GBP60m returned to UK postal customers in compensation

Royal Mail has forfeited £60 million to customers because of its poor service quality in 2003/04 when it missed all its main service quality targets, Postcomm revealed today. In view of this — and a number of other measures agreed by Royal Mail — Postcomm has decided not to impose further financial penalties on the company. Postcomm’s judgement takes account of the serious shortcomings in Royal Mail’s performance during the period, but also the extensive and effective action it has taken since then towards putting matters right. Concluding its investigation into Royal Mail’s service failures in the year ended 31 March 2004, Postcomm announced a series of measures for customers which have been, or are about to be, put in place: • £43m already paid in direct compensation to business and private customers • £17m is coming out of Royal Mail’s revenues for 2004/05 – under terms of the current price control – which means it is charging customers less overall • Royal Mail’s credit terms for business customers to be extended from 21 to 30 days – which will facilitate any compensation entitlements for 2005/06. • Improved quality control procedures. Nigel Stapleton, chairman of Postcomm, said: “These significant payments by Royal Mail result from applying licence requirements and the new compensation schemes which Postcomm put in place for 2003/04. “With competition fast approaching, and the obligation to pay substantial compensation for these quality failures, it is clear that Royal Mail has recognised the need to put its customers first. Having regard to this and their undertakings to improve Royal Mail’s quality procedures in future, we believe the measures announced today represent the best outcome that can be achieved for customers. “The commissioners are pleased that the company has acknowledged that there were lessons to be learned in terms of how future change programmes are handled, and that it recognises its obligations to make amends to customers.” Extended credit terms Royal Mail has undertaken to extend its credit terms for business customers from 21 days to 30 days by 26 September 2005 to bring them more into line with normal commercial practice. Last year the 21 day credit terms meant some business customers missed out on compensation because their payments were late. Royal Mail has agreed to treat all compensation entitlements for 2005/06 as if the 30 days credit terms applied to the whole year. Postcomm is satisfied, on the evidence available, that Royal Mail is operating the bulk and retail compensation schemes appropriately. However, in its work on the next price control, due to take effect from April 2006, Postcomm has already announced that it is looking at ways of strengthening the link between quality of service performance and Royal Mail’s revenues. Quality control There has been a step change in the approach to quality at the most senior levels in Royal Mail – which the company now regards as its top priority. This has resulted in a recovery in service over the last nine months, although Royal Mail and Postcomm acknowledge there is more work to be done. To facilitate further progress, Royal Mail has undertaken to provide more information in a more timely manner to enable Postcomm to monitor in-year performance. This should help Postcomm to identify potential problems at an earlier stage. Royal Mail has also undertaken to carry out further research, to find ways of strengthening its own systems for diagnosing and dealing with problems as they arise. Details of the undertakings are attached to a Postcomm report, published today, following an investigation into Royal Mail’s service quality. What went wrong in 2003/04? In its report, Postcomm says that the main factors affecting service were industrial action and a serious fire at a major mail centre, both in the third quarter, where Postcomm has concluded that Royal Mail did all it reasonably could to minimise the impact on customers. However, the report also says that Royal Mail’s implementation of a major restructuring of its logistics network – the Transport Review – adversely affected its service during the fourth quarter. Postcomm’s report is critical of the planning and risk mitigation measures that Royal Mail had put in place during implementation of the Transport Review. It identifies actions which Postcomm believes Royal Mail could have taken to minimise the quality of service problems brought about by such far reaching changes to its network, which mainly affected the faster 1st class service. Postcomm’s decision Postcomm has decided that it would not be in the customer interest to continue its investigation further towards a final determination of whether or not there had been a licence breach by Royal Mail in 2003/04. This decision reflects the considerable efforts made by Royal Mail to restore service quality, the amount of compensation paid to customers and the undertakings that Royal Mail has now given to Postcomm to prioritise and protect quality of service going forwards. Postcomm does not believe that in these circumstances the imposition of a penalty would in any sense further its duty to customers. Separately, Postcomm will be continuing its investigation into quality of service problems in a number of postcode areas which have a persistently below average record.

NOTES FOR EDITORS A compensation scheme for business customers who send out bulk mailings came into operation in April 2003. Businesses are compensated at the rate of 1% of their bills for each 1% that Royal Mail fails to meet national targets. The minimum payment is triggered by a shortfall of 1% and increases by 0.1% increments up to a maximum of 5%. A separate scheme came into operation on 1 January 2004 for domestic users who can make a claim for delays to first or second class mail, Special Delivery and standard parcels. For basic telephone claims, compensation is set at 12 first-class stamps for mail that is delayed for three working days or more beyond the due delivery date. Where there is a written claim providing clear evidence, compensation will be £5. This is doubled to £10 if the delay is excessive (10 working days or more after the due date of delivery) and clear evidence is provided. Postcomm’s report explains that on 12 January 2004 three elements of Royal Mail’s Transport Review were introduced. On that date the travelling post offices were taken out of service, the air network and long distance transport routes were restructured to handle the first class mail that was previously carried by rail in the travelling post offices, and a “hub and spoke” road network for transferring mail from inward to outward mail centres through the Daventry facility was put into use for first class traffic. Postcomm has looked in detail at Royal Mail’s planning for the Transport Review, including the adequacy of the risk mitigation measures to help ensure the performance of its licence obligations during such a period of significant change. Postcomm has identified things that it believes Royal Mail could have done, but did not do, which could have helped prevent quality of service declining to the extent that it did. The most important of such measures are more comprehensive risk management and contingency planning, the earlier introduction of a computerised yard management system at the key Daventry hub and the appointment of a director with an over-arching responsibility for quality of service at an earlier stage. As the impact on customers of these changes extended through the first quarter of 2004/05, Postcomm expects that compensation payments also will be made in relation to the contribution of these problems to 2004/05 performance, in addition to the compensation that has been paid for 2003/04 . Royal Mail’s price control has a clause which only allows certain revenue if the company meets service targets. As it did not meet its 2003/04 targets Royal Mail’s allowed income this year is £17m lower than it would otherwise have been. The report, Royal Mail’s Quality of Service Performance is published today on Postcomm’s website. Printed copies will shortly be available from Postcomm at Hercules House, 6 Hercules Road, London SE1 7DB.