ROYAL MAIL MORE EFFICIENT THAN PRIVATE SECTOR DEUTSCHE POST

[TrueBlueTerrier]

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The case behind the government’s part privatisation of Royal Mail is made in the Hooper Report published on 16th December 2008 in the document “Modernise or Decline”

This report has been thoroughly demolished in a response published by Compass, with input from Professor Colin Crouch, Professor of Governance and Public Management at the Warwick Business School, and aptly entitled “Case Not Made”

The Compass report is written in a management style perfectly calibrated to influence policy makers and opinion formers, but its arguments deserve to be more widely read.

A central error in Hooper’s report is that he confuses efficiency with profitability. Therefore it is taken as self evident that Deutsche Post is more efficient that Royal Mail, just because DP is more profitable.

In fact, Deutsche Post has an entirely different business model, whereas Royal Mail is overwhelmingly a postal service provider, Deutsche Post is much more diverse. Deutsche Post’s mail division accounts for only 24% of group revenues and 32% of employees and just 39% of the group’s revenues are from Germany and only 41% of its employees work there.

In contrast, Royal Mail generates 73% of revenue from mail, and 83% of employees are involved with the mail service while only 7% employees and 13% revenues are outside the UK.

The postal prices of both Deutsche Post and Royal Mail are regulated, but 88% of Royal Mail’s income is price controlled, while only 37% of Deutsche Post’s is. And mail services in Germany are considerable more expensive than in the UK. Royal Mail could easily be more profitable, and plug its pensions deficit by increasing its prices to European average levels. I am not advocating that, but it should be noted that it is government driven price regulation that reduces Royal Mail profitability, not any weakness in the public service ethos itself. The Hooper report’s own evidence show Royal Mail to be the cheapest mail service in Europe.

Indeed Royal Mail’s own submission to Hooper showed that it achieved all its efficiency goals in the reporting period ending in 2007, but nevertheless profits were reduced by £807 million due to the price regulator refusing a price increase that Royal Mail believed necessary. the pension deficit is only £284 million.

Royal Mail provides a more comprehensive postal service that Deutsche Post. Royal Mail handles about 25 billion items per year compared with 20 billion for Deutsche Post’s domestic network, despite Germany’s population being 25% larger. The UK provides 6% more post boxes (115k vs 109k) than Germany despite a very similar population density, and Germany being a bigger country.

As the Compass report observes:

The overall cost of the UK domestic postal service as a percentage of GDP compares favourably when compared with the Netherlands and particularly with Germany. It delivers 50% more mail per capita than Germany for 10% less GDP and provides a more extensive collection network. The Netherlands is slightly cheaper than the UK but that is to be expected because its population density and size should make it inherently less costly to serve.

So Royal Mail handles more post, collects at more places, has lower prices and is profitable! Indeed, the success of Royal Mail is of strategic importance for the huge and growing UK mail order retail sector, and the government is irresponsibly prepared to undermine the infrastructure that this key retail sector depends upon.

Hooper also claims that there are efficiency saving possible by reducing the number of sorting offices by about 50%. But this is not based upon any sensible assessment of the current efficiency of the existing sorting offices. Germany did reduce its sorting offices from 328 to 83 on privatisation, but Royal Mail only has 69 Mail Centres, and given the heavier load of post in the UK, this suggests they are already at least as efficient as Deutsche Post.

One real howler made by the Hooper report is that he misunderstands a mention in Royal Mail’s 2006/2007 annual report that it is 40% less efficient than its competitors. Hooper thinks this means compared to other European providers with obligations to universal service and legacy infrastructure issues. But Royal Mail was comparing itself to high-tech start up companies within the UK that have started to cherry pick and compete only with the most profitable parts of the postal service, and have no obligation to universal service. Indeed, this is a Europe wide issue, and the Federal government in Germany has brought in a minimum wage for all postal workers to protect Deutsche Post from unfair competition.

TNT is now bidding for a 30% stake in the Royal Mail, but TNT itself is no star performer. Their recently announced quarterly financial results show operating profits down by over one-third. As CWU leader, Billy Hayes, points out “These poor financial results give the lie to their touted expertise and undermine their position as a competent network provider and serious candidate to ‘coach’ the Royal Mail,” he continued. “Royal Mail’s recent results run rings around this weaker competitor and show where expertise and strength in the British postal market really lies.”

[trythat]

Nice to see some hard figures, about time too.

[trythat]

I've also sent links from the article and the link for the PDF file to my MP.

[BELIAL]

I've also sent links from the article and the link for the PDF file to my MP.

You're assuming he can read