Letter to Branches
No: 725/12 / Ref: / Date: 25th September 2012TO: ALL BRANCHES WITH POSTAL MEMBERS
Dear Colleague
Competition, Ofcom and the threat posed by TNT
Over recent weeks, in response to Annual Conference Emergency Motion 8, the Union has been pulling together information about the TNT London delivery trial and the wider threat posed by End to End competition.
As a result we have attached to this LTB a document summarising the existing trial, the potential impact should it be extended and the current position of the regulatory body Ofcom.
It is essential that all CWU Branches share this document with all our representatives to create a more informed debate and generally raise the profile of these issues with the membership.
The ongoing threat to jobs, terms and conditions and the Universal Service, that flows directly from liberalisation, including the potential growth of End to End competition, cannot be underestimated and effectively amounts to the work we do being privatised.
Through unfair competition TNT has already been able to take around 50% of Royal Mail’s bulk work and build key relationships with major customers. Although the current TNT delivery trail will not in itself have a major impact on Royal Mail’s volume and revenue, their stated plan to move to other big cities will give them a serious platform. The most obvious danger is that at some point TNT will switch their Downstream Access work to End to End.
Although recent regulatory changes have undoubtedly given Royal Mail greater freedom to compete, the onset of growing End to End competition has the potential to completely undermine the progress that has just been made. Currently, the regulator Ofcom is maintaining that TNT’s delivery trial does not involve sufficient volumes to threaten the USO. Unfortunately, this is a well trodden path for regulators. The danger is that TNT will simply grow their delivery operation and before Ofcom intervenes the damage will have already been done.
The content of this LTB is further evidence of the complex and unprecedented nature of the pressures being placed on our members and the company. Whilst the Union rightly continues to focus on privatisation, there can be no doubt that the overall impact of liberalisation, in a sector that is struggling to adapt to the demands of the digital age, represents the most immediate threat to the Universal Service and the future of the UK postal industry.
In response to these latest developments the Postal Executive has agreed the following course of action.
· A regular forum has now been established directly with Ofcom to enable the Union to gain a broader understanding of all regulatory issues. The CWU will also use this new forum to provide Ofcom with a greater understanding of the realities of a postal worker’s job and seek to influence policies that can sustain an economic, viable and socially responsible Universal service.
· The Union has also established a separate forum with Royal Mail’s own regulatory team. Again, this will enable a better understanding of detailed regulatory issues and their impact on the company and our members.
· The CWU will host a one day conference later this year for relevant Trade Unions who represent members across the wider Postal sector. The intention is to develop Trade Union policy that can improve the organisation, recruitment, pay and conditions of workers across the whole sector.
· A paper is being prepared to assess the pros and cons of a form of direct action by the Union in defence of the Universal Service, should End to End competition be allowed to grow unchecked.
· The Union will now develop a wider political position that will enable us to engage politicians on the issues of competition, as well as privatisation.
It is the intention of the Postal Executive to develop the aforementioned in conjunction with our overall approach to all the issues arising from the Postal Services Act. As such, the Executive has also been considering further documents on the government’s plans to privatise the Royal Mail Group and mutualise Post Office Limited. Further LTB’s will be issued this week to explain how we are taking forward Annual Conference policy and dealing with these issues.
In the meantime, Branches should ensure that the content of this LTB is widely circulated and debated.
Any enquiries on the above LTB should be addressed to the DGS (P) dept.
Yours sincerely
Dave Ward
Deputy General Secretary (P)
APPENDIX A - A SUMMARY OF TNT’S DELIVERY TRIAL
· TNT’s London delivery trial started in mid-April from 3 West London depots, covering W2-W14 postcodes, with around 50 postal staff. It was launched with a range of customers including British Gas, Thames Water, Maplin, RAC and Brent Council and involved up to 3 deliveries per week; in July TNT expanded into SW postcodes with a further 70 staff and opened a new delivery unit in Victoria.
· Recent analysis suggests TNT are delivering over 200,000 items per week – a small share of the market – and that anecdotal evidence suggests delivery performance is poor, with, for instance, mail being abandoned (the police investigated one case in which 1,400 letters had been discarded by delivery staff) or left in the lobbies of flats. We understand the feedback Royal Mail has received from customers about the trial and TNT’s proposals is also mixed.
· TNT has publicly declared its intention to extend operations to the City and Birmingham and for a national rollout – expected to cover around 40% of households – over the next five years. On its current plans TNT would operate deliveries over a six day week – three times a week to each home – with a target for 95% of mail to be delivered within 3 days. This is expected to involve walk-sequencing and include both unsorted and pre-sorted mail.
· TNT’s plans are a real threat to the universal service. TNT has made inroads through downstream access (DSA), reporting that it has 50% of the market, and claims to have a growing list of end-to-end customers including the NHS and Orange. Looking at its business model, once it has a larger geographical spread it will make commercial sense for TNT to switch its access customers to its delivery service (where available) which is likely to have a significant impact on Royal Mail – on TNT’s estimates its DSA mail accounts for around 20% of total addressed mail volumes in the UK. But even if TNT only wins business in a few areas this could have a dramatic effect on the economics of deliveries for Royal Mail at a local level.
· The Chief Executive of TNT has described deliveries as being of ‘huge importance’ to the company strategically and we believe TNT is heavily discounting prices to build its customer base. We understand that TNT is paying £7.10 per hour in London, and £6.50 per hour nationally, allowing it to price services cheaply; this compares with rates of £11.67 - £11.97 (inner London) and £9.30 - £9.54 (national) for Royal Mail (dependent on the rollout of the shorter working week).
· TNT has been publicising its plans claiming these will result in significant investment for the UK and create 20,000 new jobs and it is putting pressure on the government to remove the VAT exemption for Royal Mail on USO products to help facilitate this. The concern is that even without this change TNT, free from the universal service obligation, will have a competitive advantage being able to ‘cherry-pick’ where they deliver (estimates suggest that serving 40% of households could involve covering as little as 6.5% of the UK), the number of days they deliver on and what products they provide. Together with the 6-day USO, Royal Mail also has to meet regulated quality of service standards, which 725TNT is free from.
· Despite legitimate concerns, it is unclear how Ofcom will regulate this area. In July it published an update to its position on end-to-end competition following the launch of the trial, stating that, while it has a duty to secure the universal service, it would not intervene at this stage; this gives TNT a free-hand at the moment. Although Ofcom has said it will publish a consultation in the autumn on guidance to provide greater clarity on when regulation of deliveries may be necessary, and what restrictions this could place on TNT and other operators, there are real concerns that the level of evidence the regulator will require would only exist after it is too late to act to protect the USO.
· Ofcom is expected to launch a consultation in November about the universal postal service. It is likely to focus on current and future customer needs. This is in line with its obligations under section 30 of the Postal Services Act 2011 which requires the regulator to “carry out an assessment of the extent to which the market for the provision of postal services in the United Kingdom is meeting the reasonable needs of the users of those services” within 18 months of the Act vesting (by April 2013). The union will seek to engage fully in this consultation process.