The UK's mail and express future

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Ahead of postal privatisation in Britain, James Cartledge reports on a lively executive round table discussion on the future of the UK post and parcels market, at yesterday’s Mail & Express Delivery Show in London.

“It will never be the same again. Like a married couple when they have their first child – things will never be the same again, and I think there will be some far-reaching aspects for this industry.”

This was the view from Royal Mail’s managing director of consumer and network access, Stephen Agar, as he chaired an interesting discussion from the leaders of some of Britain’s biggest mail and parcels companies at yesterday’s Mail & Express Delivery Show in London.

Agar was speaking about the impact that the privatisation of Royal Mail will have on the UK mail and express market, assuming it all goes through this time. The government has currently said it intends to carry out an IPO or private placement of shares at some point by April 2014.

Agar noted that the industry has been here before – past attempts to privatise Royal Mail have failed. But he said: “It is different this time. We have an Act of Parliament on the statute books, the business is in a good place and industrial relations aren’t perfect, but are nowhere near as fractious they have been in the past. I think it is highly likely that it will happen.”

The view from Royal Mail’s rivals was that the privatisation of Britain’s universal postal service provider will be a positive thing for the mail and express delivery industry as a whole.

TNT Post UK, probably Royal Mail’s biggest competitor and a company with an eye to developing a nationwide network of delivery staff in Britain over the next five years, sees the privatisation of Royal Mail as leveling the playing field in terms of the information Royal Mail will have to provide to shareholders. TNT Post UK is part of Dutch national postal service PostNL, which has been listed on the Amsterdam stock exchange since 1994.

Nick Wells, the TNT Post UK chief executive, said at yesterday’s executive round table that privatisation of Royal Mail will be good for the UK postal market.

“Access to external capital and different investment will make Royal Mail more accountable and it will be a stimulus for innovation,” he said, insisting that other postal privatisations in Europe have led to improved postal markets.

“Royal Mail will be more fleet-of-foot and more commercial, and that will be good for the industry and good for opportunities for others like TNT,” he said.

“Royal Mail after privatisation will start to focus on what it is good at”
David Smith, the chief executive of parcel carrier City Link, who is a former Post Office and Parcelforce Worldwide managing director, said he also believed privatising Royal Mail would be good for the industry, although he said the company and its competitors could face significant challenges with the new ownership situation.

“It will be a fairly difficult period of transition for Royal Mail to go through,” he said. “It could be quite difficult for all of us to go through it, as well.”

Smith, who has been working to turn around the fortunes at a loss-making parcel business since taking charge at City Link at the end of 2011, suggested that things could change at Royal Mail following privatisation, in terms of how the company approaches the market when it has shareholders to please.

“I think that Royal Mail after privatisation will start to focus on what it is good at, rather than being a jack of all things,” he said.

MIke Newnham, the chief customer officer at Royal Mail, which hosted this year’s Mail & Express Delivery Show, said Royal Mail had already started the move towards becoming a privatised company when chief executive Moya Greene took over in 2010.

He said of privatisation that the key thing was allowing Royal Mail access to the additional capital it needs to respond to the current huge changes in the postal market – with the context that the UK government has stated that it will not provide the capital for the transformation required.

“We are making a massive transition in this company to become much more of a parcel business,” he said, suggesting there was no other way for Royal Mail to proceed.

Newnham said of the impact of privatisation: “A healthy Royal Mail will be a good, healthy contributor to the post and parcel market.”

The future of letters

Yesterday’s executive round table was the culmination of a day-long event that saw lively discussion on the future of the letters and the parcels market, with a firm recognition that e-commerce has seized hold of the UK parcels market and will not let go, while the letters market still provides significant opportunities – but requires the right, innovative approach to contend with the ongoing slide in volumes.

Royal Mail might be investing to become more of a parcels business, but during yesterday’s Executive Round Table, its chief customer officer was optimistic that the letters market is not going to go away, despite the competition it faces from channels like the Internet.

Newnham said of the future of the letters business: “We see continued decline in the letters market, but we don’t see an end game that is disastrous. We see that it will plateau at some point – for some customers, mail solutions are the only solutions.”

Echoing the sentiments of one of his Royal Mail colleagues, MarketReach managing director Jonathan Harman, who spoke during the opening session of the Mail & Express Delivery Show, Newnham said that Royal Mail and the letters market as a whole needed to do more to build value in the mail and promote the channel as an effective way to communicate for modern business.

“There’s a real need for the industry to advocate the purpose of mail,” he said. “It’s not a substitute for electronic mail, it’s complementary – they work together. We are trying to articulate a value for that physical mail compared to channels like TV and Internet.”

TNT Post’s CEO was similarly optimistic that mail will continue to have an important place in future business communications, particularly direct mail in what will “always be an omnichannel world”.

He said those operating in the letters business will have to focus carefully on cost control and service quality, but he even appeared optimistic in the future opportunities in transactional mail, which has been particularly hit by electronic substitution.

“I think there is innovation that we can use in the letter market,” he said. “The way that people have to open their transactional mail, for example, there’s promotional opportunities – transpromo will be used more.”

Wells, and his fellow industry leaders, pointed to the convergence of the postal and parcel markets in the field of packets, which have seen rapid growth thanks to the rise of e-commerce.

Agar said that while he expected letter volumes to continue to decline until a new plateau is reached, the key for Royal Mail’s future will be to support its declining letters business with the growth in packets – and take advantage of the infrastructure built up for letters in delivering more packets.

“We are seeing massive packet growth with e-commerce, and we deliver small lightweight parcels with letters – if you still have foot delivery capabilities, that will be key to this growth. The majority of Royal Mail’s income is still letters, but they are natural bedfellows with small parcels and packets.”

Royal Mail as a parcels business

“We need to make sure we invest where it matters”
Royal Mail is currently attempting to move away from the term “packets” in its business, preferring the term “small parcels”, as it pursues the opportunities in e-commerce. But with two of the major UK parcel carriers struggling to be profitable at present, the question was asked at yesterday’s Executive Round Table: how will Royal Mail ensure it is profitable when it moves more into the parcel space, when existing players are struggling?

Newnham spoke of the importance of understanding the needs of customers, pointing out that Royal Mail conducts annual customer survey research to determine how it should proceed.

Royal Mail will need to build value into its services and innovate in areas like parcel visibility in order to succeed in the parcels and e-commerce space, he suggested, and make the most of its exclusive relationship with the extensive retail network provided by partners Post Office Ltd.

He said: “On the back of that customer research, we need to make sure we invest where it matters – we need to invest in tracking and we need to invest in our partnership with the Post Office.”

City Link’s Smith said fundamentally Royal Mail would have to understand the costs involved in its networks and make sure those costs are under control.

“Right now the parcel and packets business can be supported by the vast world that is the letters business, but that will decline by 40%,” he said. “That will be the challenge for Royal Mail.”

Dick Stead, the executive chairman of Yodel, which has had considerable service challenges since it acquired DHL’s domestic UK parcels businesses in 2010, said Royal Mail could currently absorb huge volumes of parcels in its delivery network, but as more of a parcels business could find itself facing the same difficulties as other parcel carriers around the Christmas period.

“We need a lot of money to run a parcel company,” he said. “We need to double the size of the network at Christmas, and not reduce any customer service.”

Stead’s advice for Royal Mail was not to look to drive down prices.

“Don’t try to be cheap and cheerful – it doesn’t work in this business,” he said.

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“Access to external capital and different investment will make Royal Mail more accountable and it will be a stimulus for innovation,” he said, insisting that other postal privatisations in Europe have led to improved postal markets.

Improved markets where large shareholders and bosses made a killing, but service standards declined. TNT in Holland anyone.