Review of Postal Users' Needs: 2020 Report
Total Page:16
File Type:pdf, Size:1020Kb
Review of postal users’ needs An assessment of whether the minimum requirements of the universal postal service reflect the reasonable needs of the users of postal services in the United Kingdom Review of postal users’ needs – Welsh overview Publication Date: 26 November 2020 Contents Section 1. Overview 1 2. Introduction and background 5 3. Market and USO context 10 4. Overview of user research findings 23 5. Delivery frequency 41 6. Speed of delivery, quality of service, tracking and additional services 65 Annex A1. International context and experiences 83 A2. Legal Framework 92 A3. Market research methodology 96 A4. Estimating impacts on user benefits 98 A5. Cost methodology 109 A6. Revenue methodology 126 A7. Glossary 132 1. Overview Ofcom has undertaken a comprehensive review of the needs of postal users across the UK, to see if the requirements placed on Royal Mail reflect what people and businesses need today. We have looked in detail at how satisfied people and small businesses are with the current postal service, and what alternatives would meet their needs. This document explains our findings. The universal postal service is relied upon by millions of people and businesses across the UK. As the postal regulator, our goal is to make sure postal users benefit from a universal service that meets their needs. In doing so we also consider whether the service is sustainable and efficient. The minimum requirements of the universal service are set out in legislation. These include requirements on Royal Mail to deliver letters six days a week and parcels five days a week, at an affordable and geographically uniform price to every address in the UK. These requirements can only be altered by Government and Parliament. We last reviewed postal user needs in 2012/13. Since then, there have been significant developments in the postal market. Letter volumes have fallen by more than 25%, with 53% of residential users now sending one letter or fewer per month. At the same time, growth in online shopping has seen parcel volumes increase at an annual rate of around ten per cent. These trends have been accentuated by the Covid-19 pandemic. We conducted our main research at the end of 2019. We subsequently carried out further research in summer 2020 to assess how far users’ views may have changed as a result of the pandemic. 1 Our main research findings Users value some of the minimum requirements of the universal postal service Our research found strong support from both residential and SME users (people or small businesses sending or receiving letters or parcels) for some of the minimum requirements of the current universal postal service: • Users value the simplicity of a universal service with the same service levels and prices across the UK. • 67% of residential users and 69% of SMEs agreed with the universal service provider charging the same price to all, regardless of where the letter or parcel is sent to within the UK. • Affordability is the most important feature for residential users. • Delivery to the door for letters and parcels was highly valued (with the large majority objecting to alternatives such as delivery to centrally located secure lockers). People’s views on changing minimum requirements Our research looked at users’ views and attitudes to a range of hypothetical changes to the minimum requirements of the universal postal service. Our main findings in relation to the number of delivery days in a week are: • The current USO service levels, including the six days a week (Monday-Saturday) letter delivery requirement, meets the needs of 98% of residential users and 97% of SMEs in the UK. • Reducing the letters service to five days a week (Monday to Friday), but leaving all other elements of the service unchanged, would still meet the needs of 97% of residential and SME users. • We found very little variation in users’ views on five-day letter delivery across the UK, including the four nations of the UK or how remote users’ locations are. Variation by other characteristics such as age, disability or whether users had access to the internet was also very limited. • However, reducing the frequency of letter delivery to three days a week would have a significantly larger impact on users, meeting around 62-78% of SMEs and 79-85% of residential users’ needs. • The evidence suggests reducing the frequency of letter deliveries requirement to five days a week would reflect users’ reasonable needs. It would also potentially allow Royal Mail to make net cost savings of around £125-225m per year in 2022/23 terms, assuming Royal Mail is able to realise these savings by modifying its operational delivery model. • Although this saving could make a material contribution to the longer-term sustainability of the universal postal service, it would not be sufficient alone. Sustaining the universal service depends on Royal Mail’s successful implementation of its transformation plans and ability to operate a more efficient parcels network in future. • For parcels, our research found 98% of residential users’ needs were met by the current six-day (Monday – Saturday) service, and we found no change in this percentage for a five-day service. 2 People’s views on changing other features of the universal service Beyond the minimum requirements, other features of the universal postal service are specified in legislation and regulatory conditions set by Ofcom. Although this review focuses on the minimum requirements, our research also sought users’ views on these other features, including on hypothetical changes to them: • Replacing First Class with a single class service offering a two-day delivery speed (which would be slower than First Class mail but faster than Second Class currently) would not have a large impact on users’ acceptability of the service. However, it would have limited scope for cost savings and would risk reduced revenues. • Reducing the quality of service levels (the percentage of mail required to arrive in the time it should, such as 93% of First Class mail arriving the next day), where we found that users valued certainty and reliability. Participants felt they needed to know when an item would arrive and be assured that an item would arrive in good condition. We also found relatively limited cost savings from reducing quality of service levels. Next steps This review contains our assessment of whether the minimum requirements of the universal postal service reflect the reasonable needs of users of postal services. It would be for the UK Government to determine whether any changes are needed to the minimum requirements and to bring any proposals before Parliament. As set out in our Plan of Work1, we are undertaking a review of the future regulatory framework for post. This will consider issues affecting the broader postal sector as people’s reliance on parcels continues to grow. This is separate to this assessment of user needs. We will engage with stakeholders on a range of issues, including access regulation for letters, consumer issues in the parcels and letters markets, and how regulation can support a modern well- functioning parcels market that delivers benefits to end users. We intend to publish a call for inputs on these issues in Q4 2020/21. 1 Ofcom, 2020. Ofcom Plan of Work 2020/21, September update. https://www.ofcom.org.uk/__data/assets/pdf_file/0018/203724/pow-2020-21-sept-update.pdf 3 4 2. Introduction and background 2.1 Ofcom is the regulator of postal services in the UK. The Postal Services Act 2011 (“the Act”) provides that we must carry out our functions in relation to postal services in a way that we consider will secure the provision of a universal postal service, having regard to its financial sustainability and efficiency.2 2.2 The key characteristics of the universal service are called the ‘minimum requirements’ and are set in the Act. They include the provision of a service at affordable and uniform prices, and the collection and delivery of mail everywhere in the UK every weekday (and on Saturdays for letters). These minimum requirements are set by the UK Parliament. Other features of the universal service are set by Ofcom in the Universal Postal Service Order (“the Order”).3 For example, the requirement to offer First Class services that take one working day from collection to delivery anywhere in the UK is set in the Order, which Ofcom could decide to amend following a review of users’ reasonable needs. The nature of this report 2.3 We last conducted a review of users’ needs in 2012-13. Since our last review, increasing use of digital communications and online shopping has resulted in declining letter volumes and increasing parcel volumes. To reflect these evolving market conditions, we have updated our understanding of the current needs of users, how these might have changed over time and how these might change in the future. 2.4 While Ofcom does not have the power to change the minimum requirements in the Act, we do have a role in reviewing the extent to which these requirements reflect the reasonable needs of postal users. This document contains our review. As is required under Section 34 of the Act, we have provided a copy of this review to the Secretary of State for Business, Energy and Industrial Strategy (BEIS). It is for the UK Government to determine whether any changes are needed to the minimum requirements and to bring any proposals before Parliament. 2.5 Under Section 30 of the Act, Ofcom can amend the Order if we consider that necessary following an assessment of the extent to which the market for the provision of postal services in the UK is meeting the reasonable needs of the users of those services.