Consignia announces first moves in three year renewal plan

Restructure of loss making parcels business
Rationalisation of transport operations to create more efficient single network
Combined cost saving of £460 million
Further management, support service and operational savings identified
15,000 jobs to go, 13,000 through redeployment or redundancy
Consignia will restructure its loss making parcels and express business, Parcelforce Worldwide, and make radical changes to its internal logistics and transport networks as the first moves in a three year renewal programme to cut costs by more than £1.2 billion and provide a secure long term foundation for the company and for universal postal services in the UK.

Announcing the plans, Consignia Chairman Allan Leighton said, “Consignia is in a perilous position – losing more than £1.5 million every day. Parcelforce Worldwide is losing £15 million per month as we have failed to reduce our costs fast enough as business has declined. We need to renew our operations and halt the financial losses which put key services at risk. Both measures announced today are far reaching – but they are just the start, not the end. They will ensure that real progress is made in the first year of a three year strategy to restore profitability, deliver positive cash flow, improve services and make the business a better place in which to work.”

From July Parcelforce Worldwide will concentrate solely on the growing market for time-guaranteed and next day and two day express deliveries, and will cease its declining and unprofitable portfolio of three day plus delivery products. The market for three to five day deliveries has halved within five years. Consignia will transfer its universal parcel service to Royal Mail, which will use its existing network to provide a uniform and affordable parcel delivery to every UK address, no matter how remote.

The five parcel distribution centres which currently handle Three Day plus deliveries will close and the number of Parcelforce Worldwide depots will reduce from 101 to 51. Parcelforce Worldwide currently employs around 11,700 people, either in a dedicated parcels unit or providing operational support elsewhere in Consignia. The current workforce will, over the next two years, be reduced by around 6,700, over and above natural turnover. Up to 900 of those employees whose current jobs disappear will have the opportunity to work with Parcelforce Worldwide as owner-drivers in line with agreements reached with the trade unions. Consignia expects to offer other current permanent employees a choice between employment elsewhere in the Group, a job in the new Parcelforce Worldwide or a voluntary redundancy package. Formal consultations with the trade unions have begun.

“Parcelforce Worldwide has been out of step with the marketplace and its business model does not work. Most of our costs – and losses – are tied up in keeping an infrastructure for non time-guaranteed services which customers are moving away from and which we cannot make profitable. In contrast we see real potential in the express marketplace where we’ve grown our next-day revenue by 5.5% in the past 18 months. It’s clear that this is where a successful future lies, and where the best possible prospects for our remaining employees will be found”, Mr Leighton said.

A more efficient, cost effective, flexible and robust transport solution
Consignia will also rationalise its various air, rail and road transport operations to create a more efficient single network. We will simplify the way in which we operate our rail and air networks and expect to move more mail by train, but it will be primarily bulk mail carried during the day and, overall, fewer train services will be needed. Consignia will now begin discussions with its suppliers in the rail industry. The impact of the rapid market opening in the bulk mail sector envisaged by Postcomm, the postal services regulator, will determine final volumes. A more integrated road based regional hub and spoke system will reduce the total number of road journeys undertaken by Royal Mail, and cut vehicle numbers by 2,500 from the current 40,000 – which means that overall CO2 emissions will be cut by more than 35%.

Allan Leighton said, “This is the sort of common sense re-engineering which customers and Consignia need – we are able to reduce costs at the same time as we make improvements to the way in which the different bits of the organisation fit together. A single integrated network means letters being carried efficiently and reliably, making the vital connection points which help us to get more letters delivered on target.”

The programme will see four of the 16 current mail distribution centres close in the next year. A new Midlands hub will be built and will take on work from the three existing Midlands sites by the end of 2003/04. Mail will no longer be sorted on trains. Around 2,500 jobs are likely to disappear across Consignia over a two year period. Again, Consignia expects current permanent employees to have a choice between remaining in the business in another role, or taking a voluntary redundancy package. Consultations with the trade unions have begun.

Consignia has made clear its intention to reduce its existing cost base by at least £1.2 billion in the course of a Group-wide programme to achieve greater efficiencies, drive up service standards and allow for an investment programme in employees and in better customer service. The Parcelforce Worldwide restructure will generate gross annual savings of £370 million on completion, while the changes to the transport network will save a further £90 million.

“Radical surgery is required both to our parcels strategy and to our internal transport infrastructure. Both have developed in a piecemeal fashion, and have lost sight of market and network logic. These programmes, together with other savings to our management, operations and support services, mean that around 15,000 jobs will go over the next three years including anticipated natural turnover of around 2,000 people”, said Mr Leighton. “We have more work to do and more announcements regarding other parts of Consignia will be made as we agree detailed plans.”

John Roberts, Consignia’s Chief Executive, said “We are talking to our people whose jobs are directly affected in face to face meetings throughout today. We are determined to offer as many of them as possible a genuine option to stay with the business, or to take a voluntary package. We are also committed to maintaining our ongoing dialogue with the trade unions. This is a difficult time, but we must build on the promising work led by Lord Sawyer, which has already dramatically reduced unofficial industrial action in Royal Mail and which will see Partnership Boards introduced across the business to help employees and unions to resolve issues jointly. We need to achieve these changes with respect for our people and without disruption to our customers.”