Postal market growing, with competition still to gain momentum says Postcomm

The postal market in the UK has consistently grown and lower real prices, increased competition and product choice will encourage it to continue to do so, although not necessarily in its current form. Demand for direct mail services has grown much faster than for other mail, reflecting increased use of the post for advertising and marketing. And outside the area licensed by Postcomm, the fully competitive courier and express delivery market has grown even faster than the traditional letters market, the report says.

Since the introduction of limited competition in the licensed area, new operators have entered the market targeting niche services for business customers such as internal mail for financial services customers. So far this has made little impression on Royal Mail’s market share. Private operators accounted for only 0.27% of revenue in the licensed letter market in 2002/03.

Nonetheless, the introduction of competition, price controls and quality of service targets has provided incentives for Royal Mail to improve its performance. Royal Mail’s profits from Universal Service Obligation services were £78 million in 2002/03, a rise of £69 million from the previous year. Quality of service has also generally improved since 2000, although some services remain unsatisfactory, as does service performance in certain geographic areas.

Private operators face a number of legal and economic barriers to entry to the licensed market, the report says. These include Royal Mail’s exemption from VAT, preferential fast–track customs clearance for its overseas post, and parking and traffic privileges.* Royal Mail also benefits because it provides a universal postal service to every address in the UK.

In the period covered by the report, private firms had not been able to agree special access terms for Royal Mail postmen to deliver their mail the so-called “last mile.” However, in December 2003, UK Mail agreed Heads of Terms with Royal Mail on access to Royal Mail’s downstream network. It is hoped that this will open the way for UK Mail and other operators to enter the market.

The document, The UK Letters Market 2000-2003 - a Market Report, is published today on Postcomm’s website, www.postcomm.gov.uk and will shortly be available in printed form from Postcomm at Hercules House, 6 Hercules Road, London SE1 7DB. Comments are invited on the report by 12 April 2004.

*Postcomm today also published a consultation document which examines Royal Mail’s privileges. The document, Review of Royal Mail’s Special Privileges, and a press release, are on Postcomm’s website.

Notes for editors

Postcomm – the Postal Services Commission – is an independent regulator. It has been set up to further the interests of users of postal services. Postcomm’s main tasks are to:

Seek to ensure a universal postal service at an affordable uniform tariff

Further the interests of users wherever appropriate through competition

License postal operators

Control Royal Mail’s prices and quality of service

Give advice to government on the future of the post office network.

Postcomm’s policies are steered by a board of seven commissioners, headed by the chairman, Graham Corbett

More information

Chris Webb
Tel: 020 7593 2114
Mobile: 07779 635881
E-mail: chris.webb@psc.gov.uk.

Joseph Bonner
Tel: 020 7593 2116
Mobile 07773 329902
E-mail: joseph.bonner@psc.gov.uk