A viable Post Office...ViaPost?
The Royal Mail is caught in the middle of a collision between its past and its future.
Decisions made in the past have led to a £10 billion pension fund deficit. Other decisions - whether by the board or by the Post Office's regulators - have held its business model back from evolving in a world where communications technology is changing faster than any other.
I don't know about you, but I send barely any letters nowadays; the occasional Mother's Day card and VAT return is about it. I pay bills online, send invoices by email and even our direct marketing is mostly by email.
On the other hand, I probably receive more than I used to: Amazon and other online stores have enabled a combination of online ordering and delivery service to compete very powerfully with retailers. And the margins on these deliveries must, I suspect, be better than on ordinary letters - though there is much more competition.
So the Royal Mail has two problems. Its past has created huge obligations, incurred in conjunction with assets which are not worth as much as they were. Its future is uncertain and it needs to invest in order to shift its business model to a new and more profitable basis.
Addressing either of these problems on its own will simply not work. Either the government takes over the pension liabilities and leaves Royal Mail to run up even more losses until it needs bailed out again; or a new business model is constructed which is then crushed under the burden of £1 billion a year in financing costs for its debts.
So Peter Mandelson is correct to insist that they be resolved together. The political will is unlikely to exist for two independent rescues; and the equity market will want to see both challenges addressed simultaneously in order to create a predictable business they're willing to invest in.
How might they create that new business model? A merger with a delivery company (TNT for example) may not be a bad idea. But that doesn't really have the boldness that is needed to give a postal organisation a life in the Internet era. So why not consider buying a company like ViaPost?* Services like theirs - which accept documents from their clients electronically, print and deliver them physically - may be the perfect interface between the physical and networked world, and surely represent a more realistic vision of future than requiring physical contact at both ends of the chain.
If the Post Office were able to switch 30% of its mail to a ViaPost-like service, they'd eliminate at least 15% of their cost base - £1.3 billion a year - and transform their viability. Realistically, making that many staff redundant would require a political deal - but if it isn't done now, it will gradually happen anyway over the next fifteen years while the taxpayer wastes another £10 or £20 billion in propping up the organisation.
A revolution in business model is the only way to solve the Royal Mail's problems - bringing both the liabilities and the strengths of its past and its future together.
* Disclaimer: Simon Campbell, CEO of ViaPost is someone I know as a business contact but I have no relationship with ViaPost itself and have not consulted him on this posting.
Docmail's cheaper than Viapost too!
Docmail starts at 25p+VAT rather than 27p+VAT at Viapost.
By the way if you're going to post links (especially commercial links) please don't post anonymously; that way readers will be better able to gauge your objectivity and figure out if you are just advertising.
Taking them up to 35p.
Viapost to raise postage prices by 8p per letter