Questions and Answers about the UK postal system

How bad are Consignia's problems?

Financially, Consignia is looking very weak. Its operating losses increased by 500% to £100m in the first six months to 23 September.

And losses at its package division Parcelforce are expected to reach £200 million by the end of the year.

Letter deliveries are losing the firm £1m a day. It spends 28 pence to deliver a 27p first-class letter.

The poor results are a sudden downfall from what was previously a healthy company.

The Post Office has been profitable during the past 40 years, and in the last 10 years it has made a profit of about £350m every year except for the last two years.

Why the sudden heavy losses then?

The sudden plunge into the red is a reflection of a combination of events that have rapidly changed the balance sheet over the past two years:

Fewer letters being sent, due to e-mails and text messaging.
New competition meaning that increased efficiency is needed.
The price of first and second class stamps has not been raised in line with costs.
Stiff competition in the Parcelforce business has caused spiralling losses from its international division.
Higher wages agreed with unions have pushed up costs further.
Less revenue from junk mail deliveries due to the downturn in the advertising sector.
The increased cost of using Britain's troubled rail service, which is plagued by delays.
The high cost of maintaining rural branches which are increasingly sidelined for city superstores
And its 40 year of monopoly status has undoubtedly meant that the Post Office has not paid enough attention to its efficiency and productivity levels.
Who's to blame?

The management of the firm must take a great deal of the blame according to Ian Senior, an economist who has written extensively about the postal service.

Consignia's main aim over the last two years has been to fend off the concept of liberalisation of the postal service, he said.

But the government has decided that the monopoly must be broken, and other companies such as Hays and Business Post Group are allowed to compete with Consignia to deliver the nation's letters.

Licences are already being awarded. So far these have not been for full scale competing services, but for small pockets of interest here and there.

Consignia was partly-privatised in March. It has a limited amount of commercial freedom, but is still subject to stiff regulatory control to ensure social objectives are met.

Is cutting jobs the right solution?

Consignia alarmed workers when its chairman's comments seemed to imply that 30,000 job cuts were in the pipeline.

But after the threat of strike action and fierce negotiations with the unions, Consignia has said that all redundancies will be voluntary and has refused to put a final number on job losses.

But many analysts say Consignia's workforce of 200,000 is top-heavy, with too many senior managers.

With a new wave of competition, Consignia must become more efficient.

Other countries such as Sweden and New Zealand have already abolished their postal monopolies, and they have found that cutting staff was necessary to increase efficiency.

What are Postcomm's proposals?

Postcomm's says the market should be liberalised in three steps:

Phase one from 2002 to 31 March 2004
Bulk mail above 4,000 items and certain niche services – about 30% of Consignia's market by value
Phase two from 1 April 2004 to 31 March 2006
Open a further 30% of the market by lowering the bulk mail threshold to between 500 and 1,000 items per mailing.
Phase three no later than 31 March 2006
All restrictions on market entry abolished.

The first phase of the reform is currently scheduled to come into force in April this year.

Postcomm has given Consignia and other organisations affected by the proposals until 15 March to comment.

The regulator may revise its proposals in the light of these comments, but Consignia is obliged to implement the final reform package.

What about the quality of our service?

While the news of job cuts at Consignia and a possible end to early morning delivery and two deliveries a day has alarmed many people, a drastic overhaul at the firm may be good news for the nation's letter service in the long run.

The sudden financial losses have provoked a serious review of the way the business has been run over the last forty years.

And the efficiency-drive together with new strategic thinking – even if it means less staff – may just pay off.

But if Postcomm's plans become reality, rural areas in the UK may suffer.

While competiton will be fierce to deliver mail to densely populated metropolitan areas and cities, regions like Cornwall, Wales or the Scottish Highlands could lose out.

Fewer post offices, less regular delivery and higher postage than, for example, in Birmingham or London could be the result.

See also:

12 Dec 01 | Business
Post unions to fight job cuts
11 Dec 01 | Business
Consignia to cut up to 30,000 jobs
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