Delivered on time: the first real competition for the Post Office

The profitable – or otherwise – monopoly of the Post Office is about to be challenged by the Birmingham-based Business Post

“MAIL IS profitable. Don’t believe this ‘it costs 28p to deliver a 27p letter’ talk. The mail itself is profitable — it is all the overheads which the Post Office carries that drag it down.” So says Paul Carvell, chief executive of Business Post.
Within weeks, the Birmingham-based company, which has 63 franchised centres across the country, will launch the first serious attack on the postal monopoly.

After Business Post won an initial one-year trial licence for some business services in 12 cities, the postal regulator has said that it can extend that licence to provide an indefinite service for business mail. That should come into action once the full competition proposals are finalised in April.

The company, which began life 30 years ago as a local delivery operation, wants to build up business worth £100 million from Royal Mail’s previous monopoly within two to three years. This is an ambitious target for a company whose entire turnover last year was £124 million.

Business Post believes it can undercut prices and provide time-sensitive services — something that Consignia, the renamed postal group, is falling down on badly. Beyond building up a business market that could deal with a million items per day and take about 2 to 3 per cent of Consignia’s postal business, Mr Carvell also wants a strong presence on the high street. He wants Business Post collection boxes in supermarkets, garages and high-street retailers as well as post offices.

If that is successful — and he says that there has been no shortage of potential partners who want to talk, if nothing else — Business Post will establish a very visible alternative to Royal Mail.

That would at least please the regulator, if not many others. While fears have been raised that Postcomm’s recent competition proposals will cripple the already ailing Consignia, senior Postcomm officials have worried about the opposite scenario — what if you opened up competition and no one came? Taking Business Post postboxes to the high street would emulate the US postal system. There, you pay your price to choose a type of service. For instance if you have something of value, such as an important document, you would pop it in the Federal Express box and pay a little more for it. Mr Carvell says the company has broadened its knowledge of the US market from a partnership with FedEx. Business Post handles much of FedEx’s work on the ground in the UK, except for some inner city operations.

Business Post wants to offer a “business class” service — midway between the current first and second class — with delivery guaranteed within two days at a set time. It will also offer a more expensive next-day delivery.

Setting up a stall on the high street means that the company clearly has its sights on the smaller customer. For the moment, though, it is talking to big fish, building on its existing business network for parcels. It is also talking to large businesses that have shown an appetite for a cheaper, more efficient postal service. These include banks, utilities and direct mail groups.

There is, however, a sticking point before Business Post’s plans come to fruition. It is wrangling with Consignia over access charges for infrastructure. Consignia is obliged to open its infrastructure to competitors for a price. It is disputing the pricing guidelines suggested by the regulator, saying that it will lose money. Mr Carvell, however, believes that Consignia is attempting to add on all its costs when pricing the infrastructure rather than stripping down the service. “We’ve got the sorting facilities — we’ve got a big hub in Birmingham and we’ll invest more in that. We don’t want to be paying for things we are not using. We don’t want to pay for Elton John ads.”

The plans from Business Post — which are likely to be mirrored by other postal newcomers — will involve collecting post from large business users, sorting it and then delivering it to local Royal Mail delivery offices for Consignia’s staff to take over “the last mile”. It is unlikely that rival businesses will bother duplicating Royal Mail’s footpath-pounding service. That involves 80,000 delivery staff and is not easily reproduced in a cost-effective way.

So far Business Post is the first company to make clear its intentions to make a serious move on the new postal market. It remains to be seen how quickly it is followed by the likes of Deutsche Post and the Dutch postal group TPG. The thousand cuts which Consignia has feared may be about to start.
The Times