It’s time for a genuine free market in the postal sector
As with previous partial privatisations, the government moved a quasi-monopoly industry into the private sector – yet key elements of the former system remain in place.
Royal Mail maintains requirements to collect and deliver throughout the UK six days a week – and the company is regulated to ensure it does so. Competitors wishing to provide an alternative letter delivery service must apply for a licence. Regulators also have powers to control prices and access to the Royal Mail network.
In the years that have followed, letter volumes have fallen dramatically, continuing a trend underway prior to privatisation. Since 2005-06, volumes in this market have dropped by more than 25 per cent, thanks to growing email use, initiatives like online bill payment and new regulations like GDPR. We are already at a point where very few residential addresses receive mail every day of the week.
Royal Mail has, for the most part, been able to replace lost letter business with additional uptake in the burgeoning parcels market. Here, unlike traditional post, consumers benefit from open, fierce competition between delivery firms.
However, still largely led by a senior management team used to operating in the public sector, Royal Mail has been slow to adapt to new realities. Earlier this year, the service lost an important Amazon contract when the logistics giant opted to set up its own home delivery service rather than depend on Royal Mail. Amazon also provides several key services Royal Mail does not, like Sunday post and automatic redelivery if the customer is out.
Royal Mail executives have stated they want the service to move towards being a parcels company that also delivers letters.
Now would be an opportune time to let them do that – but ideally in a free market, which allows competitors and new entrants to flourish as well.
How could we create a genuine free market in post and parcels? Having worked in the sector for over 25 years, I would recommend the following measures:
First, the government should immediately reduce Royal Mail’s Universal Service Obligation from six days to five, with a phased reduction over a period of time leading to its eventual abolition. Premium services like special delivery could then be made available seven days a week. The seven-day premium delivery service would give posters the new option of next day delivery for any important items. This would mirror steps taken by the Dutch Postal Operator as a result of similar falls in letter volumes.
There should also be complete freedom for any potential competitors who want to enter the home letter delivery field without having to get permission from the state regulator. By forcing Royal Mail to compete on a level playing field, this would drive up quality, bring down costs and increase consumer choice.
Secondly, Royal Mail should have the freedom to fix its own prices for all products – including first and second-class mail. Combined with the above measures, this would help create a competitive pricing environment. All available evidence suggests this would keep prices down, and could lead to a more simplified pricing setup, for example, by introducing one category of standard letter delivery.
Thirdly, individuals and companies posting items in bulk should be able to access the Royal Mail network at individual delivery offices, instead of being restricted to just 38 mail centres, as is currently the case. Such measures hamper trade and there seems very little justification for them beyond the regulators’ misguided desire to protect Royal Mail. Access to delivery offices would allow business customers to present their mailings via the Royal Mail network at the ‘final mile’, i.e. at the location where it is to be delivered.
The above steps would reduce and eventually eliminate the role of the regulator from postal services, saving the hard-pressed taxpayer money.
Free markets are good news for consumers, as we have already seen in the competitive parcel market, which has forced Royal Mail to adapt. Sadly, they have yet to do the same in letters.
There has never been a better time to start really modernising the UK postal sector along free market lines. Such an approach would be infinitely preferable to the current state of play – namely, a private monopoly shielded by a state regulator.