Royal Mail blasts £200m TNT threat

Royal Mail has slapped new evidence on the desk of Ofcom chiefs in its fight to force the regulator to launch an immediate review of TNT Post UK’s final mile delivery expansion, claiming it will cost the newly privatised firm £200m in lost revenues.
Royal Mail has been calling for a review ever since TNT succeeded in getting Ofcom to probe its plans for increased charges in April. The tit for tat row has been rumbling on ever since its main rival started delivering to addresses in Liverpool in 2012 and took the service to West London the same year.
It has since expanded this further to cover other areas of London as well as Manchester and Liverpool. The company ultimately wants to have 20,000 delivery staff around the UK within five years.
However, TNT boss Nick Wells insists the firm’s operation is tiny compared to Royal Mail, and he could have a point; in its last results in May, Royal Mail reported revenues of £9.5bn. Direct mail revenues alone accounted for £1.11bn, although this was down £24m on the previous year.
In its new evidence Royal Mail said its rival’s plans to expand end-to-end mail delivery services to about 42% of UK addresses by 2017 would hit its revenues by about £200m a year.
And, the company said its analysis of the UK market suggested that TNT Post could be tempted to push for a much wider roll-out for its service than the ambitions disclosed in its current plans, with suggestions that it is already expanding faster than planned.
In a statement, Royal Mail said: “Direct delivery competition has developed significantly since Ofcom last substantively reviewed the position. Royal Mail calls upon Ofcom to undertake a full review of direct delivery as a matter of urgency; and, simultaneously, to determine quickly the regulatory changes needed to protect the Universal Service.”
In its submission, Royal Mail insisted that the addition of TNT Post’s service was not providing the benefits usually associated with competition because it was “cherry picking” only the most profitable delivery routes, offering less frequent delivery and limiting services only to business mail.
Offering delivery every other day, rather than the six-day-a-week requirement for the Universal sSrvice, offers a 40% cost advantage for TNT Post, according to Royal Mail’s claims.
“These cost advantages allow direct delivery entrants to set lower prices. It is difficult for Royal Mail to match this. Therefore, it would be expected that direct delivery entrants will be able to increase their market share significantly over time,” the company told Ofcom, adding that the cost advantage for TNT Post surpassed Royal Mail’s own advantage from having its universal services exempt from VAT.
The Communication Workers Union, which represents more than 115,000 employees at Royal Mail, backed the call for an Ofcom probe.
CWU deputy general secretary Dave Ward said: “The ability of TNT to be able to choose when, where and what they deliver has a profound impact on the sustainability of the universal service. Not surprisingly, TNT is cherry-picking big city deliveries only, where profits are maximised. This is unfair competition with little benefit to customers or the British public. In a shrinking letters market having two posties following each other up the same garden path is inefficient.”
Responding to the comments, an Ofcom spokesman said: “We will consider the report Royal Mail has given us carefully. Protecting the Universal Service is at the heart of Ofcom’s work, and our current evidence clearly shows that the service is not currently under threat. We would assess any emerging threat to the service quickly, in the interests of postal users.”