UK Postal market growing, with competition still to gain momentum
Postcomm today (12 January 2004) published its first review of the UK letters market. The report describes the development of the market since the establishment of Postcomm and includes both the performance of Royal Mail and the nature of competitive entry to date.
The postal market in the UK has consistently grown and lower real prices, increased competition and product choice will encourage it to continue to do so, although not necessarily in its current form. Demand for direct mail services has grown much faster than for other mail, reflecting increased use of the post for advertising and marketing. And outside the area licensed by Postcomm, the fully competitive courier and express delivery market has grown even faster than the traditional letters market, the report says.
Since the introduction of limited competition in the licensed area, new operators have entered the market targeting niche services for business customers such as internal mail for financial services customers. So far this has made little impression on Royal Mail’s market share. Private operators accounted for only 0.27% of revenue in the licensed letter market in 2002/03.
Nonetheless, the introduction of competition, price controls and quality of service targets has provided incentives for Royal Mail to improve its performance. Royal Mail’s profits from Universal Service Obligation services were £78 million in 2002/03, a rise of £69 million from the previous year. Quality of service has also generally improved since 2000, although some services remain unsatisfactory, as does service performance in certain geographic areas.
Private operators face a number of legal and economic barriers to entry to the licensed market, the report says. These include Royal Mail’s exemption from VAT, preferential fast–track customs clearance for its overseas post, and parking and traffic privileges.* Royal Mail also benefits because it provides a universal postal service to every address in the UK.
In the period covered by the report, private firms had not been able to agree special access terms for Royal Mail postmen to deliver their mail the so-called “last mile.” However, in December 2003, UK Mail agreed Heads of Terms with Royal Mail on access to Royal Mail’s downstream network. It is hoped that this will open the way for UK Mail and other operators to enter the market.
The document, The UK Letters Market 2000-2003 – a Market Report, is published today on Postcomm’s website, www.postcomm.gov.uk and will shortly be available in printed form from Postcomm at Hercules House, 6 Hercules Road, London SE1 7DB. Comments are invited on the report by 12 April 2004.
*Postcomm today also published a consultation document which examines Royal Mail’s privileges. The document, Review of Royal Mail’s Special Privileges, and a press release, are on Postcomm’s website.
