The Competitive Market

Overview

Since full market opening on 1 January 2006, postal competition and choice have been available to all UK businesses.   

As of December 2009, Postcomm had issued 35 licences to postal operators in addition to Royal Mail.

New operators have tended to enter the market through access agreements, targeting large regular mailers in order to build volume and customer relationships.

Having targeted many of the key high volume transactional mailers, access providers are beginning to explore the unsorted and hybrid mail markets by offering mail consolidation and sortation. A few access operators are continuing to invest in sorting equipment to expand their customer base by including smaller business customers and those that cannot or do not want to sort their own mail.  

Competition in downstream access may encourage operators to win volumes of downstream access traffic that they can eventually carry through their own end-to-end network. Up to now, end-to-end competition has been slow to develop, due mainly to the difficulty of competing with Royal Mail's economies of scale.  However, TNT Post has begun trials of its own delivery network in limited geographical areas.

Market size and Royal Mail’s share

• The UK addressed mail market was worth around £6 billion in 2008/2009 with overall mail volumes reducing by circa 10% against the same period in the previous year. 
• The reduction in mail volume may be attributed to a combination of e-mail substitution, recessionary environment and postal strikes that have had the effect of promoting the use of alternative media.
• The mix of mail delivered by Royal Mail has been changing - more packets, less letters.
• Royal Mail continues to operate a defacto monopoly for the final delivery of letter mail.
• For every £1 spent by customers on mail despatched through Downstream Access services circa 89p goes to Royal Mail for the final mile delivery.

Access Arrangements

• Royal Mail made 450 million access deliveries in December 2008 - a considerable growth over the previous year.
• Access deliveries have continued to grow throughout 2009.

The Make-up of the Market

•  Businesses generate 87% of mail in the UK market – mail sent from businesses to consumers accounts for 60%, with business to business mail making up 27%. 
• Domestic mail accounts for 13% of the market. Ten per cent is sent by consumers to other consumers and three per cent from consumers to businesses.

Mail Applications

• Royal Mail’s figures show a decline of around 7 per cent in overall direct mail volumes.
• It is estimated that transactional mail is declining by around 3 per cent a year.
• Fulfilment and publications are two potential growth areas in the mail market. E-retail is a key driver of fulfillment mail and predictions suggest that e-retail will continue to grow, according to IMRG UK shoppers spent £26.5 billion online in the first six months of 2008 despite the economic downturn,  Customer magazines have strong potential for growth in the publications sector, a customer magazine was launched for every working day of 2007,  (For more information on the mail market, see Postcomm's series of downloadable factsheets.)

Royal Mail’s Service Quality

• Royal Mail's quality of service data continues to report high levels of "on time" delivery across key services
• Cumulative quality of service has been badly effected by industrial action in quarter 4 of the 2009 calendar year.
• PostalAudits operates a quality of service research programme on behalf of its clients through sister company PostalMetrics.
• PostalMetrics omnibus data shows a shortfall in end to end quality of service against both Royal Mail's published figures and against figures published by downstream access suppliers.

Competition

• Postcomm is continuing to issue licences to new postal operators looking to compete with Royal Mail. In December 2009 there were 36 licensed operators including Royal Mail.
• New operators have tended to enter the market through access agreements, targeting larger mailers in order to build volume and customer relationships. Those access providers are now beginning to explore the unsorted mail market, by offering mail consolidation and sortation to customers with smaller daily volumes of mail.
• At present delivery competition operates mainly in niche markets, and the volume of licensed area mail delivered by alternative operators fell by 15 per cent to 26 million items in 2007/08. However Postcomm is aware of delivery networks being set up by established and new operators.

VAT

• Postcomm has consistently taken the position that there should be a level playing field regarding VAT for all postal operators. The European Court of Justice has considered a change to the UK’s current VAT position brought by TNT Post and its decision paves the way to a wider range of postal services attracting VAT - possibly beginning in the 2011 calendar year.
• In the interim, a number of major financial services mailers have been able to mitigate much of the existing VAT exposure through using Agency Agreements in conjunction with Downstream Access services.