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No idea what garbage TMS is punting now but the investment in hubs will do no more than help Royal Mail catch up some of the ground it has lost to the likes of DPD and DHL on next day parcels in time to see them move on.
It is investment that won’t bring in significant new business (see recent market share trends) and locks them in to a network model that wastes the competitive strength they have in being ubiquitous in their proximity to shipping and delivery customers.
If they were investing in areas like forward stock location provision, sameday local to local, cold chain delivery capabilities, secure delivery, PUDO solutions for consumers and mobile workers, value adding to letters and parcels product using augmented reality, AI based on their unique dataset, financing solutions for businesses using sit-op and prepay revenues, or even just going upstream on document management, or packaging and warehousing and fulfilment, then the potential for growth, a more robust business model, and a better return for shareholders would be enhanced.
Tomolo89. The pricing strategy for for 1st class letters is based on an assumption that most people are using 1st class it is because they have to and therefore as demand is so inelastic they can force the price up to exploit this customer base for profit growth.
The efficiencies on second class and DSA traffic you mention are achieveable by holding work at Mail Centres until it’s due delivery date and thereby consolidating it for every other day delivery. If they aren’t already doing this it is something they have been contemplating working on for at least 5 years, it will of course just mean that when Ofcom consider USO price controls on 2c traffic they will just take account of the lower cost base.
Oligarch, the pricing tables for DSA items are published openly on the Royal Mail Wholesale website.
The lowest price for any full addressed letter is 18.847p for an Advertising Mail Mailmark letter sent using then Economy service in trays. Even lower rates are charged for some partially addressed items.
https://www.royalmailwholesale.com/mint-project/uploads/154765523.xlsx
JB I think it was inevitable, the deliberately massive complexity introduced into the product range, and the growth in competitors and competing media introduced so many variables and data points which when combined with macro-economic and demographic factors generated almost infinite numbers of potential outcomes to the model. The tendency was then to build in readjustments to retrofit past actual outcomes basically meant it became of a model about what has happened rather than a prediction of the future.
JB I worked in both Sales and Strategic Pricing, the letters Sales team was effectively disbanded by a management team of parcel specialists and the pricing strategy model has so much data in it that it had become almost unintelligible and basically seemed to being used to justify any slant that felt the mood. I think the fact that the pricing strategy heavily incentivises down trading to low margin products and volume transfer to competitors tells you all you need to know.
JB is there such a thing as a 1st Class DSA item, there didn’t used to be. As far as margins are concerned Royal Mail makes more on a 2c letter than it does on a DSA letter because it is required to make a margin on the upstream element to go with the margin it makes on the Downstream element. This is why it finds it hard to retain bulk volume in the retail stream. It makes even more on 1c but recent pricing strategies will have killed off volume from customers who used to be able to justify the business case for more timely mailings but no longer can. The pricing strategy of trying to gouge 1c users as if they are highly inelastic in demand is more kerplunk than kerching IMO !
Oligarch, surely that is just because the number of customers using DSA has increased over the period. Royal Mail effectively gave up bothering to try to compete for direct contracts for the upstream element of bulk volume business mailings a few years back and in a number of sectors companies like CFH had a lot of success converting meter customers to hybrid mail to switch to DSA streams.
Media companies will be salivating at the opportunity to grab a large chunk of the marketing spend on DM, hand delivery companies will enjoy the extra magazines and high drop density large letter traffic, every other Government department will accelerate electronic communication of the remaining letters and RM will be lumbered with a USO that is worth not very much but will still be constrained to a 5% margin on it.
Instead of looking how to reinvent itself and really exploit the value of having personal contact with every address in the country 6 days they seem to be determined to chuck it in the bin along with the value of the company and our shares.
I’m not sure why people on here get so excited about the prospect of a further degradation of the USO, it’s not as if Ofcom would sanction it so that any savings go to the IDS bottom instead of the price control, and it just makes the service less relevant to consumer needs and easier for competitors to perform instead of IDS.
Instead of degrading the service even further I would have thought they would add Saturday and maybe even Sunday delivery of parcels to the USO ;-)
Oligarch as we know the share price went from the IPO of £3.30 to £4.45 on the first day of trading. Most of the institutional investors who got most of the shares at the IPO price cashed in rapidly on the Government’s mistake, so when we talk about long term investors the IPO price is fairly irrelevant.
As for needing some excitement in the stock, why ? In what way does the behaviour of short term speculation of people who either want to ramp or short the share price help the company ?
As for JB’s question about Kretinsky if he has bought into the company to try to influence it on a positive growth path fair play, if his intention is to asset strip to the detriment of the work force and customers then his involvement is malign. We have yet to see how he plays his hand.
Sid that’s the sort of approach that resulted in almost a years worth of industrial action, and the associated financial consequences. I’m struggling to understand why any long term shareholder wants the share price to be significantly lower than the IPO offering in return for dividends that have a total value that don’t bridge the gap.
JB I don’t think long term share holders are greedy short termists, the clue is in the term.
I think the value of the company and the price of the shares has been significantly diminished by paying dividends using cash that should have been reinvested in growth and diversification and this has been to the detriment of long term shareholders including employee shareholders. If the company hadn’t pandered to the short termists shareholders by paying dividends to satisfy short term greed we would have shares worth multiples of the current price.
I’m not sure why you are offended by something that doesn’t apply to you.
La Poste benefit in several ways from remaining in public ownership. Their business model is more diverse, including banking services, alongside mail and parcels. The also carry out services deemed to be beneficial to society (delivering magazines and news papers) and get subsidies for providing the USO. They have been allowed to reinvest in growth and don’t have to pander to short termist share holder dividend greed. Hence they are now worth north of 30bn euros having been a similar size to RMG before respective Governments decided to undermine Royal Mail.
It shouldn’t be a surprise that Evri has taken market share from IDS given the problems with RMs international service, industrial action, and the severe degradation of customer service point opening times. That said most of this recruitment is presumably just business as usual scaling up of capacity for the winter peak.
T2K compared to under-declared weights, volumes and format fraud amongst customers posting on account counterfeit stamps are small beer. The main reason why Royal Mail has spent so much time, effort and money on barcoding all parcels and implementing mailmark for letters is to close loopholes which have probably cost it north of £100m in lost revenue some years.
#proposition
Hounddog,
I agree that parcel volumes delivered to and from lockers in the U.K. don’t make much of a dent on total delivered volume. The bigger issue is around completeness of proportion, the absence of a 24/7 pick up and drop off locker network means that large shippers who want to offer this solution to their customers inevitably give volume that could have gone to RM to other carriers for delivery to lockers and homes.
Elphi, if you are asking what IDS is, it stands for International Distributions Services , the name of the group holding company for Royal Mail and GLS.
Hounddog, unless something has changed recently growth in the number and use of parcel lockers is unlikely to be positive for Royal Mail in the U.K. because they don’t deliver to or collect from the main provide like Amazon or Inpost. Combined with the dramatic reduction in customer service point opening times this development just further diminishes Royal Mail’s position in the Pick Up Drop Off area of the parcels market.
The growth in Same Day is similarly unlikely to help Royal Mail’s market share because despite acquiring eCourier a few years back they really haven’t tried to hard to lever the scale of their delivery network to stop players like City Sprint Gnewt getting a strong foothold. They actually seem to be going in the opposite direction by using more remote centralised depots to deliver time critical parcels.
It is frustrating to see them undermining their own potential USPs in growth sectors,