CWU Parliamentary Briefing

The Effect of End – To – End Competition on Royal Mail

Tuesday 15th July 2014 Committee Room 11 House of Commons

Dear Colleague,

I attended this briefing on behalf of the branch, along with every postal branch in the country and some 27 MP’s from all Parties, with the exception of the Business Secretary Vince Cable who refused the invitation to attend.

We heard from a number of speakers including Billy Hayes CWU General Secretary, Dave Ward (DGSP), Chuka Umunna Shadow Secretary of State for Business, Ian Murray Shadow Minister for Business, Brian Scott National Officer Unite the Union and Mike Weir Scottish Nationalist Party. All of whom stated that this was the re launch of the CWU campaign for a level playing field when it can to competition.

Following the briefing we were tasked with meeting our MP’s, unfortunately despite my request to meet the nine MP’s that we have in the branch only one, John Hayes replied to my request. He could not meet me as he could not reschedule his diary but said that if I or any member of his constituency wrote to him raising the issue he would take it up with the minister concerned.

In the coming weeks all branch secretaries will receive a campaign pack which im lead to believe will contain a letter for members to send to their MP, please ask for one of these letter or use the information below to write to your MP and ask him to put pressure on Ofcom for a new review of postal services.

Below is a summary of the briefing

THE UK UNIVERSAL POSTAL SERVICE

Royal Mail is the UK’s Universal Service Provider; we are required under the Postal Services Act 2011 to deliver to all 29 million addresses in the UK. Six days a week at an affordable, geographical uniform price.

This is regulated by Ofcom who took over as regulator on 1st October 2011 from Postcom when the Postal Services Act came into being, Ofcom’s primary role is to secure the provision of a universal postal service.

POSTAL COMPETITION IN THE LETTERS MARKET

There are two main types of competition in the letters market these being acess competition and direct delivery competition.

Downstream access competition as we know allows other providers such as TNT to to collect and sort mail from businesses and then pass it onto Royal Mail for the final mile. (Delivery) More than 47% of total mail volumes are now handled by other postal operators.

Direct Delivery Competition (End to End) this is where other postal operators TNT, collect, process and deliver directly to the recipient without the ned to use the Royal Mail network.

THE RAPID RISE OF UNFAIR DIRECT DELIVERY COMPETITION IN THE UK

TNT Post UK is Royal Mails main competitor in the direct delivery market.

Direct delivery competition in its current form is unfair because TNT is allowed to cherry pick the low cost areas for delivery with no universal service requirements or performance targets. TNT only delivers easier to handle business post and only delivers three days a week.

TNT launched a direct delivery trail in West London in 2012 and has expanded rapidly into Central and South West London, Manchester and Liverpool they are also looking to move into Birmingham, Bristol, Edinburgh and Glasgow.

It plans to cover 42% of addresses in only 8.5% of the UK by 2017, TNT’s mail volumes have increased from 345,000 a week in December 2012 to 1.2million a week in December 2013.

TNT employs staff on zero hour contracts and pays below the living wage, it aims to grow staff from the 1,000 currently to 20,000 by 2018

THE THREAT OF DIRECT DELIVERY COMPETITION TO THE ECONOMICS OF THE USO

The universal postal service depends on Royal Mail being able to use revenues from easier to serve area’s (City Centre’s) to cover the cost of a nationwide network (Rural areas)

Direct delivery competition is undermining the economics of the universal service because TNT cherry picks the low cost areas for delivery, thereby reducing the revenues required to make the universal service financially sustainable.

TNT’s cherry picking of the profitable city locations has seen a 15% reduction in Royal Mail volumes in areas where TNT operate, Royal Mail has recently estimated that TNT’s growth strategy could result in over a £200 million reduction in Royal Mail revenue in 2017/18

THE THREAT OF DIRECT DELIVERY COMPETITION TO POSTAL JOBS & EMPLOYMENT STANDARDS

The CWU is very concerned about the risk of TNT’s low pay, low security of employment model leading to a race to the bottom on pay and conditions in the postal sector.

TNT’s expansion has been welcomed by some politicians for creating jobs, but this model of employment damages society by replacing decent jobs with insecure employment on inadequate pay. It also places a burden on the public purse by reducing income tax revenue and increasing the cost of income support and other benefit payments.

Furthermore, any reduction in pay and conditions would damage the quality of postal services and make it very difficult for Royal Mail to meet its stringent performance targets.

The CWU is therefore keen to ensure that Ofcom does not benchmark Royal Mail against low cost competitors when setting efficiency expectations. This would not be realistic when competitors can cherry pick areas for delivery and when Royal mail holds the universal service obligation and is required to meet strict quality of service standards.

THE THREAT OF DIRECT DELIVERY COMPETITION TO THE QUALITY OF POSTAL SERVICES

Royal Mail is subject to rigorous performance standards for the provision of the universal postal service, including the delivery of 93% of first class mail by the next day, but competitors are not subject to any quality targets.

There is no requirement for direct delivery competitors to report on quality standars, because Ofcom says service levels are driven by market forces.

But the reality is that we have seen a growing number of cases of poor quality of service from TNT, including

* Reports of large amounts of TNT mail dumped in both London and Manchester

* Important time sensitive mail including council tax bills and NHS appointment letters delivered late.

* Neighbours having to regularly pass on incorrectly delivered post to each other.

This puts pressure on Royal Mail with much of the dumped mail placed in Royal mail post boxes for correct delivery. TNT’s low cost business model could also put pressure on other operators to cut costs and threaten the overall quality of postal services.

OFCOM’s RESPONSE TO DIRECT DELIVERY COMPETITION

Ofcom has stated that although TNT’s volumes have grown 248% between 2012 and 2013, the 1.2 million items they deliver per week still only represents 0.4% of the total market volumes.

It has therefore concluded that there is no threat from direct delivery competition at this time and so it will not be imposing any further conditions on direct delivery competitors

ROYAL MAILS POSITION

Royal Mail has stated it believes that direct delivery competition poses a serious threat to the economics of the universal service. Royal Mail has made a detailed submission to Ofcom calling for the regulator to bring forward a full review of direct delivery as a matter of urgency, and to determine quickly any regulatory changes needed to protect the universal service.

CWU POSITION

The CWU is also calling for Ofcom to carry out a review now to determine the level of threat and any regulatory changes needed to ensure the universal postal service is financially sustainable. We believe that Ofcom should define the point at which direct delivery competition will make the universal service unsustainable and set a maximum limit of competition on this basis.

In securing the universal postal service, it is important for citizens and custumers that the minimum service requirements are maintained, including geographically uniform prices and a six day a week delivery service.

We also want to see employment standards raised across the postal sector, in order to improve levels of pay, job security and training at companies like TNT. This will help to avoid the replacement of decent postal jobs with insecure, low paid jobs and it will help to maintain a high quality, reliable postal service right across the country.

Andy Beeby

Branch Political Officer
Communication Workers Union
Eastern Number Five Branch
Room G85
Peterborough Delivery Unit
Papyrus Road Werrington
Peterborough
PE4 5PE

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