A fairly significant threat to the career of postmen and postmen was the arrival of door-to-door delivery by TNT Post – see photo on the left. Trials began in London in 2012, 10 years after the market opened up to competition, so Royal Mail had plenty of time to show that it could offer a cost-effective and efficient “Final Mail” service to companies like TNT, which had taken over much of its “upstream business”. But TNT initially seemed to be pulling a success from its London operations, no doubt backed by Royal Mail`s decision to charge 10% more for mail delivery in London – see below. Postcomm estimated that the loss-making deliveries cost Royal Mail no more than £80 million a year – a minuscule cost factor when they delivered nearly 80 million items a day. And that didn`t take into account the benefits Royal Mail derived from being the sole universal service provider, both in terms of brand loyalty and ubiquity. But “the last mile” is a more complex challenge than it seems at first glance. The mail must be sorted exactly in the correct order of delivery, taking into account secondary roads far from the main roads, apartment buildings, etc. And there are significant economies of scale that Royal Mail has enjoyed, as well as the natural desire of its customers not to have to split their mail between two delivery companies. It also became clear that Whistl was much less reliable than Royal Mail. (I subscribed to a magazine that Royal Mail delivered on a Friday. Whistl never delivered it until Saturday and often not until Tuesday or Wednesday of the following week.) Royal Mail had already been granted an exemption (by former regulator Postcomm) when Boxing Day 2009 fell on Saturday.
Prior to the Postal Services Act 2000, Royal Mail`s policy (at least since the 1980s) was not to pick up and deliver mail when Boxing Day fell on a Saturday. Postcomm was incorporated into Ofcom in 2011 and price controls were almost completely lifted in early 2012, the only guarantee being an inflationary cap on the price the public would pay for second-class mail (2-4 days of delivery). It remained to be seen whether Royal Mail would use its newfound freedom to escape its death spiral, but the omens didn`t look good. In its decision document, Ofcom noted that “experience since 2006 has been that price controls have not been effective in ensuring that Royal Mail has improved efficiency – Royal Mail has missed its own efficiency improvement targets as well as those postcomm has adopted to establish control”. However, the regulatory authority is required by the Postal Services Act to “perform its functions in the manner it deems most appropriate to promote the interests of users of postal services, where appropriate by promoting effective competition between postal operators”. And competition certainly offers a number of important advantages. Competitors will always try to offer customers new services, more reliability and lower prices, creating incentives for Royal Mail itself to become more user-friendly and efficient. This, in turn, should help the entire industry fend off competition through “electronic substitution” (email, posting bank statements and invoices on the Internet, etc.). In this context, the British regulator Postcomm decided in 2002 that there were clear advantages to allowing competing operators to offer postal services in competition with Royal Mail, in the hope that this would shake up the entire postal industry and thus fend off competition from e-mail and the Internet. In other words, Postcomm believed that competition would provide an incentive to ensure that a more efficient and customer-centric postal service would be better able to meet the challenges of technological change and customer demand. As a result, Royal Mail lost more than half of its upstream business, with several competitors successfully securing contracts to pick up mail from major customers, sort it and transport it to Royal Mail`s local delivery offices. The upstream competitors then entered into a contract with Royal Mail to deliver almost all of their mail and paid an “access price” set by the regulator for this “downstream” service.
As a result, Royal Mail`s “downstream” delivery network remained strong and relatively efficient as expected and unlike the upstream business, retaining almost all of its market share. (But see below for TNT`s ephemeral entry into this market.) A particularly worrying omen was that Royal Mail immediately raised the price of a first-class stamp from 46 pence to 60 pence and the price of a second-class stamp from 36 pence to 50 pence – a very sharp increase that would have been political dynamite 10 or 20 years earlier. But the company has maintained downward pressure on the price of its vital business mail. And Ofcom continued to require Royal Mail to provide its competitors with access to its delivery network in order to secure the “last mile”. Royal Mail was free to set the wholesale price for such access, but was subject to rules on the gap between its wholesale and retail prices. Ofcom felt this should help efficient competitors compete effectively with Royal Mail. The group said it was “disappointing” that it had not yet been able to reach an agreement with the CWU and Unite CMA unions on the changes it wants to make, including: trials of separate daily parcel deliveries; Abolition of “obsolete working methods such as handwritten registration forms” by switching to automated clock and clock systems; removal of old letter sorting machines that are no longer needed; and regular processing and distribution reviews to accommodate declining letter volumes. On 22 June 2015, Royal Mail wrote to Ofcom requesting an order to prevent Royal Mail from fulfilling its universal service obligation on 26 December if that date falls on a Saturday from 26 December 2015. This would mean that Royal Mail would not have to deliver or pick up mail that day until further notice.
Royal Mail`s app included forecasts of low mail volume in the period immediately after Christmas and the proposed communication with customers. But the USO could become a burden in the future, for example, if it continues to require daily delivery at a time when mail volume is declining in response to competition from email and other Internet transactions. This has become a particular problem in New Zealand, where deliveries six days a week in urban areas will fall to just three days from June 2015. What`s interesting is that in rural areas, where customers tend to rely more on mail, services are maintained five days a week. New Zealand mail volumes decreased by at least 30% between 2006 and 2013. But managers in the mail industry continued to think and behave like monopolists. They had already lost 50% of the “upstream” sorting/transport business and saw – as mentioned above – the first signs of serious competition – in London and Liverpool – from TNT Post for door-to-door deliveries. So what did they do? What does a company do that is worried about its customers turning to another supplier? It naturally increases prices. (That was sarcasm, by the way.) In particular, it informed TNT and other upstream operators that they would in future be charged a higher fee (`the access price`) for the delivery of the mail they collected and sorted. [Price increases apply] Services called “access mail”, . worth £1.5 billion to Royal Mail each year. They include gatekeepers such as Whistl, who collect and sort mass mail from large organisations – such as bank statements, utility bills and council information – before handing over the mail to Royal Mail to complete delivery.
At the time, Whistl expanded its business to compete directly with Royal Mail by delivering business letters (known as “mass mail”) to addresses in parts of the UK, becoming the first company to challenge Royal Mail`s monopoly on large-scale mass mail delivery. .