The last post

The Post Office is beset by new competitors. That is what lies behind the threats of industrial action to be raised today

What prospects for the business?

The Post Office executives might be forgiven for thinking that the Government has got it in for them. Attempts by the one-time monopoly to compete in an increasingly cut-throat market, with rivals ranging from couriers to the Internet, are hampered continually by uncertainty over whether the Royal Mail is to be privatised and by mounting frustration in the ranks.

The organisation, desperately trying to recover from the controversy over Michael Heseltine's botched attempt at privatisation at the end of 1994, was knocked sideways in the November Budget by plans to squeeze more money from its operations.

Plans to make the service more competitive must now be viewed against a much starker financial backdrop. It is not surprising that renewed mutterings from the Government about privatisation have not been welcomed with open arms. They are an unwelcome diversion from the job of running the business.

The challenge faced by the Post Office is enormous. Foreign rivals, most notably its part-privatised Dutch counterpart, are invading its market with vigour and without the shackles that hamper attempts by the UK organisation to expand overseas.

The well-established competition from courier and parcel companies continues unabated and, at the same time, the threat of new technology is accelerating. The fax machine is now so ubiquitous, at home and at work, that many people are confident that they could ride out a strike at the Royal Mail. The escalation of connections to the Internet allows growing numbers of people to send messages for as little as 1p. A strike might simply accelerate the trend away from the letter.

The Royal Mail has not been impotent in responding to the competition. Letters volumes have risen in the Nineties. The Royal Mail has benefited from the growth of direct-mail marketing: it is a large purveyor of junk mail. It has also attempted to become part of the technology revolution, in a relatively modest way. A programme to install computers in the nation's network of 20,000 post office counters might take it further into the electronic age. More directly, there is a pounds 200m investment programme to introduce better technology in an effort to get mail moving faster.

However, these efforts to compete with the private sector were made more difficult by the Chancellor's decision dramatically to increase the amount that the Post Office had been expecting to pay into the Treasury's coffers over the next few years. Instead of a projected payment (the so-called External Financing Limit) of about pounds 178m a year, the Treasury is demanding around pounds 300m each year between 1996 and 1999. That amounts to about the same as the Post Office has provided over the past decade, at a time when competition has never been so fierce.

The pressure means that the Post Office either has to improve efficiency on a continuous basis, which will require investment and may provoke industrial relations problems, or it has to raise revenues substantially. The unpalatable fact is that the main source of revenue is still the postage stamp, the price of which will almost inevitably rise later this year, provoking concern among customers and glee among competitors.

The problem for John Roberts, the Post Office's new chief executive, goes beyond the Treasury's thirst for cash. There has been a long-held vision of offering a "seamless" service, ranging from designing and printing stationery and letters to storing and posting large quantities of mail for very large users. Its Dutch counterpart can play all these roles, and in Britain just uses the Royal Mail to make the final deliveries. But at the moment the Post Office is constrained by the Government from forging the kinds of business alliances that it needs to play such a role. For instance, it would like to have an airline as a partner rather than being just another user of charter flights. But that is ruled out by Government rules.

According to a Post Office spokesman: "What we really want to do is think much more widely about integrating all kinds of communications. At the moment we still have to ask for permission to get involved in new activities. All too often it is not forthcoming."

The Post Office made a pre-tax profit of pounds 472m in the year to 31 March 1995. There has been no price rise since November 1993, so results for last year - yet to be announced - may not show a substantial increase. But in the first half of this financial year the pre-tax profits were pounds 194m.

The question is how long profits can keep on rolling as long as the Treasury's demands soar and as more nimble players invade the market. If there is to be a renewed attempt at privatisation, it may need to be sooner rather than later if there is to be a business with growth potential to attract investors.

MARY FAGAN

What prospects for the workers?

When Nato forces have completed their task of enforcing peace in Bosnia, they may care to turn their attentions to the Royal Mail.

Industrial relations throughout the Post Office have turned into a form of trench warfare. While strikes have become increasingly uncommon in other parts of British industry, the Royal Mail, the Post Office's mail operation, lost 38,000 days' work through industrial action last year.

The threat of an official national strike has been growing all year. Last year began with wildcat stoppages in London and continued with a strike in the North-east. Last month, Scotland had much of its postal service severely disrupted by a stream of strikes, and last week industrial unrest was once more visited upon the capital. Throughout the year there were smaller but nevertheless debilitating spats which left post boxes blocked up elsewhere.

At the heart of the problem is the Royal Mail's drive to create a more flexible workforce by bringing in more temporary and casual workers to meet peaks and troughs in demand. The heavily unionised workforce sees this as a threat to the second post and so to the security of their jobs.

Activists argue that management is attempting to force all letters through in one delivery in the morning. This has so expanded the early post, activists claim, that it is being delayed and the Post Office is not honouring its pledge that the first delivery will arrive before 9.30am. They believe that more part-time staff will be taken on to work between 9am and noon to make this very large first delivery, leaving a minimal or non-existent second post, normally in the afternoon.

Officials at the Communication Workers' Union have warned the Post Office that unless they receive assurances today about the future of the service, the union's 155,000 members will be balloted on national strikes. The CWU's 17-strong postal committee could be called into emergency session tomorrow to evaluate the Post Office's response to the union's concerns.

The threat of privatisation, which was temporarily abandoned after a revolt last year by Conservative backbenchers, has contributed to shopfloor unease over the past three years. The prospect of a sell-off re-emerged recently when the Prime Minister said it might find a place in the Conservative general election manifesto.

John Roberts, the Post Office's recently appointed chief executive, says such prime ministerial musings are "unhelpful", but insists that his employees have nothing to fear.

The second delivery is a "key part of the service", he says, and he is determined to keep a core of full-time employees that will continue to make up around 80 per cent of the workforce. Mr Roberts, who has been in the job for just two months, says he intends to make employee relations one of his priorities and that he wants to make the Royal Mail a "world- class employer".

The problem is that his predecessor, Bill Cockburn, made similarly emollient remarks, but the message didn't persuade the shopfloor. The main reason for that seems to be the Post Office's introduction of a fashionable devolved management structure in which local managers have been given greater autonomy to bring in temporary staff. These local initiatives have often undermined the workers' faith in the statesmanlike public statements of senior directors about the future of the service.

That the Post Office may be on the verge of a national strike is all the more surprising because it is not as if the "posties" are led by a militant. Alan Johnson, joint general secretary of the CWU - his colleague Tony Young represents BT workers - is a right-winger and keen to avoid a national dispute. Mr Johnson is a moderniser and a supporter of Tony Blair. He has said he is confident a settlement can be reached.

Many leading local activists do not share his optimism. Left-wingers enjoy a majority of around two-thirds on the CWU committee covering the Royal Mail, and even some of Mr Johnson's political allies are increasingly of the mind that it is time to take on the Post Office. These activists believe that instead of fighting a series of local disputes which the union has to disown for legal reasons, the leadership should unite in a national campaign. They also believe the public might support industrial action if it were aimed partly at defending the second post.

This may leave Mr Johnson with something of a dilemma. He is not a trade union leader who revels in national disputes. He knows from experience that big customers armed with faxes, e-mail and private postal services can survive for a while without the Royal Mail. If he emerges from his talks proclaiming peace in his time, however, many local activists will not believe him. More local disputes are almost inevitable and that might further undermine his own leadership of the union.

BARRIE CLEMENT