Tag: Royal Mail

Italy shows how to make a profit from post offices

Posted by | Mar 27, 2007 | |

Royal Mail could learn something from the humble Italian postie.
Massimo Sarmi, 60, took over Poste Italiane in 2002. Today, he will declare the fifth consecutive year of profits for the company, after more than five decades of losses.
In the first half of last year, the group’s net profits rose by 72.6pc to euro 378m (GBP 257m). By comparison, Royal Mail said last month that its first half profits last year sunk by 86pc to just GBP 22m, although the fall was largely because of a steep rise in the costs of servicing the GBP 6.6bn deficit in its pension fund. Royal Mail has threatened to close half of its 14,000 post offices, which it says are losing it GBP 4m a week. The move would leave many people stranded without a post office for miles.
But while Poste Italiane’s network of post offices is also losing money, it now provides the backbone of a company which has diversified into retail banking, insurance and even selling vacuum cleaners, all of which produce bumper profits for the company.
Consequently, he based his strategy on the fact that he can reach almost every Italian and installed IT systems so that rural post offices could connect to the main office and start happily selling mortgages, bank accounts, and insurance.
Mr Sarmi said Royal Mail should do the same, if it wants to survive.

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Postcomm guidance on Royal Mail participation in competitive tendering

Posted by | Mar 26, 2007 | |

Postcomm has today published guidance on Royal Mail’s participation in competitive tendering, following a consultation on the subject last year.

Competitive tendering – which was non-existent in the former mail monopoly market – has become accepted practice now the market is fully competitive.

Postcomm does not wish to preclude Royal Mail from winning or retaining business awarded by competitive tenders, but it is important that the market has confidence that it is not acting anti-competitively or taking unfair advantage of its size and dominance of the market to gain business.

Royal Mail’s licence requires it to:

* publish its prices after it has won a contract
* refrain from anti-competitive practices
* offer prices which are within the limits of its 2006/10 price control.

The guidance sets out the detail of these arrangements so that other operators in the market can ensure Royal Mail is complying with its licence.

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Rivals call for Royal Mail to slash charges

Posted by | Mar 25, 2007 | |

Royal Mail could be forced by the industry regulator to cut the price of delivering rivals’ letters for the ‘final mile’ a move it claims could be crippling.

At present, Royal Mail charges private competitors 13p a letter to deliver them in the final mile.

Typically, private companies collect mail from large business customers, sort it and take it to Royal Mail sorting offices nearest the postal address for delivery.

But TNT Post, Royal Mail’s biggest competitor, has appealed to Postcomm to force Royal Mail to cut its charges because it says they are so high that competitors are being ‘squeezed out of the market’.

Royal Mail, however, wants the regulator to allow a rise in the 13p charge, saying the fee is too low and preventing it from being able to compete effectively.

Postcomm will examine the rival claims and give a verdict in six months.

But it is already clear that the regulator does not believe that competition is harming Royal Mail and it believes the company is simply trying to protect its monopoly position.

Even though 2.5 billion business letters are being collected by its competitors, the regulator says that the 13p charge for delivering them more than covers Royal Mail’s costs.

Royal Mail says an adverse decision by the regulator could cripple its business, which has already been hit by the ‘loss’ of 2.5 billion business letters, one in eight, to private competition in the past 12 months.

Royal Mail is concerned that this haemorrhage will accelerate as the private postal companies cherry-pick its biggest business customers.

Earlier this month, Postcomm chairman Nigel Stapleton said: ‘Royal Mail is using an attack on the regulatory structure as a smokescreen for its own lack of progress in tackling high labour costs.

‘Since single daily delivery was introduced in 2004, every initiative that the company has taken to improve efficiency has been absorbed either by higher wage rates or increased pension costs.’

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Royal Mail demands to charge rivals more

Posted by | Mar 23, 2007 | |

The battle between Royal Mail and one of its leading competitors in the UK letters market, TNT Post, intensified yesterday with each side making conflicting demands for changes to the way prices are controlled.
At the heart of the struggle is the issue of how much Royal Mail can charge competitors for delivering mail those competitors have collected. Royal Mail argues that it needs to be allowed to charge more to compete in the key business mail market. It says the existing price structure “simply isn’t working”.
TNT Post claims the state-owned company already charges too much and allowing Royal Mail to increase its wholesale price would squeeze out competition.
Under current rules Royal Mail has to allow outside access to its network, with its own postmen and women delivering letters collected by competitors. It is allowed to charge around 13p for each letter handled under the access agreements.
The access price is crucial for both sides in the battle for the business mail market, where a relatively small number of customers account for a high proportion of the UK’s mail. Rivals to Royal Mail that have entered the market since it opened up at the beginning of last year see the sector as their best chance of winning business. They can collect bulk mail from business customers, pre-sort it, and then use Royal Mail to take it the “final mile”, without having to set up their own delivery networks. The amount Royal Mail can charge for this service is key to competitive pricing.

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Postcomm welcomes progress on VAT for postal services

Posted by | Mar 23, 2007 | |

Postcomm has welcomed the announcement earlier this week of a new type of access arrangement, designed to allow VAT-exempt organisations, including financial institutions and some charities, to take better advantage of the choices available in the newly-competitive mail market.

Under the new arrangements, mail operators offering access will no longer be required to charge VAT on the whole cost of their access schemes. Instead, VAT is only required to be charged on the ‘upstream’ element of these arrangements – that is, the collection and sorting services offered by Royal Mail’s competitors.

The ‘downstream’ element – delivery – is provided on competitors’ behalf by Royal Mail, which is itself exempt from charging VAT on the services it supplies to customers.

Until now, VAT was required to be charged on the full cost of access arrangements with licensed operators. Non-exempt organisations have been able to offset that cost against their own VAT payments. But VAT-exempt organisations have not, making access arrangements – and the services offered by Royal Mail’s competitors – more expensive, in practice, for them.

Although Postcomm has welcomed today’s announcement, it remains concerned that there is not a ‘level playing field’ for licensed postal operators: Royal Mail is exempt from charging VAT, while other operators are required to charge the full 17.5%, making it harder for them to compete on cost for the business of VAT-exempt mailers. This is a significant barrier to postal market entry for new operators, particularly end-to-end operators, who make their own deliveries, and whose VAT liability remains unchanged.

Postcomm’s preferred solution would be a reduced, uniform rate of VAT, to be applied to all postal operators, including Royal Mail. For example, a 5% rate applied across the board would create a level playing field without resulting in significant price rises for customers.

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