Royal Mail responds to Postal Services Bill

Royal Mail responds to Postal Services Bill

Key points

Royal Mail today welcomed the Government’s plans for rapid deregulation of the competitive postal services market and its intention to resolve the £10.3bn historic pension deficit

Royal Mail today welcomed the Government’s plans for rapid deregulation of the competitive postal services market and its intention to resolve the £10.3bn historic pension deficit. The company also welcomed the proposals in the Postal Services Bill to allow Royal Mail flexible and timely access to capital in future as it continues to invest in modernisation to provide customers with the services they want while at the same time protecting the one-price-goes anywhere Universal Service to the UK’s 28 million homes and businesses.

Moya Greene, Royal Mail Group Chief Executive, said: "Deregulation of the UK postal services market is long overdue and I’m delighted that the Government has made it clear that where there is competition, the shackles of regulation should be rapidly removed.

"Royal Mail is a great organisation which has made enormous strides in modernising over the last few years but with mail volumes continuing to fall quickly and competition intensifying we need to step up the pace. That means we need more capital, deregulation to allow us to compete fairly while safeguarding the USO, and the removal of the historic pension deficit. I hope that the Bill published today can deliver on that.

"It’s simply wrong that this suffocating regulatory approach should apply at all in a competitive market - and that it applies only to Royal Mail, which is the only company able to provide the Universal Service on which so many people depend."

Over the last few years Royal Mail has embarked on a £2billion modernisation and efficiency programme including the introduction of hundreds of new automatic sorting machines and equipping postmen and women with the modern tools they need for the job. However the rapid and continuing contraction and change in the mail markets in the UK and around the world means that these plans must be accelerated:

• In 2009-10 there was a 7% reduction in Royal Mail inland addressed letter volumes - while in 2008-10 and 2007-8 the market contracted by 6% and 3% respectively.

• Richard Hooper said in his recent report that the UK postal market is expected to decline by up to 40% over the next 5 years.

• Wholesale "access" mail - mail carried by Royal Mail rivals - rose from 4billion items in 2007-8 to 6.4billion last year and is expected to reach 7.1billion items by the end of this financial year. This means that mail volumes handled by rivals are likely to be more than half of the total by 2011/12.

• The combination of market decline and increased postal competition means that by 2015 Royal Mail’s end-to-end delivery volumes will have shrunk by 75% in just over a decade.

Ms Greene said: "We are absolutely committed to making this modernisation work and our people are of course central in that. We know that change is difficult and we’re determined to take our people and the unions with us. That’s why we’re pleased that the Bill also includes provision for employees to have at least a 10% share in Royal Mail."

Royal Mail also said it would be working with the Government on its plans to explore a possible mutualisation of Post Office Limited, which will not be included in any sale of Royal Mail and which the Government has confirmed will be properly funded, maintained at 11,500 post office outlets and will always be run for the public benefit.


1. Royal Mail believes that to ensure its long-term future and sustain the Universal Service, the Government must ensure:

• Royal Mail has a fair chance to compete on a level playing field.

• That Royal Mail can price its products freely and introduce them freely: Royal Mail should not be forced to consult publicly (including with rivals) when it wishes to introduce new products - which severely limits Royal Mail’s ability to innovate and compete.

• Universal Service products are limited to stamped mail, metered mail and an insured mail product (like a type of Special Delivery) - which are the products used mainly by consumers and small businesses.

• The Universal Service must be able to fully cover its costs.

• There is regulation and price control only where there is little or no competition: currently 80% of Royal Mail’s revenues are covered by regulation despite rivals handling at least 40% of mail and 60% of bulk mail.

• All other products including packets are deregulated but subject to normal competition law.

• In future rivals are allowed access to Royal Mail’s network only in certain limited circumstances - and then only on individually negotiated commercial terms: it is unfair to ask postmen and women to deliver mail on behalf of competitors without Royal Mail being able to charge a proper commercial price.

• Rivals no longer have a built-in price advantage - as is the position today because of the arbitrary and unfair margin which is set between the price Royal Mail can charge its own business customers and the price it can charge competitors to use its network to offer rival services. This so-called "access headroom" allows rivals to undercut Royal Mail, no matter how efficient the business becomes.

2. Royal Mail has spent more than £1.2 billion of the current £2 billion modernisation plan. To date:
• More than 250 sequencing machines have been installed, sorting the mail to the exact route followed by our postmen and women,
• Delivery postmen and women have been issued with 28,000 hand-held devices which can electronically record delivery of tracked items of mail,
• The opening hours of more than 350 delivery offices have been extended,
• We have secured the supply of 4,000 small delivery vans, 10,000 lightweight trolleys and 5,000 high-capacity trolleys to better equip postmen and women on their delivery rounds and take the weight of mail off their backs,
• 28 "intelligent" new-generation Letter Sorting Machines have been installed. These machines can sort the mail at the rate of 39,000 items of mail an hour, and we have also upgraded and extended a further 138 other large sorting machines,
• We have installed 30 new large sorting machines to sort A-4 sized mail.

3. Royal Mail’s £517 million negative cashflow - reported in its accounts for 2009-10 -reflects both the heavy investment it is currently making in modernisation of the Letters business and improvements to Crown Post Office branches, as well as an £867 million cash payment last financial year to the Pension Fund.


Issued by Royal Mail Group:
100 Victoria Embankment

About Royal Mail plc
Royal Mail plc is the parent company of Royal Mail Group Limited, the leading provider of postal and delivery services in the UK and the UK’s designated universal postal service provider. UK Parcels, International and Letters (“UKPIL”) comprises the company’s UK and international parcels and letters delivery businesses operating under the “Royal Mail” and “Parcelforce Worldwide” brands. Through the Royal Mail Core Network, the company delivers a one-price-goes-anywhere service on a range of parcels and letters products. Royal Mail has the capability to deliver to more than 29 million addresses in the UK, six days a week (excluding UK public holidays). Parcelforce Worldwide operates a separate UK network which collects and delivers express parcels. Royal Mail also owns General Logistics Systems (GLS) which operates one of the largest ground-based, deferred parcel delivery networks in Europe.


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