Management & Finance

The Future of Regulated Mail, and Ecommerce Shipping

People don’t write letters these days. They send emails. In the U.K., this has produced big changes in the state-owned Royal Mail. These changes have huge consequences for online retailers there. In the U.S., the Postal Service is starting to follow suit. In this article, I’ll explain changes to Royal Mail and look at possible changes to the USPS.

Decline of the Letter

With the advent of email, postal services worldwide have seen a huge decline in the volume of letters. In the U.S., First Class mail volume is 25 percent less than in 2001, as shown in this USPS table. Much of the postal services’ volume now is in the small package sector, driven by ecommerce retailing.

Both the USPS and Royal Mail are state-owned companies and have traditionally enjoyed a monopoly in the postal market. However with falling revenues and increasing losses, both countries are now looking for ways to save money — the USPS lost around $8.5 billion in 2011, and Royal Mail has lost around £1 billion in the last four years.

In 1969, Royal Mail — previously a government department — was made a statutory corporation and then, in 2001, a public limited company, called Royal Mail Holdings PLC. This prepared it for privatization, though the government is still the sole shareholder at the moment. Royal Mail Holdings PLC has been heavily regulated until now by a postal regulatory body. But this changed at the end of 2011.

Royal Mail Not Regulated

Royal Mail has long argued that it was forced to offer First Class mail delivery nationwide at unprofitable prices. To reduce costs, it requested to eliminate compensating commercial shippers for lost or damaged non-tracked mail items, since no other U.K. carrier offered this. The regulatory body granted this request in late 2011, with compensation for business users completely removed. While online retailers opposed this, given how long and slow the claims process previously was I’m doubtful whether many of them ever bothered to submit claims for lost or damaged goods.

Royal Mail’s second request involved the mailing of small packages. It claimed that the regulated pricing it was forced to follow for these packages was not profitable. It argued that since it no longer held a monopoly, it should be able to set its own pricing. The postal regulator agreed to this request.

So as of April 2, 2012, only stamps bought at a U.K. post office are regulated. Even then, the regulator allowed huge price increases of up to 70 percent, with a light package increasing from £1.58 to £2.70. For businesses, online retailers and many eBay sellers who offer free postage, the change is likely to hit margins very hard. The deregulation also means that future price increases can be made without consultation. Full privatization is now also in process, following a change in the law last year.

In U.S., Reduced Services

In the U.S., there has been similar pressure to cut costs and improve revenue at the USPS, though the proposed changes revolve around reducing services rather than raising prices. In December 2011, the USPS proposed closing of hundreds of mail processing centers, along with stopping Saturday mail deliveries.

USPS is also promoting its direct mail services — otherwise known as unaddressed mail, or junk mail — in a bid to increase profits. It already delivers more direct mail than addressed items. Given the current losses, unless the U.S. government is willing to continue subsidizing the USPS, more changes are likely to occur.

We’ve all been enjoyed cheap postage for many years. Only with the decline of the letter has it become apparent just how expensive it is to deliver packages. Many businesses and consumers in the U.K. are upset by the changes. But paying less than £1 to deliver anything from one end of the country to the other is unbelievably cheap.

Amazon’s Electronic Lockers

So if postal services in both the U.S. and U.K. are struggling, what is going to happen? There are many competitors in the package-delivery market. But there are also more interesting delivery solutions. Since September, for example, Amazon has been installing electronic lockers in shopping malls and shopping centers, allowing customers to pick-up orders. Amazon can ship to just one address and there’s no need for anyone to be in when the courier arrives. While there are now many places with these lockers fitted, they’re not common — yet.

Lifestyle Couriers

Another alternative is the “lifestyle courier,” generally a part-time homemaker looking for a little extra cash. Typically, a professional courier will deliver up to 30 or 40 parcels to the lifestyle courier’s home address. The lifestyle courier is then allowed 3 to 4 days to deliver them, using his or her own vehicle. It is like a mini postal route and it works mostly due to the low wages some are willing to work for. In the U.K., these wages can be as little as £0.50 per parcel delivery, which as a self-employed worker needing to tax, insure and put fuel in a car, will barely cover expenses. Suffice to say, delivery standards are low, proof of delivery is often non-existent and the claims process is long and difficult.

Summary

In short, more of the shipping burden is being put on the ecommerce retailer, who not only needs to ensure goods are shipped correctly, but is also likely to end up paying for any replacements lost in transit as shipping providers continue in their race-to-the-bottom on prices.

James Hyde

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