Rivals deliver new blow to Royal Mail

Published on Saturday 18 October 2008 15:01

PRIVATE postal companies are rapidly gaining ground on the Royal Mail in Scotland, with one firm tripling its business since the start of the year.

Figures to be released on Friday by TNT Post UK, the British subsidiary of the Dutch postal giant, will show private operators have seized a large slice of the business delivery market over the past 12 months as more firms move away from the Royal Mail.

TNT Post will reveal it has tripled its business clients in Scotland to 300 since January.

It has also doubled the number of letters and packages it carries north of the border from 4.5m to nine million in the past 12 months.

The company says its services are proving particularly popular among Scotland's army of small and medium-sized businesses which are looking to trim their costs.

The figures will make grim reading for the Royal Mail, which has faced mounting competition from firms such as TNT Post and DX since the UK postal market was liberalised in 2006. It posted a loss of 279m in May.

The Government has commissioned an independent review from Richard Hooper into the future of the UK postal market. It could be published as early as this month. Private postal companies, including TNT Post, are urging the Government to break up the market further amid claims the Royal Mail still maintains a monopoly in certain areas.

TNT Post says it wants to launch a nationwide "end-to-end" service, where it will handle post at every stage, from pick up to delivery, but it is currently prevented from doing so because of unfair barriers in certain parts of the market.

Most private operators still pay the Royal Mail to deliver mail over the "final mile".

Nick Wells, chief executive of TNT Post, said: "Competition in the postal market is delivering benefits but we can do more if we have the right regulatory environment and a level playing field."

In particular, private operators are pressuring the Government to end the Royal Mail's VAT exemption, which they say excludes them from accessing 40% of the business mail market. They say organisations such as charities and banks, which cannot reclaim VAT, are automatically beyond their reach because of the different VAT rules for the Royal Mail, and private operators.

But the Hooper review is likely to lead to a clash between the private sector and unions if it adopts Postcomm's controversial recommendation earlier this year to privatise Royal Mail.

There are particular concerns over what will happen to the operator's gaping pensions black hole, which is expected to have widened to 5bn amid the recent market turmoil, if private investors are allowed to take equity stakes in the company.

It has been suggested that private investors will not have to take on liability for the pensions deficit in order to encourage interest in the struggling group.