Recent media headlines revealed that Consignia, the new name for The Post Office group of companies, is losing money hand over fist. In March, Alan Leighton, the Chairman, said "Consignia is in a perilous position, losing more than £1.5 million every day. Parcelforce is losing £15 million every month because we have failed to reduce our costs fast enough as business has declined. We need to renew our operations and halt the financial losses which put key services at risk". In order to redress the balance quickly, and preserve the universal postal service, Consignia is embarking on a three year renewal plan.
Some elements of this have received wide publicity, but it is better to look at the whole picture. Consignia's ordinary parcels business, which is exposed to competition, has been declining and losing money for a long time. From July, we learn that ordinary parcels business, where the parcel takes three days or more to arrive, will be handled by Royal Mail, which will use its existing network to provide a uniform and affordable parcels delivery to every UK address, no matter how remote. Parcelforce Worldwide will concentrate on the profitable and growing market for guaranteed time of delivery and next-day and two-day express deliveries. One wonders whether giving this business to Royal Mail is rather like handing them a poisoned chalice. Perhaps ordinary parcels business is declining so rapidly in the face of competition that it is not expected to be a loss making burden for too long.
Consignia will be able to close all the five parcels distribution centres which handled the ordinary business and 51 of their 101 depots. More than half of Parcelforce's 11,700 workers will lose their jobs over the next two years.
Consignia tells us that it is also drastically rationalising its transport system to create a single road, rail and air network. More mail will be carried by train and plane, and a regional hub and spoke system created to reduce the number of road journeys. Consignia presently has 40,000 vehicles on the road and plans to cut this by 2,500, which does not seem to be all that drastic a cut.
These reorganisations and others within management, operations and support services will mean that about 15,000 jobs will go in the next three years and the overall savings target is more than £1.5 billion.
On the very day, 25 March, that Consignia issued its press release about its major overhaul, POSTCOMM, (the Postal Services Commission, the regulator of postal services), held a seminar to explain its proposals for introducing postal competition. One cannot help but feel that the imminent revelation of these competition proposals, of which Consignia is obviously well aware, might have had some element in triggering the reorganisation announcements.
So who or what is POSTCOMM? POSTCOMM is the independent Regulator set up by Parliament to further the interests of all users of postal services. Its main tasks are to:
Mr. Stanley, POSTCOMM's Chief Executive, explained the Regulator's proposals to gradually introduce competition into postal services throughout the UK, which were:
The first phase will be to invite applications for licences to provide `Large Mailing' services, defined as individual mailings of 4000 items or more or an average of 4000 items per mailing under a multiple mailing contract.
He and his Commissioners were convinced that the only way to turn the Consignia ship round was to expose it to competition, thus forcing it to become efficient and competitive. He gave a categorical assurance that the universal postal service was safe, Parliament demanded that it be so.
The crux of his argument was that even with no monopoly to protect it, in seven or eight years time, Consignia would still only lose about 10% of its market. Volume of post continues to grow, other licence holders will take niche markets which Consignia is not at present interested in exploiting, and Consignia will still be by far the biggest supplier of postal services.
People at the seminar felt that POSTCOMM's solution was a big gamble. No-one could predict how the share of the market would divide when real competition was introduced. It was pointed out that ParcelForce had been faced with competition for some time now and was losing serious money. Could Consignia as a whole go the same way?
The view of the consumer watchdog, POSTWATCH (Consumer Council for Postal Services), expressed at the seminar was that the risk in not introducing competition was greater than in doing so. Mr. Stanley explained that there are 80 million items posted every day, and rising. 70 million are sent out by very large posters such as banks, utilities, government departments and so on. Consignia has said that if they lose some of this business they will not be able to support the universal service. However, the universal service, he said, is not a loss maker. He also explained that the very difficult deliveries where the postal charge clearly does not cover costs are few and far between and the complexity of levying an extra charge in these cases was such that it was a non-runner. Consignia announced over the weekend that it will save £1.2 billion with its reorganisation. The universal service costs £80 million.
NCF's representative at the meeting had assumed that POSTCOMM had a responsibility for Post Offices. This is not so. POSTCOMM had no say in the decision to pay pensions and other benefits through recipients' banks, which starts next year, thus depriving post offices throughout the country of a very important element of their business. Mr. Stanley felt that the Government would have to subsidise Post Offices to prevent them closing. It will be surprising if this comes about. The media, in telling us about Consignia's reorganisation, reported the planned closure of many urban Post Offices. There was no mention of this in Consignia's Press Release, but Consignia has since announced that it is indeed their intention to close many urban Post Offices. Age Concern and POSTWATCH, among others, have protested at the hardship that will result, particularly for older people who rely on a nearby Post Office for their pensions.
Asked what his forecast was for Consignia when exposed to competition, Mr. Stanley predicted that large posting mailers would see a price reduction, while domestic mail would not increase significantly. It was part of POSTCOMM's remit to safeguard the customer against unreasonable price rises.
We asked about phasing out second deliveries. What they actually wanted to do was spread the deliveries throughout the day instead of working frantically to get the first delivery out early and then having spare capacity for the rest of the day. If they could do this they would need less staff, less vehicles, less journeys and would make significant savings. Both POSTCOMM and POSTWATCH were less concerned about the loss of the second delivery but very concerned that the first delivery some time after 9.30 in the morning would become the norm. At least 60% of postal recipients wanted their post as early as possible and certainly before 9.30 am.
The timetable for introducing competition, should POSTCOMM decide to proceed, has been revised. The earliest that they could ask for applications for licences for phase 1 (large mail licences) is now May, and negotiations and legal matters would mean that no licences could be granted until early next year.
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