Royal Mail should take comfort from one thing among the mainly wretched set of first-half results announced last week. The postal operator registered its first major loss on delivering letters in eight years but bulk mail volume, which includes direct mail, is on the up.
The postal operator said last week that the numbers of letters sent dipped 5% in the first six months of the year, driving earnings for the business down and leading to a £66m loss.
Moya Greene, Royal Mail’s recently installed chief executive, talked of dark days ahead if urgent action is not taken. She demanded “mitigating action” to counter the threat of ever steeper drops in mail volume over the coming years, namely upping the pace of modernisation.
The Government, of course, has also already identified the need for change, recently unveiling a roadmap for privatisation that could provide the “urgent” injection of private capital that would help pay for the modernisation Greene says the postal operator so desperately needs.
It was not all bad news. Bulk mail, which includes DM, paper bank statements and energy, proved to be the one shining light with the number of items sent to reach more than 7 billion items next year, approaching half the total of all the post being delivered in Britain.
However, even within this significant revenue opportunity there is a profit-sapping cost to Royal Mail and one that needs to be addressed before or promised for soon after privatisation.
In addition to upping the pace of modernisation to offset declining letter numbers sent, Greene talked about the “suffocating” nature of the current regulatory regime, set up to counter the threat of a Royal Mail monopoly and foster competition. One of the main problems, it seems, is that current regulations require Royal Mail to deliver some bulk mail at a loss on behalf of rivals. It is said that rivals are able to collect DM from companies and then get Royal Mail to deliver for a discount price.
And as it that wasn’t sufficiently “suffocating”, current regulations also require Royal Mail to lower the price further if rivals cut the price they offer businesses to collect bulk mail themselves.
An opportunity is therefore added to a long list of threats. Of course, this could just sour grapes. That certainly seems to be the position of UK Mail boss Guy Buswell, who complained that that it and other competitors are being portrayed as “highwaymen robbing the Royal Mail”.
“Nonsense,” he adds, saying that it is operational inefficiencies that are driving revenues down and not rivals backed by an unfair regulatory regime.
I am sure there is an element of truth to this but I am equally as certain that the current regulatory regime does need amending to level the playing field for the benefit of all.
The Royal Mail has introduced a number of innovations over recent years all designed to encourage marketers to find a place for DM in their marketing mix.
Clearly, this has been successful. However, unless regulatory legacies are addressed and amended, private investment will be less likely and Royal Mail will not be able to compete for revenue on a level playing field.