Consignia loses its position and maybe its post
Foreign postal operators are lining up to move into the lucrative market for bulk business mail following the decision to remove Consignia's monopoly, which has put further pressure on the embattled company.
Plans to open the bulk business mail market – businesses posting mail of 4,000 letters or more – to competition were revealed last month by Postcomm, the independent regulator.
Postcomm expects to produce a decision document in April on promoting postal competition and clarifying the licences. Operators will then be able to make approaches for the licences, which will run for a minimum of seven years.
The development comes at a difficult time for Consignia. Its nose has been bloodied by a dispute over pay, leaving Britain facing its first national postal strike in six years, and it is shortly expected to reveal a proposed £1.2bn cost-cutting drive, having already signalled the possibility of as many as 30,000 job cuts.
The bulk business mail market, which makes up nearly half the letters sent in Britain, presents a big profit opportunity for Consignia's rivals. Analysts say it represents 30 per cent or a £1.5bn ($2.1bn) slice of Consignia's regulated market, leaving a profit opportunity of hundreds of millions of pounds.
TPG, the Dutch post group, is seen as a key contender for a licence. It said it was studying Postcomm's proposals and was "very keen to become more involved in the UK".
David Ireland, analyst at ABN Amro, said: "Within the quoted postal company universe, TPG is the company that has most aggressively sought to capitalise on opportunities that exist in liberalised European markets."
Deutsche Post, Europe's largest postal services group, is also expected to apply for a licence. It said it had not made a decision on applying for a licence but was "looking very carefully at what is going on in the UK market".
Consignia confirmed that Deutsche Post had approached it about making use of its delivery network.
Private sector companies that already have a foothold in the UK business mail market, such as Hays, the business services group, and Business Post, are also expected to muscle in further. Hays was last year awarded a 12-month interim licence by Postcomm to start services in London, Edinburgh and Manchester.
The group declined to comment on whether it was considering applying for a licence, but analysts say it is one of the few private sector companies with the infrastructure of depots and vehicles in place to move mail around the country.
Business Post was last year awarded a one-year licence for UK Mail, its subsidiary, to operate mail services for business customers, collecting mail from existing business customers in nine areas, sorting the mail and taking it to Royal Mail offices for delivery. The Hays and UK Mail services are limited to document delivery to existing customers for the first year.
Paul Carvell, Business Post's chief executive, said: "Our world changed [with Postcomm's announcement of the opening of the bulk business mail market]. We are very keen on getting a licence. You rarely get the market opening up in front of you like this. The scale of it and the profit opportunity makes it very exciting."
Postcomm expects that businesses will be approached in coming months by the rival operators and offered reduced rates for delivering post. The rival operators would, at the outset, collect the post and sort it, before a Consignia postman delivered it, once access costs for delivery were agreed.
However, Postcomm added that this might not be until the autumn or the end of the year, when new operators would have built up the expertise to start offering the services.
