Royal Mail Set to increase Rates 11%

Royal Mail to transform bulk mail services, with prices to rise 11%

Wednesday, February 22nd, 2012

Royal Mail is preparing to launch the biggest ever overhaul of its bulk mail services since they were first introduced, simplifying its portfolio into just five distinct products.

The new-look products are being introduced from 2nd April, alongside an average 11% increase in postal rates for Royal Mail business services.
The new products are being called Advertising Mail, Sustainable Advertising Mail, Publishing Mail, Business Mail 1st Class and Business Mail. Within the simplified products, bulk mail customers will be able to select various options to “fine-tune” the services to their own specific needs.
As well as renaming the services, Royal Mail said it is simplifying sortation requirements and is also looking to speed up delivery. Second class sorted items that had been delivered within three days will be delivered within two days under the new system, while economy options will be delivered in four days.
The UK postal operator said the new line-up would make its bulk mail services easier to use and “even more relevant to businesses today”.
Royal Mail told Post&Parcel today that it was implementing the changes to respond to the changes within the postal market in recent years, and as part of its overall modernisation effort.
Spokesman James Eadie said: “We’re launching the biggest improvement to our contract mail products since they were first introduced. There have been various changes in the market, so we’re changing the portfolio really to make it more accessible, simpler to understand and easier to use.”
Royal Mail’s 350-year monopoly on the UK mail market came to an end at the start of 2006, and since then it has lost considerable market share to private sector rivals, with Postcomm figures suggesting that competitors had a 38% share of the upstream bulk mail market in 2010, although Royal Mail still accounts for more than 99% of end-to-end mail deliveries.

Improvements

Among the key changes being made to Royal Mail’s bulk mail services, the company is opening up its Advertising Mail product to smaller businesses or large businesses running smaller advertising campaigns by adding new unsorted options requiring no sorting or address preparation.
To further open up access to a wider range of customers, Royal Mail is lowering its entry thresholds for sorted products to 4,000 letters or 1,000 large letters/packets.
New mail formats are being introduced for most of the new bulk mail services to include new options for large letters that can be read by optical (OCR) scanners for both unsorted and sorted options, including the option to use polywrap around items, and a new packet format for creative direct mail in the Advertising Mail service.
The new service portfolio includes:
Advertising Mail – The new direct marketing service brings together the Advertising Mail 70, 120 and 1400 products with Mailmedia products, Advertising Mail Light, Big Book and Royal Mail Heavyweight products. For sorted mail, options are simplified into Low Sort and High Sort, while three new options are being introduced for unsorted mail – standard, machine-readable and a machine-readable “plus” option. There will also be options within Advertising Mail tailored to reply mail and heavier items.
Sustainable Advertising Mail – The sustainable version of Royal Mail’s direct marketing service complies with the PAS 2020 environmental standards for direct marketing, bringing together all the old Sustainable Mail products under Entry Level or Intermediate Levels including Low Sort or High Sort options.
Publishing Mail – The category for mail that includes at least one sixth editorial content, published at least twice a year, brings together the old Presstream products under Low Sort or High Sort options, with high-volume and premium options available.
Business Mail 1st Class – The service for critical or time-sensitive bulk mail offers rapid delivery but with simplified unsorted, Low Sort and High Sort options and new large letter formats.
Business Mail – For all other bulk mail including bills, statements and other non-publishing or non-advertising items, similar speed improvements, simplified sort options and new formats will be introduced as in the other new bulk mail services. Together with the Business Mail 1st Class category, Business Mail brings together the old products including Cleanmail options, Mailsort options and Walksort.

Price changes

The changes to bulk mail services will take effect the same day – 2nd April – as new contract prices are also implemented at Royal Mail.
Price increases will average 11%, but individual business mail products could see prices increase by between 8% and 20%, while direct mail prices will increase between 1% and 5%.
The price changes are subject to approval by regulator Ofcom, which is expected to come next month. Royal Mail said some of the changes take into account a change in VAT status, with the 20% national sales tax set to apply to bulk mail services.
Eadie said that under Royal Mail’s previous regulatory regime, prices had been “artificially low”, while a 25% drop in mail volumes since 2006 had also contributed to the company losing GBP 1bn in its core mail business over the past four years.
“That is not sustainable for any business so we need to better align prices with the cost of providing our services,” said the Royal Mail spokesman.
“Since 2006, Royal Mail’s cashflows have been GBP 3bn less than anticipated. There has been significant under-investment in Royal Mail for a number of years. Including in crucial areas like IT, where we really lag behind our main competitors.
“We need to make a commercial rate of return so that we can invest in the business for the benefit of all our customers,” said Eadie.
The Royal Mail spokesman added that price changes were not the only way to keep Royal Mail afloat, the company has also been making cutbacks including closure of 14 mail centres during the last three years, reducing its workforce by 50,000 people in the last decade.
“This is a painful process of change, but one we are committed to completing,” he said.
The UK’s Direct Marketing Association’s chief of operations Mike Lordan said no price increase was welcome, particularly in the light of the VAT changes.
However, he said: “We are pleased that Royal Mail acknowledges the importance of direct mail and is keeping increases for advertising mail to a minimum. We also welcome the introduction of new products that will allow more direct mail to qualify for the advertising mail discounts.”

Should USPS Go Bankrupt?

Why the US Postal Service should call in the receivers

Monday, February 13th, 2012

James Cartledge speaks with corporate restructuring expert Van Conway, president and co-founder of Conway MacKenzie, Inc., about how he would turnaround the troubled US Postal Service.

Last week, the US Postal Service announced a $3.3bn loss in what should have been its best quarter of the year. Much of that loss stemmed from requirements set by Congress for USPS to pre-fund its healthcare liabilities for future retirees.
But a key takeaway from the results presentation was that the organisation has significant liquidity concerns, which barring action from a fractured Congress will see a highly precarious situation approaching this fall.
Joe Corbett, the USPS CFO, suggested that for an organisation of its size, with a $65bn turnover and 500,000-strong workforce, it ought to have about $7bn in cash reserves just to run as a healthy business. This October, forecasts suggest that on its present course, USPS will be $300m short of even having a reserve.
Corbett said the Postal Service will find enough money from somewhere to weather through the storm – but if the economy takes another dive, there is no safety net.
Postmaster General Patrick Donahoe says USPS needs to cut $20bn in annual operating costs over the next few years to get back to an even keel, half of which can only be achieved by Congressional action.
Experts in insolvent companies believe the Postal Service now cannot survive without major taxpayer assistance.
Van Conway, a nationally-recognised corporate restructuring guru who has been turning around failing companies for nearly 30 years, tells Post&Parcelthat he does not understand why it took so long for USPS to get round to major cost-cutting initiatives.
Mail volumes have been dropping since 2006, while the USPS cash cow First Class Mail has seen its volumes reducing since 2001.
“The situation with the mail, and the way people communicate today, with the structural floorplan of the Post Office, I just wonder why when losing that kind of money, they wouldn’t have implemented significant cost-cutting initiatives already,” he says.
Conway is president and co-founder of turnaround advisory firm Conway MacKenzie, Inc. His long background in the field of insolvency has included extensive experience in the troubled auto industry, with Conway himself based in Detroit.

Downsizing

Conway MacKenzie president Van Conway believes a tough receivership is what USPS needs

Whether or not Congress is to blame for much of the current financial problems at USPS, Conway says the figures for the Postal Service’s latest quarter suggest the need for radical change.
“Really, it appears to me that they haven’t changed the way that they are doing business – but the world around them has changed,” he says. “To lose over $3bn in your best quarter just tells you that the industry is different, smaller, their cost structure is just completely out of date.”
Ultimately, USPS has too many people, too many sites, says the restructuring expert, and he understands the political difficulties that executives face in trying to do this.
USPS is currently trying to push through plans to close up to 252 of its 461 mail processing plants, along with more than 3,000 of its 32,000 post offices.
But the regulators want to fully assess these plans before any mail plants are closed: something set to take until July. Congress wants to prevent job losses at a fragile period for the US economy while protecting the federal budget. The unions want to protect their members in the belief that pension surpluses can be returned and healthcare payment plans restructured to fill the black hole in the USPS budget.
“I get that,” says Conway. “But political power shouldn’t really matter in terms of doing the right thing. The way people are communicating today, the world has changed, and there has to be a reduction in force, there has to be a reduction in locations.
“How the unions will play out with their political connections, I get it. But we as taxpayers are underwriting a significant loss that probably can be significantly mitigated.”

Bailout

Broadly, Conway’s recommendations do fall along the lines of the Postmaster General’s current strategy, including moves to entirely rethink company healthcare benefit systems, though his belief is that all this should have been changed years ago.
But he cannot see a way out without some significant form of taxpayer-borne financial support.
“They’re going to run out of money – what are you going to do? Somebody has to fund the losses, those losses are not going to go away,” he says.
“The question is: is the money going to fix it? The answer is ‘no’, unless you have a plan. You have to fund them – they can’t go out of business. But we can’t fund them unless there’s a plan, we can’t fund a black hole.”
Referring to what happened to the major car manufacturers in the United States, in regard to the $81bn federal government bailout of GM and Chrysler in 2008-09, Conway says: “What happened is the government put in money as part of a deal to get something done.
“Government money was used in a smart way, used as part of a long-term solution, rather than just putting in the money so you can find yourself in the same situation two years down the line.”

Receivership

“You’re going to have to do cost-cutting forever”

At the moment, there are two major bills that have passed through the committee stage of the US Congress to potentially help the US Postal Service, one bill in the Senate(S.1789), one bill in the House of Representatives (H.R. 2309).
There is some overlap between them, such as in allowing USPS more freedom to broaden its product line. Some of the major differences in approach are that the Senate bill seeks to provide an $11bn rebate from the USPS pension surplus and restructure healthcare benefit prefunding. The House bill seeks to set up a form of receivership, with a new control authority to be set up in the event that USPS cannot pay its bills, to force through major cutbacks.
Conway says judging from his experience, the House bill and its proposed receivership system offers more of a real answer to the situation.
“You should have a form of receivership where you have an empowered receiver, and that independent party would be in charge of a cost reduction plan,” he says.
When it comes down to it, Conway says, given what is happening to modern communications, downsizing is the only real answer for USPS.
“It’s a tough business to fix,” he says. “The top line will continue to erode, and we as turnaround guys looking at companies, we have to figure out where the top line will flatten. I’m not sure the top line here will ever flatten. I think it will continue to erode.”
Conway offers a stark conclusion for the USPS: “You’re going to have to do cost-cutting forever. As horrible as that sounds, or you’ll get to a point where you’re just not in business any more.”
It’s a fairly bleak view of the future for US mail, though a restructuring expert is paid to take a brutal judgement of a company’s problems and potential. Conway freely admits his thinking is from a very top-down perspective. “I’m kind of looking from 30,000 feet,” he says.
However, his believe is the Postal Service cannot shut down. In the mean time, does it have a long-term future in the digital world? Perhaps facilitating the electronic communications that are currently causing it so much damage?
“Yes,” he says. “You can see that the government has the US mail competing with FedEx, right? So why wouldn’t they have a role here? You have a good work force, right? You don’t need to get rid of them all, but you have to deploy your work force to be in the business of delivering something.”

Source: James Cartledge, Post&Parcel

Online Shopping is Changing the Parcel Business

UPS Conference Call Illustrates How Online Shopping is Changing Parcel Shipping

Written by Alan Robinson on February 1, 2012 · Leave a Comment

Yesterday, in its conference call covering its 4th Quarter 2011 earnings,  United Parcel Service (UPS) provided strong evidence that the parcel delivery industry is now more closely tied to the growth in e-commerce than to the economy in general.   In addition, it provided some idea as to how UPS is changing its operations, pricing, labor relations, and marketing to deal with the change in the mix of parcels that its customers want UPS to deliver.

Highlights of the conference call are as follows.

• UPS is bullish on the U.S. economy and is particularly bullish on manufacturing in the United States.
• In December, business-to-consumer was over 50% of UPS’s volume.
• The December volume actually included two mini-peaks.  The first followed Black Friday and Cyber Monday and the 2nd peak came during the last week before Christmas.
• In January, business-to-consumer business remained strong but no proportion of volume information was provided.
• E-commerce results inUPS’s 4th quarter (October through December) generating more revenue and profits than other quarters
• UPS sees the growth in the importance of business-to-consumer, e-commerce driven shipments as a worldwide phenomenon.
• UPS’s business is tied to consumer sentiment.
• The growth of e-commerce means that UPS will see out-sized gains when consumer sentiment is positive and smaller volume troughs when consumer sentiment is weak.
• The shift toward e-commerce has the effect of intensifying volumes during good times and lessening the loss of volumes during bad.
• E-commerce means that the average weight per shipment is down 3%.  This results in a lower yield (revenue per package)  The inclusion of SurePost revenue in domestic ground statistics results in even lower yield growth per package.
• Yield may not be as good an indicator of the average change in prices due to change in the mix of volume.
• Consumers that purchase frequently on-line want a better delivery option than delivery to their home address.
• UPS signed up 3/4 of million people for its My Choice service, a service that charges for delivery to a UPS Store rather than the person’s home.
• These people averaged 4 shipments delivered to a UPS store in the quarter.
• SurePost was frequently mentioned in this conference call as it is UPS’s newest service.
• It’s introduction more than likely had some impact in the average weight and average yield of UPS Ground shipments.
• Mentioning Surepost in the press release and in the discussion during the conference call was important as analysts needed to adjust their revenue models to accommodate the impact of lower shipment weight and yields going forward.  (More about SurePost in an upcoming post.)
• UPS mentioned that customers that sent SurePost shipments sent 4 to 5 shipments delivered by a UPS Teamster truck driver for each shipment delivered by the U.S. Postal Service.U
• UPS’s Second Day air product saw growth due to e-commerce.
• This growth came from retailers that wanted to provide a faster shipping option for lighter-weight shipment.
• The change in mix of shipments resulted in the average weight and yield for the 2nd-day air product to be down.
• UPS did not see a growth in imports from Asia that matched the growth in e-commerce sales of items manufactured in Asia.
• Inventories were tight in the U.S. which resulted in many e-tailers running out of inventory.
• Inventories appear to still be tight so UPS is hoping for some pick-up in its Asian air-freight volumes
• The Growth in volume in 4th Quarter combined with the growth of SurePost resulted in significant productivity gains.
• UPS saw operating statistics such as direct labor hours, miles driven, and block hours all grow at a rate slower than volume growth.
• UPS’s productivity improvements related to improved labor utilization during the peak period, in the 4th quarter offset its entire wage increase.  UPS does not expect to see that happen in other quarters when volumes fall below 4th quarter levels.
• UPS expects compensation levels (wages and benefits ) will rise 1 -2% a year.   The relatively low rate of increase will reflect a reduction in the average seniority of employees. UPS expects that as its business grows it will be hiring more full time employees at lower wage rates than its current average. UPS also expects turnover of its part-time package handlers to increase as part-time package handlers find full time work in the improving job market.
• UPS’s long term goal is to generate 2-3% increases in rates. [It is unclear if they mean a 2-3% increase in rates or yields.  If they mean yields, the shift in average weight of shipments would tend to lower the increase as compared to rate increases.   If UPS means rates, this  does not mean that published rates will go up 2-3%.  It means that the average rate that all UPS customers pay goes up 2-3% with some going up more and some less.  Regardless of what UPS means in its comments published rates are likely to continue to rise faster than the 2-3% annual increase described here.]