time to adapt by phasing in the competition but Consignia is already whingeing about a tight timetable. Ministers should make clear their support for the regulator’s proposals and warn Consignia not to waste time in facing up to the inevitable.

In the longer term, Consignia needs to transform itself from a sleepy behemoth into a lean and nimble innovator. Its single shareholder, the Trade and Industry Department, is unlikely to be helpful in that process. Privatising the Royal Mail should be the next item on the agenda.