26 January 2010 - John Coghlan - Chief Executive, DX Group - © Hellmail Postal News

The highly regulated postal market, characterised by a state operated national monopoly, is a far cry from my previous experiences in a sector that thrives on competitiveness and the relentless driving of innovation, customer focus and efficiency – values that are naturally imperative to business success.

So it came as a surprise that, when encouraged by the Hooper Review to assess our place in the market, DX found itself in support of the anticipated report in both its key tenets. Leading the independent sector’s backing of a dominant state monopoly would have been an anathema to me before entering the postal market.

After well over a decade of market opening, Royal Mail still dominates with a staggering 95 per cent plus of market share. The stark reality of its dominance lies in both the difficulty of entry to the market, supported by our existing UK access model, and the formidable size of this national network.

DX and many others have existed in Royal Mail’s shadow for many years and with the likelihood of a real competitor emerging highly improbable, the pragmatic vision can only be of a future dominated by Royal Mail but with much greater scope for niche providers like DX. However, for Royal Mail and the industry to be sustained, two measures are imperative, namely the introduction of measures to financially strengthen our major competitor, and, secondly, regulation – albeit in different guise to the present framework.

Events of the last few months highlight the turmoil that the whole of the UK postal industry and, indeed, economy, is facing. A stalled Postal Services Bill, strikes, ballots and negotiation breakdowns have flung the postal system to the top of the national agenda and left the industry asking itself some searching questions about its future and convincing itself of the very real need for change.

With long term trends accelerating away from letter mail, a faltering Royal Mail will only ensure customer confidence evaporates even quicker – resulting in decline across the whole market.
The reality we face therefore is that the size and health of the UK postal market is linked intrinsically to that of Royal Mail.

While DX has benefited from the recent Communication Workers Union industrial action, any modest growth in our business is irrelevant if we look to a gloomy future without Royal Mail. We believe that now is the time for competitors to work with Royal Mail to overcome industry shortcomings and take advantage of growth opportunities, such as the increase in packet and parcel volumes as a result of e-commerce.

Just one example is DX’s purge? on failed deliveries to residential addresses by signing a groundbreaking agreement with Royal Mail to use post office branches in London as collection points.

Such opportunities couldn’t be capitalised on without Royal Mail and it is for this reason that we believe sensibly framed and defined financial support is necessary to ensure its future.

My belief is that we are much better served by a larger market, sustained for a longer time, within which we can rely on our wits, innovation, commitment to quality improvement and customer service, and our niche approach and fleetness of foot to compete and survive and grow.

The need for regulation, which will enshrine the rules of the playing field, and its necessity for the existence of competition, can come into question if thought to jeopardise the value of the “national incumbent”. Yet in truth, a competitive market not only leads to customer focused values, but also fosters an environment in which Royal Mail itself will become more efficient and modernised – a key underlying objective of all.

Therefore, the challenge is to introduce enough competition to promote change and modernisation, but not so much as to have major detrimental financial consequences nor to stifle Royal Mail.

Such a framework can’t be achieved via Competition Law. It simply cannot address the challenges created by the cost-justified pricing that is critical to the industry. This means that the regulatory regime must be prescriptive, tight and lay down rules that provide certainty to the market.

It’s a tough challenge to aspire to - one that relies on the ‘right’ regulation, defined funding and a creative and innovative competitor market. It also requires the independent operators to set aside their partisan views. Yet, if the Government and Royal Mail can make it a reality, we can look forward to a thriving future for the postal market.

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