Postmen going business class

A positive set of figures from Business Post (BP) in the six months to 30 September reflected both strong growth in its core express business and the rapid development of the group's newer, smaller business units, writes Martin Roebuck.
Pre-tax profit was up 6% to £7.1m ( t11m) on turnover which increased by 15.7% to £72.9m ( t113.7m).

Express parcel turnover increased by 8%, well ahead of the industry average. Chief executive Paul Carvell estimated that with some companies "not growing at all", UK parcel traffic as a whole would increase by only 4-5% this year.

Domestic express services account for 85% of BP revenue and international traffic 12%, boosted by the FedEx contract which moved over to BP in September 2001 after nine years with Securicor. "Our own business has been solid and FedEx is giving us what we wanted. We are making 2,000 to 3,000 collections a day, " Carvell said.

But the big prize still awaits.

Complain though Royal Mail might about liberalisation of the UK postal market, which it claims is now running ahead of Europe, permanent licences will be awarded to private operators early next year.

BP was awarded an interim postal licence, designed by the regulator, Postcomm, to get some pilot projects up and running, as long ago as last November.

The idea was that, from April this year, the company would collect and sort mail under a temporary one-year licence for business customers in key locations such as London, Birmingham, Liverpool, Manchester and London.

"We haven't moved a single item of mail, " Carvell admitted.

BP was to have used the Post Office for local sort and final delivery, focusing its own efforts on upstream areas, such as initial sorting.

The difficulty has centred on agreeing a price for access to 1,400 local offices.

"There was a good spirit to early negotiations with the Post Office, but we had 26 meetings which were not productive.

"They were looking at retail minus, and we wanted cost plus, " said Carvell.

In April, BP submitted its request for a determination by the regulator. "We're now in contractual negotiations and we're operating to a strict timetable, " Carvell said.

Details must go to public consultation by the end of the year and BP hopes to get a final goahead in January – this time for a permanent licence for up to 10 years.

The company already has vans in UK Mail livery on standby, and has plans on the drawing board for a £2m ( t3m) mail sort centre alongside its Birmingham hub – the kind of investment that this certainty of long-term business would bring, and that future volumes would demand.

A 3% market share of the UK mail market after three years would be worth £150m ( t234m) to BP, doubling its current size, Carvell said. "We researched the top 500 mail users and they are keen on competition, choice and added-value. It's a £5.3bn ( t8.3bn) market and there's a slice of it waiting for a 'business class' service from us.

"Down the years, there have not been many market openings on this scale. We're in the vanguard. It's very exciting, but we're asking shareholders not to factor-in mail. We want to deliver results without that, " he said.

Business Post's founding family still owns 63% of the company, which ranks equal fourth in the UK and is the largest parcel firm not owned by a post group.

Its investment in same-day and home delivery is beginning to show dividends. HomeServe had won some business, but was "static" when Carvell took over in February 2001.

"Now it's going like a steam train, fuelled by the anarchy in Parcelforce – customers are getting let down or are just getting nervous, " he said.

The courier business, now rebranded UK Today, was "withering on the vine" 18 months ago, but has attracted 2,300 customers and moved into profit in July. It is now operating out of 22 sites, scheduled to expand to 40 by the end of next year.

BP is even dabbling in the crowded pallet sector. "They were moving across the road network anyway, maybe 400 or 500 a night, because SMEs tend to use you as a sole supplier – but we were not charging enough, " Carvell said.

"Our parcels were already moving in palletised cages. The difficult part is the delivery end, but if you get your bulk vehicles to handle this, you're offering a parcel-type service to pallet customers. We now charge a premium price for what we think is a premium service.

"We only want a tiny slice of the action. It shows signs of being profitable, but we're treading carefully and we're still running it under operations to see how it goes, " Carvell said. "If it grows to 1,000 pallets, it may get interesting." n

Posted: 18/11/2002