Royal Mail to add volume commitment to Access contracts

Royal Mail has announced plans for a “fundamental reform” of service terms as it provides last mile delivery for other postal operators and large customers. The UK universal postal service provider launched a consultation yesterday on proposals that would make changes to the conditions for its Downstream Access activities.

It said the changes are needed to support provision of the universal service in the light of significant declines in letter volumes and the fact that around half of all UK mail is now Access mail, passing through the hands of another mail processing company before being entered into the Royal Mail network.

Royal Mail wants to add a volume commitment to contracts for Access customers that want a uniform national price for mail delivered across the country.

It said this commitment would reduce its risk of facing an unexpected drop in mail volumes and knock-on increase in its unit costs.

In return, lower prices would be offered to customers committing to provide certain volumes under the national profile, Royal Mail said, adding that such commitments were commonplace in other industries like express parcels and freight.

Lost revenue

Royal Mail currently has 33 Access customers – companies including the likes of TNT Post UK, UK Mail and Secured Mail, who collect mail mainly from businesses before sorting it, and handing it to Royal Mail for the last stage of delivery.

The state-owned postal service says it lost GBP 800m handling the final delivery of this mail since the Access market began in 2001, although the market provided a million-pound income for the first time in recent years last year.

The company says opening up access to its last-mile network to rivals has meant losing out on a “significant amount” of revenue from fully sorting mail – revenue it says is needed to support the universal service.

The postal operator said the terms for Access customers had remained “substantially unchanged” since its origins even though the postal market has changed dramatically since then, with letter volumes down from 20bn in 2004/05 to 15bn items in 2011/12, while Access volumes now account for 7.2bn items.

Royal Mail said setting volume commitments for its Access customers would help sustain its six-day-a-week delivery service to 29m households.

In its consultation, the company is also proposing the ability to create tailored contracts for packet delivery services, separating them out from standard model Access contracts. Packets represented less than 0.5% of total Access volumes in 2011/12, it said.

The new freedom to reform Access arrangements has come as part of Royal Mail’s new regulatory framework brought in by regulator Ofcom this year, it said.

The consultation is open until 16th November, 2012, with Royal Mail expecting to finalise its proposals in light of industry views by mid-January 2013.

“Fair and reasonable”

Stephen Agar, Royal Mail’s managing director consumer and network access, said the company was continuing its commitment to provide Access players with entry points to its network and appropriate sorting and delivery services “on fair and reasonable terms”.

“We believe this must be done in a way that allows Royal Mail to sustain the universal service for the benefit of households and businesses across the UK and provide our customers with the service they require,” he said.

“By putting Royal Mail’s Access contracts on a commercial footing, we will help secure the future of the universal service and continue to ensure the UK postal regime is one of the most open and competitive in the EU.”