Mailing scam exposes regulatory 'black hole'

The mail consolidation industry was rocked this week by revelations that police have recovered hundreds of thousands of pieces of unsent international direct mail from skips outside the premises of a consolidator (PM last week).

The discovery raises serious issues for the industry about the regulation of the growing number of mail consolidators operating within this highly competitive arena. It is the largest case of its kind in the UK, and those affected stand to lose both advertising revenue and money by remailing the returned post.

The scandal is reminiscent of those uncovered at a number of mailing houses a decade ago, before the mailing house industry was regulated. It is believed this only happened after hundreds of Abbey National mailings were discovered waiting to be dumped.

Estimated to be worth in excess of GBP100m, international mail consolidation is a non-regulated industry. Unlike those who wish to operate within the UK, and who are subject to strict licensing regulations, no licences are required for companies who carry overseas mail. And, unlike the mailing house industry, which is now regulated by the British Accreditation Bureau, mail consolidators answer only to themselves.

Police say the lack of any facility to check whether mail has arrived at its destination is partly to blame. Most large mail clients, Reader's Digest, the Economist and BCA for example, operate 'seed' mailing systems, enabling mailers to determine whether the campaign has been sent.

Two client companies that are victims of the ongoing skip scandal – who cannot be named for legal reasons – told Precision Marketing they only knew mailings were going missing when their results plunged dramatically. The consolidator – or consolidators – responsible for the alleged crime deliberately targeted free magazines and mail which customers would not necessarily expect.

As the investigation continues, it is becoming apparent that more than one company may be implicated. Many customers are unaware that their mail may pass through the hands of two or three consolidators before reaching its final destination or the PTC (local postal service) of the country the mail is destined for.

Ashurst Direct Mail customer services manager Mohni Bourhi says her company is being sued by one of its clients for mail that never reached its destination. But, she says, she gave the mail to Ashurst's regular consolidation company without considering that it would pass into the hands of another consolidator before reaching the intended recipients.

"We need solid answers," she says. "I was under the impression that it was the consolidator's responsibility to ensure mail was delivered and, as we have never had any problems before, it didn't cross my mind to ask them whether they would use another company."

In fact, the consolidator has no legal responsibility to ensure mail is delivered. Neither is it required to divulge the other companies it uses. If a client doesn't ask, they are unlikely to be told.

The Royal Mail's DUET scheme, which audits consolidators on a monthly basis, and the Mail Consolidators Association (MCA), are the closest the industry comes to being regulated. Both express anxiety at the low levels of understanding about what actually happens to their mail after it leaves their hands. Consignia is also concerned it will be tarnished by the incident (Consignia investigation team members are helping police with their inquiries, but the lost mail had not been processed by the company.)

"There is an alarmingly high level of consumer ignorance," states Colin Beesley, director and general manager of Royal Mail International Services.

Ian Kavanagh, managing director of BTB Mailflight and chairman of the MCA, agrees: "Consumers should be asking more questions about where their mail is going. There are now so many options available that customers must ask for details and a clear audit trail."

But whose responsibility is it to ensure consumers ask these questions? No one seems to know. Significantly, the market is price-driven, meaning the only question most customers ask is: 'who can give me the cheapest deal.' One of the consolidators being investigated continuously undercut its competitors (having spent nothing on posting the mailings it could afford to do this), but this did not prompt customers to question the quality of its service. "There is an emphasis on getting the cheapest deal but this is all wrong," says CCS Direct Mail general manager Lorraine Turner. "We have got to stop people choosing on price."

According to Turner, the British Accreditation Bureau is working on a campaign to alert firms to their responsibility of checking out the company they entrust with their mail. "It would be nice to see mail consolidators regulated by the British Accreditation Bureau in the same way that they regulate mailing houses," she adds.

But others do not agree. Michael MacClancy, senior consultant for Triangle, a consultancy specialising in the express and mail industries, says: "Most people have their own quality controls in place. Customers have a choice and they have to learn who they should work with. Most businesses don't need to be regulated to make them better."

But the difference between a business and a service is the issue of trust, and consumer trust will clearly be broken by this incident. "The DMA (UK) and the Periodical Publisher's Association are doing a good deal [to reassure consumers], but an incident like this will clearly shake things up," argues Beesley. "It concerns me that if customers believe, mistakenly, that Royal Mail is carrying their post only to discover it has been intercepted, they will lose faith in us although their mail did not pass through our organisation."

This incident could easily be viewed as an argument against the liberalisation of postal services in the UK. International mail has been liberalised for over 20 years, and what happened is not uncommon. But the scale of the discovery and the fact that it is happening within the UK magnifies the issue. "Some peculiar things do occur," says MacClancy. "Mail occasionally turns up in old warehouses in the Philippines, for example."

But Beesley says this should not be used as an excuse not to open up the UK industry. "Competition is good. We provide a better service because of it. There will always be disreputable companies in any market and this alleged incident raises questions which consumers should legitimately be asking."

Sources close to the investigation predict that it will be a long time before what really happened becomes clear. Although some arrests have been made, no one has yet been charged. However, the repercussions for the industry are likely to continue, as it becomes evident that to regain consumer trust, mail consolidators will have to employ better self-regulatory measures, placing less emphasis on price and more on quality.

Now, more than ever, the mail industry is under intense scrutiny. The threat of alternative channels, such as the Internet, means it cannot afford any more scandals like this one.