Thursday 11 July 2013

Post Office: Privatisation and Doctrinaire Politics

Privatisations are an interesting phenomenon.  The first handful of big British public asset sales in the early 1980's were for simple reasons: Amersham (because it didn't really have any reason for being in public ownership); British Steel (because it was horribly loss-making).  Rolls Royce and the government's stake in BP followed for simple revenue-raising reasons.

But British Gas, and the even bigger flotation of the various electricity companies, were different.  Rationale became how (a) mass share ownership could beneficially become as much a part of British politico-economic culture as mass home ownership, and (b) stripping monopolies of their privileges, privatising them and forcing them to compete, would bring significant efficiencies to the economy.

I'm interested in two related aspects of these aims:
  • they are essentially doctrinaire, in an era when political doctrine (as it would have been understood in, say, the 1930's) has been on the wane
  • there was no absolutely groundswell of pressure for taking these measures - not even from business, still less from voters
Of course, Joe Public got the taste for under-priced (or even free) share issues, and started looking forward to the next stagging opportunity.  And business got the idea too.

Some of these exercises have worked well.  I am a strong proponent of privatising and liberalising energy monopolies and will argue all day that they have achieved excellent results, mostly in category (b) above (whatever baleful effects subsequent regulatory botch-jobs have brought about): I'm not so sure about (a).

But, though no expert on railways, I have to believe that one was badly cocked up.

So - what do we reckon about the PO ?



Anonymous said...

Are we talking about the Post Office which so far has no plans of being privatised, or about Royal Mail? Everyone seems to be getting this mixed up.

Royal Mail - definitely needs modernisation which I think is why they keep banging on about access to private capital. Their IT is especially terrible. They could go all out with GPS and QR codes and pay the postmen more.

I'm amazed that even after privatisation they will be expected to maintain the universal service. I can see the arguments for it, but with DSA on top it's a ridiculous burden.

Yet every country does need a flag carrier default postal service...

Post Office - what exactly is it for these days? Put a kiosk in the local Spar.

I'm kind of confused by the growth of businesses like Collect+ where you can have packages delivered to a store that you can collect from after work. I never thought something like that would be popular and yet it is. The Post Office should have been on this trick 10 years ago.

Anonymous said...

And where has the Pension Fund gone to?

So HNG took the assets and the "black hole" then assumed the liabilities of an organisation they intended to sell.

Another Boy George master stroke. At this rate he'll make Balls look a genius.

Bill Quango MP said...

Anon : i have Rm and Po as clients so...

IF the Blair government hadn't privatised the mails BEFORE privatising royal mail he would have allowed a BA/BT type privatisiation that would have been to all of our benefits. Royal mail would have had the infrastructure and the cash to get its systems {yes the I.T. is woeful.' Yes they are addressing it but its slow} up to speed.

BA was given the landing slots worth 200 times their area in gold bullion.
BT was give the phone lines, worth their length in copper.

Royal mail was stripped of its business revenues but forced to take on the couriers unprofitable cargo at a loss to themselves. Beneficial for the big posters, Amazon and such, very expensive for the likes of you and me. Postage costs for about 20% of users rose 100% THIS APRIL - Before privatisation. A staggering and effectively business ending hike. royal mail volumes have fallen terribly since April. They are a long way down on April 2012 which was a pretty poor year. Its only going to get worse.

Post office has also been hit by the hike in mails prices to where its almost not worth posting something back or to someone. A small parcel is still ok at £2.50 odd. but a pair of ordinary shoes would cost £5.+ to post. So post office has lost government work, mails business, and DVLA business has been cut and faces competition from couriers.
nothing good there.

the loss to u and me is that the idea of click and collect + is great but all these business make huge losses. Post office losses money on this business. The rates paid are pitiful.

the idea sounds good but if you consider what it costs to even man a kiosk in a shop - £6ph + N.I of 11% means a parcel generating 10p a parcel
needs 60 parcels per hour to make a small loss. the average is more like 3 parcels / hour. Even at £3{which we would have to pay on collection} its a loser. And that space in a Spar could be better used for biscuits or dog food.
Taking/giving parcels is {again by retail standards} time consuming / space consuming- business.
A clerk can't 'go out the back' to search for a packet. They need cover.

At present Post office takes the hit, but it gets a subsidy payment from the government that partially offsets this loss. Collect + is coming to the Post Office this or next month and very welcome too. The internet revolution will halt when we have to pay for delivery on top of postage.
But Post office's own model for the future is independent convenience stores doing a bit of post work.

Quite how they expect independent convenience stores to still be in business once a TESCO metro opens up isn't ever mentioned. TESCO/SAINSBURYS etc have all experimented with either being a post office or being a collection point. They just about manage the collection collect+ type business. but have no interest in the posting one.

So without post office it will be a requirement of booking a courier to post anything at all larger than a letter. Not a terrible imposition.Certainly no bother for business.
But pretty unnecessary and oddly for this century a step that will make doing something less convenient, less speedy and probably less reliable.

And it will become more expensive. No question . This year alone big rises from all of the couriers with more to come.

Bill Quango MP said...

PO gets £200 million to stay open. As Subsidy go that's bugger all. Less than 1/2 the Annual MP's payrise.
In public sector terms its laughable.
The BBC is in the Billions.
The energy companies..If we asked Mr drew how far £200 mil goes in windfarms?
And of that £200 million an undisclosed secret sum {hint-its the bulk of the figure} goes on the 270 loss making government owned and run main Post offices, who are all set to be sold/privatised to make them like the other 10,000 agency franchise offices in the UK.

For what it costs us we should have left the whole thing alone. Its cheap. taking the black hole pension from royal mail means it has a good chance of making profits in the future {current 'record profits' seem to be missing a load of figures- Someone is going to get a bill for 10,000 vans}

For that you get an office for collection or delivery within 3 miles of your house, open 6 days a week.
if the government had made good on its banking commitment {also made by lab and lib also reneged} to make the PO a local bank it would have been in profit whilst giving the government a real way of keeping banks in rural/remote areas open, and retaining the universal service without excessive costs to consumer or taxpayer.
. For metro types it might seem strange but in the country there is no choice of banking. You would be lucky to have a choice of more than 1 brand within 5 miles.Sometimes not even 1.

Electro-Kevin said...

Anon pipped me to it.

Rail privatisation should have been regionalised along the lines of the pre BR big four rather than broken up into a myriad of franchises.

As it happens I believe BR was on the cusp of coming good close to privatisation. A real shame.

Oh well. At least there are a lot more graduates on platforms, working as guards/drivers... so common in fact as to be nothing special anymore.

Budgie said...

Not mentioning the EU's role in this (RM & PO) seems a little bit derelict.

Anonymous said...


The dimension changes that caused the huge price increases for some people didn't apply to RM business users. Business users only suffered a <10% rise + 2.5% fuel surcharge. RM also lowered the requirements to open a business account. If somebody still doesn't meet the requirements for a business account then they probably aren't VAT registered and should have plenty spare overhead anyway.

So it seems like RM might be trying to cut out the PO. If all the effected eBay sellers have started printing PPI mail but don't pay for RM collections then POs will be accepting (and "expected" to inspect) a big increase in mail that they don't even get paid for. PPI is probably worse to the PO than DSA is to RM.

Has there really been big price increases all round? It seems like this year what we're mostly seeing is the continued removal of lower weight bands. RM is only really competitive domestically on packages <2kg so where are they going to go once they eliminate the remaining bands?

My fantasy would be for RM to offer discounts on well labelled packages rather than merely volume. So if you can print a clear barcoded (QR code could hold more) label that RM can machine sort you will get discounted postage. People would be encouraged by the discount and maybe ten years later you could make all mail require a barcode (and your PO kiosk is then also self service).

The problem with my fantasy is that I have the current RM label specs and I can see that practically all mail I receive isn't labelled properly, and our drivers say that only we and Jaguar in our area print valid labels. RM needs to get stricter and start rejecting invalid mail otherwise it's garbage in, garbage out.

Elby the Beserk said...

I used to frequently print my postage labels - till the local PO told me I was helping tp put them out of business. So I stopped.

Nick Drew said...

Bill's point about the various dowries that other privatised entities received seems pivotal to me

(we can add: BG got its de facto monopoly intact: the first competitive sale of gas didn't take place for 4 years (sic) after privatisation, and serious competition didn't get going for another 4 years after that - plenty of time for BG to adjust

the regional electricity companies (distribution & sales: Manweb, LEB, Seeboard et al) even got to keep their de jure monopoly over residential customers ! [though not over industrials] for several years - again, buying them vital time - as well as being the financial underpinning for the first dash-for-gas

and of course they got their distribution-wire networks

the electricity generating companies got their portfolios of power stations! and the Grid got ... the grid!)

there is another post in this, I feel (blogpost, that is ...)

Phil said...

@Elby Yeah, there's huge tension in the RM corporate structure between the central sorting / delivery system and the post offices themselves.

The different groups are often pulling in different directions.

If I sell something on eBay & print a delivery label, that's great for the PO, because they get a properly addressed package with a machine readable QR code on it. But it's terrible for the local PO who has to handle it, because they don't earn a penny but have to take them.

Bill Quango MP said...

Anon: 100% correct on PPI. It used to be a customer needed some £25,000 of mail business to qualify for PPi. Now its a very low amount. About 5 parcels a day will be sufficient. Any slightly above casual ebayer will do that.

PO, once the mutualisation begins will refuse PPI. They always, always should have. I may be wrong, but Subbies assure me that post office limited receive a PPI handling payment from Royal Mail that they do not pass on to the sub post offices who must do the work for free.

Once subbies and union members are on the board that work being done for nothing will stop. Poses a problem for RM who will have built their business on discounting mail that they collect from a central point but now have to collect from each business.

And it will probably be too late for PO anyway. The volume falls are quite incredible. By the time the JL model is set up many will have packed it in and the network won't be large enough to sustain its cash business or bid against Paypoint etc for bills and licensing.

{for those who don't know PPI is mail that a business operates printing labels and putting packets in bags that Royal mail collects or the user delivers to a post office. Its heavily discounted.
Royal Mail has stolen post office's business clients leaving them with casuals. And there aren't nearly enough of them to sustain Post offices. A single, ordinary sized home shopping-ebay business customer turns an office from loss to profit.
Post office management had long underestimated the amount of small business customers they had. Only now are they very belatedly trying a system where the customer doesn't need to stand in the queue all day posting but drops parcels off at their own convenience and the POST OFFICE does the work in their own time -- you any normal service based, customer focused business would *exasperated face*.

- Something as a consultant we showed them about 5 years ago and which they replied - "yeah we've seen something like this before , about five years ago.."

10 years later and they are just getting around to it having hemorrhaged all that business over all that time.

Bill Quango MP said...

And - just a thought, its not all rosy for royal mail. They too HAVE to take and deliver competitors mail. Usually the final mile bit that costs the most to do, is labour intensive and earns the least.

The RM strike ballot is suggesting members do not deliver competitors mail. That is a good strategy. Give the mail back to TNT or whoever.
I expect the strike will be highly illegal. But who knows..thee is always the ECHR to fall back on..

Anonymous said...


Downstream Access (DSA) is what they call the final mile thing. From what I understand RM does get paid but has been charging too little and may hike prices, not to mention that the staff completely resents DSA. Apparently RM has gotten rid of most of its letter sorting facilities and the letters that do come through DSA is mostly spam. You have to wonder what the point is?

Most of the other final mile providers are either very expensive couriers or dire part timers. RM still has a good monopoly here.

RM collections are free if spend is >£15k a year otherwise £775 a year (something like £3 a work day). Very competitive if sending >5 packages a day and could be cheaper in the future if the PO refuses PPI and everyone has to setup a collection.

There's a lot of freebies that RM offer that people don't take into account: free redelivery attempts, free returns, local collection from PO, etc. I bet these might go after privatisation, especially if they have a fall out with the PO.

Not to mention that RM still have the large letter format (25mm thickness) that is drastically cheaper than any competitors who only offer a single parcel format. Great for DVDs etc.

If they continue to increase prices at 10% a year then I hope they also continue to open up their services like Packetsort to lower volumes. RM's COSS system is massively outdated but easy to implement if you can get them to send you the damn documentation, which they seem very reluctant to give away to small businesses who they believe should stick to the even more outdated Online Business Account (OBA).

I don't think they will be able to get rid of the universal service for business accounts until they completely update COSS/OBA/etc which could have massive backwards compatibility problems. How long did it take them to phase out E*Pro? It was discontinued in 2007 but OBA was launched in 2001? 6 years? E*Pro was before my time.

Wrinkled Weasel said...

It occurred to me the other day that years ago, you used to see sacks of mail being loaded on to trains. (Smacks head with palm of hand) Oh, yes, what about the Great Train Robbery?

I don't know what proportion of mail goes by train, but I have not seen the sacks for years.

~I suppose my point (unfettered by any deep understanding of the intricate facts) is that one could argue for the political will to re-introduce mail to the railways.

Blue Eyes said...

I think as others have said that selling it off is ten or twenty years too late. The reforms to keep the Mail competitive should have been done before, and it's not probably too late to save the business model. Where I work has been hit by the price rises so guess what? We are now only sending physical letters when the hard copy is strictly needed. We probably should have made that switch before, but the price rises and slump in reliability have forced the change on us.

When things are urgent we pay the £30 to get DHL because we can't trust the Mail to delivery it. I sent some documents by "signed for" to the States the other week and the client emailed us more than a week later to ask where they were. I tracked them and found them at JFK airport. After more than a week. FFS.

The Mail and Post Office together could have modernised and thrived. Maybe they still can. But because successive governments have kowtowed to the CWU and commentariat it's probably too late.

Anonymous said...

Airmail really depends on where it's going. RM's quoted times don't include time stuck in customs or delivery to remote locations. RM will usually hand over the package to the foreign country within 1-2 days but what happens after that is out of their control. The US and Russia will often hold stuff in customs for days whereas Japan rarely holds stuff for more than a few hours (regular Airmail and International Signed For often only take 2-3 business days to Japan, it's crazy fast for such a low price).

Express Mail Service (EMS, but it's also called many different things in each country) is what you have to pay for if you want a package to get through customs quickly and that's why it costs ten times more. RM doesn't offer an EMS service and you'd have to go to Parcelforce (RM's Airsure is "priority" not "express", but some countries such as Finland do seem to handle it as express).

Will Parcelforce and RM remerge after privatisation? It's pretty weird having your product tiers split across multiple companies.

Bill Quango MP said...

Also if you express something with Parcelforce they only send it courier themselves. Usually DHL.

The super fast services DHL/UPS/Parcelforce services are so quick 1-2 days to Japan/USA because they do customs on the plane over.

Next time BE,
If you do global priority or equivalent service you get an actual arrival time. It's expensive. £60 a letter and China is virtually excluded, but you can track all the way.

And - if you post global priority or global express( I forget which is which) through a post office their system notifies Parclforce to come and collect immediately.
No waiting!

One other thing ! On Monday EU regulations on what can and cannot be posted come into force.

Paint, aerosols, spirits, weapons are all out.
And, sadly, so are cigarette lighters. Total ban.
. One of BQ industries best selling lines was the 24 pack of lighters. And a tin matchbook sold in enough numbers to warrant warehouse shelf space for online.

Thank you EU!!

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