Spring 2007

Private-sector companies can deliver post now in competition with Royal Mail, but are they rushing to take on mail-order work? Not exactly, says Marcia MacLeod, who explains the hoops they need to go through to offer you new services.

Deregulation of Britain's postal service has been slow in coming, but it's finally here. Any private company can now deliver small packets, or even mail, to individual private addresses. This break-up of the Royal Mail's monopoly of postal services has been demanded by potential competitors for years. So where is the flood of services crushing Royal Mail's very backbone?

Well ... it's not as easy as it sounds. All companies wishing to carry mail in the 'licensed area' - which means most types of mail weighing less than 350 grams and costing less than £1 to post - must be licensed by Postcomm, the independent regulator for postal services in the UK. Carriers of heavier or more expensive mail - your typical parcel - don't need a licence.

'As a regulator, Postcomm must make sure that mail is carried safely and securely and must therefore ensure anyone planning to set up as a postal operator can provide the heavy guarantees and meet the minimum standards we set down in our mail integrity code and common operational procedures code,' Postcomm says on its web site.

The common operational procedures code covers mail identification, including measures which ensure postal operators can identify mail intended for another operator and re-route it accordingly; re-posted mail, such as forwarded mail or that marked 'gone away' or 'return to sender'; mis-posted mail put in the wrong collection bag or box; mis-collected mail taken by the wrong company; or misdirected customer service enquiries.

The mail integrity code covers recruitment, training, staff disciplinary procedures, security of mail, information and reporting requirements and agents and sub-contractors. A written recruitment policy must set out how operators will ensure potential employees are who they say they are, and are reputable and trustworthy, with no criminal convictions, cautions or conditional discharges.

Staff training and disciplinary procedures must meet Postcomm's approval, as must the security policy, including measures 'to prevent problems occurring with the security of mail in their premises, vehicles and equipment'. Procedures also have to be in place for reporting and dealing with mail integrity problems; and all of these requirements apply equally to franchisees, agents and sub-contractors used by the licensee.

It will take some time to get all the necessary documentation in place - and then Postcomm allows a minimum of 28 days for consultation regarding any licence application. This is to allow mail operators, customers and other interested parties to comment on the application. Licensees must also be able to deal with re-direction, report of their performance of conveyance and delivery compared to their contractual obligations, and demonstrate how mail left in their system will be delivered in the event their company exits the postal market. They must also provide financial guarantees - either by themselves or through another licensee - to protect customers if they go out of business. Oh, and as well as the cost of internal resources in preparing the application, licensees have to pay an application fee of £1,000 plus an annual licence fee based on market share. Businesses with a licensed turnover under £10 million play a flat annual fee of £1,000.

It's not surprising few new operators have launched a door-to-door delivery service just yet. So far, out of 17 licensees, just two have begun to provide a mail delivery service - and both mainly operate on a business-to-business, rather than business-to-consumer, basis.

For DX Services, which has delivered legal documents nationally for around 30 years, the new licensee requirements allow it to widen the scope of its operations. 'We can now deliver letters and other things,' says David Sibbick, regulatory affairs consultant for DX. 'And as we merged with Secure Mail Services last summer, we have been able to offer home delivery services to our customers.'

SMS delivers passports, credit cards and other valuable items to home addresses. But its business, like that of DX, remains steady. Between them, they move 1 million to 1.25 million items per night.

'We have not seen an explosion of demand,' adds Sibbick. 'We are progressively ramping up our infrastructure to cope with growth, but still have two main hubs - in Watford and Nuneaton - and 27 sorting centres. And our haulage is all done by contractors, some dedicated and some not. I can't see this changing in the near future.'

TNT Post UK is the only company so far that has publicly stated it plans to offer a full B2C mail and small packet business. 'It is unlikely we will have orange post boxes on the street,' admits chief executive Nick Wells, 'but we do want to see orange postmen out there. We can't say when: it will take time to develop the right network, but we plan to invest heavily in it and to develop a portfolio of services.

'We expect initial business to come from large-volume users in the financial services sector, retail, mail order and mailing houses. But we could also get business from those wanting to reach their local market and from SMEs. We already have local offices in places like Glasgow, Manchester and Bristol to take delivery of outgoing mail.'

To be viable, however, TNT Post expects to maintain its current minimum volume of 250 items per day. 'It's not cost-effective to collect less than that.'

Other licensees don't plan to change their offering - or at least they won't talk about it. DHL is, says a spokesman for Deutsche Post, 'watching what happens', while UK Mail, part of Business Post, will stick with its current arrangement. 'Our business model has always been to bring together overnight collection and sortation,' points out Ian Paterson, strategy and regulatory affairs director at UK Mail. 'Our mail goes to Royal Mail for last mile delivery, and we have no plans to change this.'

Royal Mail still dominates the market, handling over 99 per cent of all mail in the UK. Competitors handle around 10 per cent of letters at some point in their journey, but deliver only about 1 per cent. Businesses send 87 per of all mail in the UK licensed postal market, 60 per cent to consumers and 27 per cent to other businesses.

Are we likely to see this change? Is it worthwhile for a parcel carrier to think small? Or for a new entrant to challenge Royal Mail? Possibly not. True, TNT Post has announced its Premier Parcel service, a two-day service for parcels up to 15kg delivered in mainland UK, offering a variety of collection and delivery times, with or without signature capture.

But this service covers weights well above the 350 gram/less than £1 'licence area'. And the service is relying on the established courier network of J D Williams, which TNT bought in May 2006. The requirement of a home delivery courier network is likely to make mail home delivery a non-starter for those not already in the business.

Those companies which have the requisite network in place have to decide if delivering small items is lucrative enough to allocate much-needed resources. Companies that haven't yet found the prospect of setting up a home delivery network attractive enough would have to ask themselves 'why bother doing it now?'.

Of course, if a courier is already delivering a parcel to a home consumer, adding a couple of letter-sized CDs or something similar may be the icing on the cake. The driver is going down that road anyway, they can make a little more money and the smaller the item, the more likely it will fit through the letter box - and the less chance there is of the driver having to leave one of those ubiquitous yellow cards.

You want to deliver mail? Then start here

Companies wishing to become a licensed operator in the postal market have to meet a number of requirements. These include the establishment of sound arrangements, 'appropriate for their business', for protecting mail and delivering it safely; proof they can convey and deliver letters and report on their performance in relation to their contract obligations; and demonstration of how mail left in their system will be delivered in event of their company going bust or deciding to leave the postal market.

Full details of the lengthy and costly application procedure - £1,000 to apply and another £1,000-plus for an annual licence fee - can be found on Postcomm's web site, www.psc.gov.uk.