FEATURE 

The future of mailing services – part 2

One issue later than expected, Ian Phillips is back with the second part of his article looking at mailing services. With the recent Hooper Report still causing ructions between the government, the unions, and its own backbenchers, Ian ponders some of the issues and wonders what it all means for publishers.

By Ian Phillips

Those of you with a vested interest in distribution may well have been watching the news concerning Peter Mandelson’s general acceptance of Richard Hooper’s recommendations and how, against fierce opposition from unions and a significant number of politicians, he’s pressing ahead with the plan to part privatise Royal Mail and, in return, government would take on the burden of the pension deficit.

But who is going to buy themselves into a failing business in a shrinking market? I’ll give you one guess and one guess only. You got it - foreign postal companies that’s who. TNT were the first organisation to publically express an interest and most recently DHL have done exactly the same. Given both companies’ experience, I’d welcome either of them to the table because both have successfully rationalised and streamlined their businesses in their own domestic markets and that is exactly what Royal Mail need to do here. That experience has got to be worth its weight in gold to an organisation like Royal Mail and best still, they won’t have to pay a penny for it!

What scares me are the rouge politicians who know little or nothing about Royal Mail, the challenges they face and the affect they can have on the future of postal services in this country. I can understand the union’s stance because their overriding concern is the security and welfare of their members and let’s be honest, the likelihood of further redundancies at Royal Mail is extremely high. It’s therefore no surprise to see the union opposing such a move. But why are the politicians opposing the sell-off? Trust seems to be the answer. They seem to think that the government has a hidden agenda to completely privatise Royal Mail and wash their hands of it altogether. This may be true but whatever your reasons for opposing the plans, you must have a viable alternative proposal and so far, I’ve yet to see one from the CWU or any of the politicians.

Having said that, I agree with an article on the Hellmail website which states that there are alternative solutions. The most striking proposal is a suggestion that if the government can remove the pension deficit once a third party investor comes in, why can’t they do it now and let Royal Mail stay as it is? This seems logical. After all, Royal Mail took a pension holiday for 13 years and saved £1.5bn. During the same period they paid the government £1.3bn in dividends. So it would seem that Royal Mail COULD pay their own way if left alone and at least this would free up cash to invest in the infrastructure whilst maintaining the pension.

If a sell-off does go through where could that leave postal deregulation? That’s the $64 million question and if only I had a crystal ball. Competition has firmly established itself in the UK and as a major postal customer, I have to be happy about that. But volumes are definitely shrinking faster than ever before and that decline is likely to continue for some time to come. There isn’t one operator out there who isn’t feeling the pinch and given the volumes they’ve lost to their competitors, I suspect Royal Mail is feeling it more than most.

There isn’t room for all the major players currently in the market. As far as publishing is concerned, neither UK Mail nor DHL have so far presented us with a cost effective alternative to Presstream whereas TNT and only TNT have. But my concern isn’t with the down stream access (DSA) operators as such but centres around the access price and regulation in general. Responsibility for postal regulation is being moved to Ofcom and this time next year, the current regulator, Postcomm, won’t exist. Royal Mail claim they can’t make any money from DSA mail yet it now accounts for a very large and growing percentage of the mail it delivers. The current price controls don’t allow it to raise the access price or charge its direct customers what it thinks it needs to.

The question I keep asking myself is what if the new regulator disagrees with the old one and decides the access prices have to increase to such an extent that TNT et al can no longer turn a profit? If that happens, they will most likely withdraw and we are back to the old monopolistic days.

Whatever happens, the future of postal services in the UK is far from clear. Perhaps not next year, but maybe the year after, we may start to get some answers and be able to form a view. Realistically I think volumes will continue to fall though not quite as fast as they have been over the last 12 months. That being the case, it’s almost certain that many of Royal Mail’s current competitors will withdraw from the market, and that is not good news for customers like us. The postal operators know that publishing is still a key market and given our focus on subscriptions and promotions, our importance to them is likely to increase further still.

Innovation

One thing is for certain, innovation is going to be the key to success and, as I detailed in my last article, it’s already started. Hybrid mail, sustainable mail, track and trace are just a few more examples of such innovation and I think there is more to come. Royal Mail only recently launched ‘The Matterbox’. Sadly I can’t pretend to know too much about it, but I’m starting to learn. Basically, Royal Mail are looking for ways of generating mail and ‘The Matterbox’ is one example of this strategy. As far as I can see, it can be used as a marketing tool by business and as a useful, entertaining product for consumers which you can tailor to your interests. As a medium which relies heavily on the post, I can see Royal Mail really pushing this at our industry and together with our marketers, they may well find a way of increasing mail volumes. Consumers register their details and interests on the website and periodically, Royal Mail send them a box containing samples, freebies, adverts and offers pertaining to the interests they registered. While researching this article, I visited the website and was so impressed by the possibilities of receiving something for nothing, I registered and am now awaiting my first Matterbox. God only knows if it will work or not but I certainly hope it does.

Sustainable mail

Sustainable mail is another such innovation. The idea is simple. Royal Mail apply an additional discount if the mail piece being posted meets their strict environmentally friendly criteria. Because publishing’s environmental credentials are relatively healthy, I can’t see that such a product would be of major interest to publishers, except perhaps those who rely heavily on direct mail to promote their products and services. Along a similar line is TNT’s ‘CarbonNeutral’ service. TNT will help you evaluate the carbon your planned campaign will generate, show you ways to reduce this carbon and offset the remainder by investing in a number of carbon saving schemes. Great, but I’m sorry to say another service I can’t see being of much use to publishing.

Hybrid mail

Hybrid mail is something I can see taking off with publishers but not for a good few years yet. As we all know, the digital revolution has opened so many doors we once believed it couldn’t. Mail is one such example. Hybrid mail combines digital printing with physical delivery. Instead of securing the services of a single printer to produce your mail piece, you employ the services of a network of digital printers strategically located close to the intended recipients. The mail is then injected directly into the post at a local level. Perhaps one day this might work for magazines and newspapers however until there are enough digital printers out there capable of printing a perfect bound magazine, it’s still a long way off.

The same can’t be said for the direct and transactional mail we produce. This product has been developed for exactly these mail types and judging by the increasing volumes hybrid mail accounts for, they seem to be making a noticeable impact.

Apart from the sudden entrance of Pitney Bowes last year, the one place I haven’t seen much change or innovation is with international mail services. Why not I wonder? It could be that the suppliers can’t see how or even why international services could or should change. In my general opinion, it’s always been that way as is evidenced by the distinct lack of new services coming onto the market. There is an outside chance that with such a large and aggressive new player in the market, the likes of DHL, Spring and Air Business may well find some way of adapting or enhancing their existing services but I doubt it. My view is that international mail services are likely to remain exactly as they are today and exactly as they have been for years.

All in all, the postal industry has mainly got good news for the publishing industry but there are serious threats we need to watch very closely if we are to avoid a return to the bad old days of monopolistic suppliers with stagnant services and rising prices.