Ofcom presents option for three-day Royal Mail delivery service

Communications regulator Ofcom has today [24 January] published a document entitled ‘The future of the universal postal service’ in which it sets out options for redesigning the universal service obligation (USO), including ‘reducing the number of delivery days offered from the existing six-day-a-week obligation down to five or three days’.

This follows the news earlier in the week that Rishi Sunak “would not countenance” the scrapping of Saturday postal deliveries, according to a spokesperson for the prime minister.

The Downing Street spokesperson explained: “The PM’s strong view is that Saturday deliveries provide flexibility and convenience. They are important for businesses and particularly publishers. The prime minister would not countenance seeing Saturday deliveries scrapped.”

Ofcom is calling for ‘national debate on future of UK’s postal service’, based on its findings that letter volumes have halved from 2011/12 to 2022/23, from around 14 billion to 7bn. The document also notes that ‘the rate of decline has recently accelerated’.

The increase in parcel volumes, on the other hand, as a result of the rise in popularity of e-commerce has meant that ‘parcels are increasingly important to people’s daily lives and expectations of delivery service levels and product features have risen accordingly’. Parcel volumes have reportedly increased by one billion in the space of four years, from 2.6bn in 2018/19 to 3.6bn in 2022/23.

In addition to the aforementioned shift in letter and parcel volumes, the document identifies another reason for an evaluation of the USO. Ofcom’s evidence ‘indicates an increasing risk of the current obligations becoming unsustainable both financially and operationally’, with the regular estimating that the net cost of the USO to Royal Mail was between £325 million and £675m in 2022.

Dame Melanie Dawes, Ofcom’s CEO, said: “Postal workers are part of the fabric of our society and are critical to communities up and down the country. But we’re sending half as many letters as we did in 2011, and receiving many more parcels. The universal service hasn’t changed since then, it’s getting out of date and will become unsustainable if we don’t take action.

“So we’ve set out options for reform so there can be a national discussion about the future of universal post. In the meantime, we’re making sure prices will remain affordable by capping the price of Second Class stamps.”

Ofcom has set out two primary options for reforming the USO. The first is reducing the number of delivery days in the postal service from its current six-day structure to a five-day, or even three-day, structure. Dropping to five delivery days per week would likely see Saturdays scrapped, with Royal Mail going forward operating a Monday to Friday postal service.

It is assumed that should this be implemented, ‘Royal Mail’s parcel delivery requirements would remain unchanged at five days per week for collections and deliveries, but that it would continue to deliver USO parcels and Special Delivery items on Saturdays commercially’.

The regulatory body estimates that moving to a five-day-per-week delivery service would save £150-200m in costs and incur up to £50 million in revenue losses, resulting in an annual net cost saving of £100-200m. Meanwhile, it estimates that a three-day structure would lead to a £400 million annual net cost saving, with a potential cost saving of £550-700m and revenue losses of £50-150m.

However, Ofcom notes that ‘a reduction of delivery days below five would make the delivery speed of Royal Mail’s current First Class product unachievable’.

The second option identified in Ofcom’s report centres around changes to delivery speeds for letters. Different ways of doing this are presented in the document. One way would be to ‘move the overwhelming majority of letters that are currently sent using First Class to Second Class’, either by removing the obligation to provide a priority option outlined in the current USO or by Royal Mail positioning First Class closer to Special Delivery and increasing its price to encourage more consumers to default to the standard service.

Another way of making this change would be maintaining the two classes mostly in their current state, but lowering the delivery speed of both. Also mentioned in the document is the approach adopted in 2023 by French postal service La Poste, which replaced its traditional priority service with a priority e-letter service. This works by customers uploading letters or documents online or at a post office, which are then printed out at a local delivery office and delivered by postal workers the next working day. Ofcom notes that due to the recency of the implementation, the implications of making this change are ‘unclear’.

As part of its review, Ofcom conducted research into consumer’s priorities when it comes to mail. It found that affordability was the main concern for consumers (91%), followed by reliability (88%). Monday to Friday deliveries were considered important by 79% of respondents, with a 6-day-per-week delivery service (63%) and Saturday deliveries (58%) seen as less of a priority.

In comparison with the results of Ofcom’s survey in 2020, the percentage of respondents prioritising affordability and reliability has increased by 1% for each, while 2% fewer felt Monday to Friday deliveries were important and 1% fewer viewed 6-day-per-week deliveries and Saturday deliveries as important.

The document also assesses the impact of reducing Royal Mail’s Quality of Service targets, subsidising the current USO and providing additional support for those who are vulnerable and/or are more reliant on post.

Ofcom acknowledges that ‘changing the specification of the USO would take some time and come at a cost to Royal Mail as it would need to restructure its operations’.

In an interview following Ofcom’s announcement about ‘The future of the universal postal service’, general secretary of the Communication Workers Union (CWU) Dave Ward described the report as “dead in the water as a serious and credible vehicle for change”, repeating his frustrations about the lack of consultation with the union and its members prior to the documents release.

Source: logisticsmanager.com