Consignia will deliver – Allan Leighton

There’s been a lot said recently about Consignia’s problems but I wouldn’t have accepted the job of Chairman if I didnt believe it can have a successful future. Simply put, our objective is to be the best Post Office in the world. We’ve already made some crucial changes to put the business back on the road to profitability. There’s still a long way to go and we need to cut costs further, drive up our revenues and improve our product profitability. But our strategy will not just make us profitable again, but also improve services to our customers and make the company a better place for its dedicated employees to work in.

Despite the recent headlines, we’ve still got huge strengths. We need to improve our service and we fully intend deliver more First Class letters the day after posting. Some parts of the country a First Class letter service comparable to anywhere in the world. What we’ve got to do is to achieve high quality service on a consistent basis everywhere, every day. Our three brands — Royal Mail, Parcelforce Worldwide and the Post Office signs you see in towns and villages nationwide — are among the most trusted and recognisable in the UK.

But the key to having a successful future for customers and employees alike is to cut our costs. The numbers just do not add up at present. We are losing £1.5 million a day. It is costing us 28p every time we handle a 27p First Class letter. The Parcelforce Worldwide business has not made a profit for more than a decade and it is losing £15 million a month. The Post Office network is the UK’s biggest retailing network by far — we have some 17,500 branches — but it’s making a loss too, and consuming large amounts of cash.

Many people have asked what on earth has happened. How did we get to
a state where instead of declaring large profits every year, we’re consuming cash at an unsustainable rate? There’s little to be gained from dwelling on the past but there’s two key facts worth mentioning. Firstly our postage prices are almost the lowest in Europe. If we had simply raised prices over the last five years by the level of inflation then we would today be earning £500 million a year more, all other things being equal. Meanwhile all our costs and pay settlements were running ahead of RPI. When the cost growth outstrips revenue the result is where we are today. Secondly most of the large profits we made for many years went to the Treasury. We needed the a lot of that money in our business and our people.

The announcement we made last month was the first step in a three year renewal plan. We’ve radically restructured Parcelforce Worldwide and in future, the business will be focused solely on the growing market for time-guaranteed and next-day and two-day express deliveries. The Standard parcels that individual customers post at Post Office branches will continue to be delivered nationwide, but by Royal Mail. The changes will generate gross annual savings of £370 million on completion.

We are also restructuring our transport operation. We intend to carry more mail by rail, but we’ll use a simpler timetable and fewer trains. Our vehicle fleet will be reduced by 2,500, bringing about a huge cut in carbon dioxide emissions — more than 300,000 kg a day. These changes will save £90 million.

Of course making changes like this in a labour intensive business will involve job losses. The changes to Parcelforce Worldwide and our transport network will involve reductions of 9,200 jobs. Other cost saving work
underway across the company will see a further 3,800 jobs going over the next three years, plus close to 2,000 jobs through natural turnover. We take our responsibilities to our employees very seriously and will work with each one to tailor a solution which fits their needs. However further job losses cannot be ruled out as we develop further cost efficiency plans. But Consignia, which has 200,000 employees, will still remain a very large employer.

We’ve never attempted restructuring and cost savings on this scale before. It’s a challenge for the whole company. And we will be doing the work while facing another unprecedented challenge — the most severe regulatory regime anywhere rnthe postal world.

Under the current proposals by the regulator, Postcomm, we face seeing a third of our market opened to cherry picking competition within weeks. We could even see the whole of the market open to competition as early as 2004, far ahead of the timetable being pursued in Europe. Privatised post offices, like Deutsche Post, whose domestic markets will remain much more protected than ours, will be able to use profits made in their home base to cherry pick the

UK.

We will issue our formal response to Postcomm shortly. It will stress that the debate is not about whether there should be competition. We accept competition and we won’t challenge Postcomm’s proposal that other mail companies should be able to use the Royal Mail’s nationwide delivery network mail. But what’s crucially important is that we have freedom to set sensible prices for our customers. And if rival companies are going to collect, sort and transport mail — and then use our delivery network — we must get a commercial price for handling the ‘final mile”. This will be essential as Consiania is the only mail company prepared to provide the one-price-goes-anywhere Universal Service to the UKs 27 million addresses.

We don’t underestimate the challenge we face. It will be tough, radical and challenging. But we’ve got a strategy to restore profitability, deliver positive cash flow, improve services and make the business a better place for our employees. It can be done.