Full story: Royal Mail could save £650m by switching to three-day-a week service, says Ofcom
Alex Lawson
Royal Mail could save up to £650m if it delivered letters just three days a week and £200m by stopping Saturday deliveries, the communications regulator has said (see 6.52am).
The watchdog said a reduction from six to five days a week would save £100m to £200m, and going down to three days £400m to £650m, my colleague Alex Lawson reports.
In a much-anticipated review, Ofcom laid out a series of options for the future of the universal service obligation (USO), which requires Royal Mail to deliver nationwide, six days a week, for a fixed price.
The regulator began gathering evidence to show how the future of the service may be reformed to better suit consumers’ needs, amid a long-term decline in letter volumes and a surge in the number of parcels sent as online shopping has grown.
It has conducted consumer research and modelled Royal Mail’s finances in the review, and will seek views with a further update planned later this year.
Key events
Citizens Advice are calling for proposals to tackle the causes of Royal Mail’s “persistent failings”.
Morgan Wild, interim director of policy at Citizens Advice, says simply cutting services won’t automatically make deliveries more reliable:
“Given Royal Mail has failed to meet its targets for nearly half a decade, it’s clear the current Universal Service Obligation (USO) is falling short of its fundamental purpose: safeguarding consumers. Any changes must prioritise their needs, not Royal Mail’s bottom line.
“We agree that improving reliability is essential. Late post has real consequences – people miss vital medical appointments, legal documents and benefit decisions.
“Cutting services won’t automatically make letter deliveries more reliable, so we must see proposals to tackle the cause of Royal Mail’s persistent failings. Ofcom and the government have to spell out how any revised USO will start to deliver for the millions of us who rely on it.”
Shares in Royal Mail parent company IDS rise
Shares in International Distributions Services, Royal Mail’s parent company, rose by 1.8% at the start of trading in London, as traders digest Ofcom’s report into its USO.
CWU: three-day delivery service would “destroy” Royal Mail
The Communication Workers Union (CWU) have said a three-day delivery service would “destroy” Royal Mail.
CWU general secretary Dave Ward said the union could not support such a plan:
“We are not resistant to change, but we will not sign up to a three-day universal service obligation, which would destroy Royal Mail as we know and would impact on thousands of jobs.
“Royal Mail has the biggest fleet in the country, a presence in every community, and boasts and unrivalled infrastructure.
“This is the bedrock that a serious growth agenda, and the future of the company, can be built.”
Ofcom CEO Dame Melanie Dawes is on Radio 4’s Today Programme now, to discuss the regulator’s report into Royal Mail’s Universal Service Obligation.
Q: Why should politicians make Royal Mail’s job easier? They’re failing to meet their current targets, and have terrible industrial relations….
Dawes agrees that Royal Mail is not delivering. It needs to improve their quality of service.
But there’s also been a “huge shift” in the postal markets, with letter volumes falling and parcel demand rising.
We have to respond to that, Dawes says, otherwise the service becomes too expensive, or worse, unsustainable.
Q: Are you saying that Royal Mail could go bust if their obligations don’t change?
Dawes replies that Royal Mail is currently loss-making, and has a big transformation ahead.
She adds that Ofcom fined them £5.5m, just before Christmas, because of their poor service (missing delivery targets).
Dawes adds:
We will remain absolutely vigilient in making sure they deliver what they are supposed to do at the moment.
But the regulator is also identifying where change is needed in the future, and wants to have a debate about this.
Q: So, Royal Mail could scrap Saturday deliveries, and maybe other days as well?
Dawes says some other countries already have an every-other-day service.
But that needs to be combined with a really good overnight service, for deliveries that are urgent.
Dawes says she isn’t proposing a third class of service, on top of 1st and 2nd class – (implying, I think, that 1st class would be a guaranteed overnight delivery).
Post minister: We are committed to six-day service
Postal Affairs Minister Kevin Hollinrake said that Government was committed to a six-day service from the Royal Mail (as flagged earlier).
Speaking after Ofcom suggested letter delivery days could be cut to five, or even three, Hollinrake told Times Radio:
“The Prime Minister been very clear on this, six-day delivery is really important for many people in this country, many of our citizens, but also for many of our businesses.”
Questioned over whether the six-day model for letters remained sustainable, Hollinrake said:
“Royal Mail made significant profits in previous years. They’ve had a couple of difficult years not least because of some of the industrial action they’ve been subjected to. But nevertheless we are keen to see Royal Mail become more efficient.”
He added:
“I believe the Royal Mail can build a sustainable model. But that sustainable model must be based on a-six day service.”
The UK’s Communication Workers Union says Ofcom’s report into the Royal Mail’s Universal Service Obligation is “completely dead in the water”.
The CWU is planning to produce its own report on the future of Royal Mail:
CWU general secretary Dave Ward says:
“The response to the leaked information over the week showed that CWU members, the public and politicians are united against the deliberate, manufactured destruction of the postal service.
“In the ongoing debate, Ofcom now have no credibility whatsoever, and their views are an irrelevance to the discussion that must take place between postal workers, businesses and customers.
“To produce a report without any input whatsoever from frontline workers or their union is an attempt to railroad through the failed agenda of the previous Royal Mail management team.
“The CWU will not stand for that. We will now launch an extensive engagement exercise and produce our own report on the future of Royal Mail, taking on board the views of our members and customers.
“This will be a blueprint for a sustainable Royal Mail that can grow our economy and our communities.
Full story: Royal Mail could save £650m by switching to three-day-a week service, says Ofcom
Alex Lawson
Royal Mail could save up to £650m if it delivered letters just three days a week and £200m by stopping Saturday deliveries, the communications regulator has said (see 6.52am).
The watchdog said a reduction from six to five days a week would save £100m to £200m, and going down to three days £400m to £650m, my colleague Alex Lawson reports.
In a much-anticipated review, Ofcom laid out a series of options for the future of the universal service obligation (USO), which requires Royal Mail to deliver nationwide, six days a week, for a fixed price.
The regulator began gathering evidence to show how the future of the service may be reformed to better suit consumers’ needs, amid a long-term decline in letter volumes and a surge in the number of parcels sent as online shopping has grown.
It has conducted consumer research and modelled Royal Mail’s finances in the review, and will seek views with a further update planned later this year.
Ofcom want to hear your views to its suggestion that Royal Mail could deliver letters slower, or less often.
The regulator is inviting views from interested parties by 3 April 2024, to understand the potential impact on people and businesses.
This includes vulnerable people, those in rural and remote areas of the UK’s nations, as well as large organisations who use bulk mail services.
Ofcom will hold events around the country to discuss the evidence and options, and after considering feedback it will provide an update in the summer.
Ofcom CEO: USO is unsustainable if we don’t take action.
Dame Melanie Dawes, Ofcom’s chief executive, says:
“Postal workers are part of the fabric of our society and are critical to communities up and down the country. But we’re sending half as many letters as we did in 2011, and receiving many more parcels. The universal service hasn’t changed since then, it’s getting out of date and will become unsustainable if we don’t take action.
“So we’ve set out options for reform so there can be a national discussion about the future of universal post. In the meantime, we’re making sure prices will remain affordable by capping the price of Second Class stamps.”
Ofcom argues that most people’s needs could still be met if Royal Mail delivered letters less often.
Having conducted market research, it says:
Nine in 10 people (88%) say reliability is important for letter deliveries, compared to 58% for delivery on Saturdays (down from 63% in 2020).[7]
Most participants in our research were also open to reducing some services and standards – particularly for letters – in the interests of keeping prices down and only paying for what was required. Similarly, there was strong acknowledgement that most letters were not urgent, but people still needed to have a faster service available for the occasional urgent items, even if that meant paying a premium for it.
What about a possible subsidy for Royal Mail, as some other countries provide?
Ofcom reckons it’s preferable to change the specification of the universal service, rather than using taxpayer funds to maintain the existing levels of service and products.
Ultimately this is a decision for Government, it adds.
Ofcom: delivery targets should not be downgraded
Ofcom is also not proposing downgrading Royal Mail’s delivery targets – saying this is not an option for reform.
It adds:
In fact, it will be important to consider whether additional safeguards are necessary to ensure people’s needs are fully met. Any changes must improve existing levels of reliability.
Ofcom: Royal Mail could save £650m by cutting deliveries to 3 days a week.
Ofcom estimates that Royal Mail could achieve a net cost saving of £100m-£200m if letter deliveries were reduced to five days; and £400m-£650m if reduced to three days.
If the large majority of letters were delivered within three days, it could achieve net cost savings of £150m-£650m, the regulator adds.
Ofcom review released: “Universal postal service must modernise”
NEWSFLASH: Ofcom is calling for the UK’s universal postal service to modernise, as it publishes its review of Royal Mail’s universal service obligation (see opening post).
The regulator is inviting views on a range of options for redesigning the universal postal service to secure its future, while ensuring it reflects the way people use it.
Ofcom points out that letter volumes have halved since 2011.
And it says options for reform include changing letter delivery speed or the number of delivery days, as other countries have done, but not downgrading delivery targets.
That could include cutting letter deliveries to just three days a week!
Ofcom says it is proposing two primary options:
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Making changes to existing First and Second Class and business products so that most letters are delivered through a service taking up to three days or longer, with a next-day service still available for any urgent letters.
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Reducing the number of letter delivery days in the service from six to five or three. This would require Government and Parliament to change primary legislation.
Ofcom does not have the power to scrap Saturday letter deliveries, as the six-days-a-week service is part of the universal service requirement stipulated by law under the Postal Services Act 2011.
Changing the obligation would require primary legislation, and a vote by MPs in the Commons.
Ahead of Ofcom’s announcement, my colleague Alex Lawson has examined how other countries run their own postal operations:
IDS chair: Royal Mail’s universal service needs help to survive
The chair of Royal Mail’s parent company says its universal service “needs help to survive”.
Keith Williams, chairman of International Distributions Services, argues against “nostalgia for a bygone era” when assessing the future of Royal Mail.
Writing in The Times this morning, Williams says there needs to be an “honest conversation” about how to protect the one-price-goes-anywhere postal service.
He says:
The number of letters we deliver has fallen from 20 billion to 7 billion. We only deliver about four letters per address, per week.
This means we have to walk more than three times as far to deliver the same number of letters as we did before, increasing the cost per letter of each delivery.
Williams warns that Royal Mail is currently “stuck in a vicious spiral” – without reform of the regulatory system, or a subsidy – leading to “heavy losses and an unsustainable service”.
And on the possibility of Saturday letter deliveries being scrapped, Williams says there are other options…
He says:
There has been a lot of discussion about dropping letter deliveries on a Saturday, while retaining daily parcel deliveries, to tackle the problem of declining letter volumes and Royal Mail’s material financial losses.
The truth is there are a range of other options, including ways we can ensure a reliable service for time-critical mail such as hospital appointments and weekly magazines.
Introduction: Regulator to report on potential Royal Mail reforms
Good morning, and welcome to our rolling coverage of business, the financial market and the world economy.
Royal Mail’s future is in the spotlight today, with UK communications regulator Ofcom expected to release the findings of its review into its universal service obligation (USO).
Currently, Royal Mail is legally obliged to deliver letters six days a week and parcels five days a week, for a fixed price, something the postal operator insists is unaffordable.
Ofcom’s review will outline various options for the future of the USO, reflecting changes in the postal market as letter volumes fall, and parcel demand rises thanks to online shopping.
Possible changes to the legal requirements of the British postal service could include changing its first and second class delivery targets (which it has strugggled to hit), or higher stamp prices.
It’s also possible Ofcom could recomment changing the current six-day USO, paving the way for the axing of letter deliveries on a Saturday.
That should please Royal Mail’s parent company, International Distributions Services, which warned last week that the six-day USO was ‘simply not sustainable‘.
But that would be controversial, not least with prime minister Rishi Sunak.
Earlier this week, Sunak’s spokesman said the PM “will not countenance” scrapping postal deliveries on Saturday, as they provide “flexibility and convenience” for customers and are “important for businesses and particularly publishers”.
Ofcom itself has said its review will set out evidence and options on “how the universal postal service might need to evolve to more closely meet consumer needs”.
They added:
“We will be inviting views on this, not consulting on specific proposals.
“It would ultimately be for the UK government and parliament to determine whether any changes are needed to the minimum requirements of the universal service.”
The agenda
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7am: Ofcom expected to publish its review into the Royal Mail’s universal service
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9am GMT: Eurozone flash PMI report into company growth in January
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9.30am GMT: UK flash PMI report into company growth in January
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11am GMT: CBI industrial trends survey of UK manufacturing
