Royal Mail Survival Plan: a Threat to Small Businesses

What would happen to your business if your mailing and shipping costs rose by around 50%? That is what might happen this April if Royal Mail and Ofcom have their way. Their proposals are to put up 2nd class post possibly to as much as 55p, and to have no price limits set for various other services, such as:

  • 1st class letters, large letters and packets
  • 2nd class deliveries of large letter and packets
  • Standard parcels
  • Business mail in metered, franked or prepaid envelopes

How to Avoid More Heavy Royal Mail Losses

In the last year, Royal Mail delivered 16 billion letters to around 28 million addresses, yet still lost £120 million. This is attributed to a decline in the use of postal services as people communicate in different ways using new technology. In 2010, the Hooper Report on the postal sector concluded that the volume of post will continue to lower and by 2015 Royal Mail could lose up to 40% of its business.

Ofcom, which took over the regulation of Royal Mail from Postcomm last October, has been conducting a public consultation on how to give more commercial freedom to the UK's postal service while safeguarding the universal postal service for consumers. The results will shortly be published, after which Royal Mail will publish its stamp prices from April 2012.

Ofcom is charged with policing the Universal Service Obligation placed on Royal Mail to collect and deliver letters six days a week an packets five days a week, at affordable rate to every UK address. The regulator also monitors the performance standards of 93% of 1st class mail arriving the next day and 98.5% of 2nd class mail being delivered by the third day following posting.

Clearly Royal Mail cannot continue to sustain the losses while maintaining the performance required without some drastic changes.

The Effect on Small Businesses

Royal Mail is also currently required to offer its competitors - the likes of UK Mail, TNT, DHL - access to its delivery network, at a price which is subject to rules set and monitored by Ofcom. If Royal Mail prices rise, they will probably have to follow suit.

For businesses that rely on the post to deliver goods, their costs will rise exorbitantly, as will those of sending out invoices and promotional material. The Forum of Private Business is campaigning against the price rises which will add yet another burden to businesses in these difficult times.

You would be wise to consider how this will affect your business. As your outsourced bookkeepers, would be happy to help you work out alternative cash flow projections for the eventuality, so that you can consider where you can make changes to accommodate the additional costs.

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