Saturday 11 September 2010

Royal Mail or sale.

The government announced plans for a sale of Royal Mail, the fifth time such plans have been seriously considered since the parliament of 1987. Without seeing the details of the sale/privatisation or split then its hard to see how successful they will be. Peter Mandelson's part privatisation never really got off the ground. I'm sure labour rebels MPs would like to think that their rumblings of discontent scuppered the deal, but in fact was lack of a buyer. TNT never made a serious offer, and no one else bid at all.

This time round there may some more interest, but many mail firms are struggling. TNT itself made a second 1/4 profit in 2010 of 3 million euros. A long way down from the 81 million Euro profit of 2009. They have also announced
a separation of their postal arms, prompting talk of a part sale to rivals. TNT had many problems in 2009 similar to Royal Mail. Labour contracts, falling volumes, problems with the Dutch regulator over their performance and the loss of some subcontractors too.

Is privatisation a good thing anyway? The pension would have to go onto the governments debt books. An extra £10 or £11 billion that would hardly be welcome. But as the Hooper report makes clear, something has to be done about it. It is the government's own debt after all. They are the single shareholder. And with declining mail volumes RM is never going to be able to pay it off itself.
But if the government removed the debt of the pension servicing from Royal Mail, would they need the 'private investment' at all?

I expect politically the government will insist on privatisation and so remove a source of funding for its enemies and a major industrial relations irritant for its voters. [CWU is a Labour funder and has the worst strike record in the UK] { a claim which is a bit dubious- they had long strike periods as opposed to Bob Crow's fortnightly daily walkouts}. Politically the Coalition probably has enough support. Vince Cable introduced it and Ed Davey is the Post Office minister, both senior lib dems. And the part privatisation/co-op style split + Post Office in the public sector is a Lib Dem idea that was in their manifesto.


Budgie said...

Hmmm ... no mention of the EU in all this? Rapped knuckles and stand in the corner, BQ.

Or you could read this from Brian Smalley:

Bill Quango MP said...

You are right about EU postal regulation being an EU law.
The tragedy was that UK went early, without strengthening its own operator first. When BA was privatised they were given the lucrative landing slots. BT was given all of the phonelines as sole operator.
RM was given zip, and actually had to allow its competitors to use its own delivery network, even though they don't make a profit from this.

The rest of EU have not embraced Postal reforms. German government even went as far as to try and introduce a post worker only minimum wage, so competitors to their carrier couldn't undercut.

Edindie said...

I don't understand how privatising RM or at least running it like a normal business wouldn’t make a profit. There will always be a demand for a national postal network, I would imagine the demand for this service is pretty inelastic. I mean, when I want to send someone a physical letter, paying 60p to do this as opposed to 30p isn’t going to deter me (and savings on internet purchases mean parcels are always affordable too). Some businesses and advertisers would obviously have issues, but I get so much unwanted crap through my door, I’m not sure this would be a bad thing….

Bill Quango MP said...

Edindie: The crap through the door pays for the domestic service, or some of it. Without it its near impossible to carry out the universal once a day, one price, next day delivery to anywhere in the uk.
Business post is the lucrative post. This has already been heavily cherry picked by RM competitors.
RM has to offer a discount to its rivals that allows them to collect from a business, cheaper than RM can as the competitor does not have to deliver to every home in the UK. In fact it doesn't have to deliver to any home.
All it has to do is pick up from a fixed destination and deliver to royal Mail who HAVE to deliver the mail at a discount. The discount is how the competitor can undercut RM in the first place. Its clearly an absurd situation that OFCOM does not think is a problem in anyway.

The cost is the USO. Any mail carrier having to operate that is facing huge staffing costs. The final mile is the labour intensive bit. Many postal operators in other countries have tried to get it amended. Mon-Fri, or every 2nd day, not Sundays. Only city mail delivered to the door, rural to a collection point, and so on.

Hooper says the USO is essential and must stay, though why a delivery on a Saturday must remain, assuming a collection point is available for people who want to, is a mystery.
scrapping Saturday delivery saves RM employing 1/5 of its workforce.

James Higham said...

It is clearly selling off debt and staffing troubles, not to mention overheads of all sorts. This will come back to us more quickly.

Bill Quango MP said...

JH: And the banks have warned they won't lend to any potential investor if the OFCOM regs stay as they are. Banks don't want to find out someone's bought a crock with their {our} money.