Original post : 1 Apr 2013

Royal Mail Annual price rises on 2nd April represent a serious threat to small businesses.

I had no idea when I started to plan this post how long it would take to put together and how much you are all annoyed by the Royal Mail. Postal price rises are always a bone of contention; every year people are up in arms, especially during the continuing economic difficulties.  But as I pressed the send button on my email to you asking for your opinions, little could have prepared me for the torrent of responses I would receive. And the confusion!  It has taken me ages to get my head around  the new options that Royal Mail are bringing in so that we can give you some constructive advice to help your business.  So here’s what we know, what you have told us and what we have uncovered.

The Background

Way back in December 2012 the Royal Mail published a consultation paper where they outlined their intention to change postal schemes particularly in relation to parcels. If you want to read the whole document you can find it here. Royal Mail’s overall aim seems to have been to bring clarity to the charges for sending a parcel and, inevitably, to raise more revenue and therefore prices, to keep pace with their costs. In fact they announced an expansion in October of last year which was described as “… part of Royal Mail Group’s strategy to grow its parcels businesses in the UK and overseas. In the last reported financial year, Royal Mail Group’s parcels businesses accounted for 48 per cent (£4.2 billion) of total revenues (excluding Post Office Ltd). Recent research suggests that online retailing will account for 12.4 per cent of GDP in 2016.” What business the size of Royal Mail wouldn’t take advantage of this kind of forecast?

The Detail

Having previously only gone by weight RM are now mixing it up with size as well and therein lies the problem.  Previously if your package didn’t fit in the large letter slot it was a parcel and all you had to do was weigh it. Simple

Now there are size guidelines which you can find here (can I point out that, after 15 minutes searching the RM website without any joy, I have had to use a link to an affiliate for you.  And their aim is clarity?).  As you can see, to qualify as  a small parcel, your item can only be 8cm high. I’ll give you a moment to digest what that will mean for your business.  Take the example of a product that won’t squash down to 8cm, is 20cm long and weighs 250gms.  Previously your postage would have cost £2.70  but now you will have to pay £5.65  more than a 100% increase - a bit above the rate of inflation, wouldn’t you say?  If, however, your item is less than 8cm high then your postage will be going up to £3.00 or just over 10% - still more than inflation.  It is these figures that have caused the forums and chat rooms to light up with comments from confused and fearful small businesses. There are exceptions, a cardboard tube and a 16cm cube which a spokesperson from the Royal Mail explained:  “We have introduced a new cube format to meet the needs of some customers in niche markets e.g. mug manufacturers and small toy manufacturers. Customers can present items that have a maximum outer dimension of 16cms on any side and if their item fits into our cube template, the items will be priced at the Small Parcel rate.” Why just these niche markets? And how does this achieve their stated aims of clarity and simplification?

Let’s delve a bit deeper into the numbers to get an idea of the scale of the impact this will have on all of us. If you look at the figures we had from BIS and Creative and Cultural Skills last year about the size of just the Heritage Craft industry you are looking at 85,000 businesses of which about 70% are sole traders which gives us roughly 60,000 businesses. If each of these businesses only sends 5 parcels per week that are over the 8cm threshold that is an increase in costs of £885,000 per week and just over £42 million in a year.  And that’s just our sector.

What you said

You were brilliant and erudite in the comments that you emailed and PM’d to me.  If I had the space we could have printed them all but there were a number of common strands.

  • Your concern about the actual increased cost being more or nearly as much as the items you are sending making Royal Mail unaffordable.
  • If customers won’t pay the price rises, how on earth can a small business absorb them into margins that are already being strangled.  Many worry about their mail order business being killed off.
  • The size/weight issue where a flat magazine or book that can weigh quite a bit costs less than half in postage of a light item that is bigger.
  • If you have to use boxes to meet the new sizes what is the effect on the delivery chain from you getting them to the post office through to the loyal postie making his/her delivery?
  • The cost of boxes vs mail bags/padded envelopes
  • Where are the discounts for small businesses?
  • The cost of upgrading ecommerce software which calculates the delivery charges to take into account the change.
  • The lack of competitive options if you live in a rural or outlying area.

 

What they said

We wanted to put your concerns to a variety of organisations including the Federation of Small Businesses, My Hermes (an alternative courier company), Post Office Counters and Royal Mail. We were particularly interested in what the FSB had to say since their input had resulted in some changes to help small businesses that send 1,000 parcels a year called the Online Business Account (of which more later). First of all the organisations to get back to us an FSB spokesperson had this to say: “At a time when our members are struggling with rising costs, Royal Mail’s increases can only add to the pressures they are facing. Our members are significant users of Royal Mail’s services.  Our survey in 2010 showed that around 70 per cent used the Post Office to send parcels. At a time when other Royal Mail charges are increasing, we are concerned that the Government’s decision to remove price controls on Royal Mail has not yet led to any meaningful end-to-end competition in the mail sector that could benefit small firms. As long as this remains the case, businesses and consumers will continue to bear the brunt of unaffordable price increases. At a time when the Government should be doing all it can to support small businesses, we urge it to look again at this problem and defer these price increases.” Frankly, the price rises are unlikely to be deferred but their comments hint at more trouble to come in the future which is worrying.

The Post Office ( as a sister company and part of Royal Mail Group) were suitably non-committal and we are still waiting for a final comment.  My Hermes didn’t even get back to us, which according to some of you is a pretty accurate reflection of their reliability as a delivery service, I’m afraid.

The Royal Mail got back to us in great detail.  Unfortunately it didn’t really answer the questions we put and when we looked at copies of letters sent to MPs who had questioned the rises on behalf of their constiuents, the content we received was pretty much identical.  Cut and Paste is a wonderful thing! I have tried to edit their comments to be more pithy and interesting for you but I think you deserve to see the whole response. 

First our questions:

  •  Why have you changed the way parcels are being charged?
  • For some of our members their postage costs will rise around £2 on a product that might only cost £5.  How do you think a business will be able to bear these costs?
  • Why is the rise more than inflation on parcels?
  • Please explain the Online Business Account (OBA).  What are the parcel sizes and will Post Office counters accept the parcels on your behalf?  I am thinking about rural areas where a PO might be very small.
  • Will OBA dimensions be changing?
  • What other options are available to businesses that might only send out 3 or 4 parcels a week?
  • Many of our members will now resort to boxes instead of plastic envelopes to fit into the smaller dimension.  How will you address the environmental impact of more boxes and what about the poor postie?
  • Why are no discounts offered to people who buy their post online (similar to franked)?
  • In your discussion document you talk about simplifying the process but, having looked at the options, it seems to be much more complicated.  Please explain.
  • Did you consider the impact on small businesses?

And the Royal Mail response:

We know how hard it is for businesses when our economy is as tough as it is. No-one likes to raise prices in the current economic climate. We have thought very carefully about the impact on business. We need to ensure we are more closely aligning our prices to the cost of providing a service.

 Parcels are priced by weight but the size of a parcel has an impact on the cost of collecting transporting, sorting and delivering an item. For some time, Royal Mail has been losing money on delivering larger, heavier items. We are increasing parcel prices to more closely align them to the cost of handling and delivering those items, like any other business would do. We are also restructuring our parcel portfolio to make it simpler to understand and are introducing two broad parcel categories – small parcels and medium parcels. This will bring Royal Mail in line with other major postal operators, for example, in Germany, France and Italy,

 Post Offices will continue to accept parcels on behalf of Royal Mail and Parcelforce, however there will remain a maximum weight limit of 30kg for parcels posted over Post Office counters using Parcelforce.

Small businesses which send larger volumes of parcels can benefit from significant discounts on their postage costs, either through contract or franking services. Franking customers benefit from discounts of up to 18 per cent on stamp prices for parcels. Further discounts are available for contract customers. To support smaller businesses, we are reducing the minimum volume threshold that they need to send to qualify for contract parcels. This means that businesses that send over 1,000 parcels a year, and spend £5,000 or more on Royal Mail’s range of products in total, can benefit from additional discounts on their postage costs. Previously the threshold was 5,000 parcels a year.

Does this answer your questions?  It certainly doesn’t answer mine.

What can you do?

It may seem all doom and gloom but there are things you can do:

  • Do you send 1,000 parcels a year or around 20 per week? Then you should consider an online business account.  There are no size restrictions and the post costs seem to be cheaper.  Admittedly this will take revenue away from your local Post Office Counter which may be important for you.
  • Get a franking machine.  For each parcel that costs £5.65 in stamps, you can save £1.55 with a Franking machine which could cost as litte as £12 per month so if you are sending 10 parcels a month it is worth it.  However the inks in some machines can be expensive and Pitney Bowes particularly have hidden extra charges that you need to cost in.
  • Try another courier service such as My Hermes or Parcel2go but be aware that the reliability might not be what you are used to, especially when delivering to remote areas.
  • Sign the online petition – they only need 100 more people to take the petition to the next stage.
  • Write to your MP.  The support from MPs has been fantastic and the more of us write to them the more they will take notice.
  • Stay in touch with us. The next discussion document will be issued in December of this year for 2014 and you can rest assured that we will be adding our comments and thoughts and asking for yours

In our opinion the Royal Mail has not simplified the process of sending parcels at all.  We understand that they were losing money on heavier parcels but it’s the dimensions that are the most problematic for small businesses.  We will continue to monitor the situation and let you know if we become aware of any other options that can help.

 

 

Comments

Royal Mail are committing commercial suicide with these price rises. I run a small business sending many parcels to customers and now use couriers for anything over 1kg (The cost sending the same parcel with Royal Mail has doubled, I can send 2 parcels with a courier for the cost of 1 with Royal Mail.)

I have a feeling after April 2014, every parcel will have to be sent via courier.

If Royal Mail were making losses on larger or heavier items, they should have increased the prices to send those larger heavier items, simple.

Doubling prices that used to be competitive under the insulting guise of 'simplification' makes no sense for anyone, except of course Royal Mails' competitors. (Who must be laughing at their largest competitors price restructuring exercise. I bet they cannot believe their luck!)

I feel for the small post office where we used to like to send our parcels from, they are lovely people, unfortunately the crazy decisions made by Royal Mail have had a very severe impact on their business.

It is this sort of greed/stupidity that does have extremely damaging effects upon small business and probably Royal Mail itself.

Thank you for publishing the article and providing a link to the petition.
Comment by Dave - 5 Feb 2014 15:55
Hi there and thanks a lot for that informative write up. I came across your article on ebay while trawling through all the backlash from this new price hike (pure short-termism greed IMHO)

I just wanted to add this petition that I think you should publicise as I will be doing the same where I can;

https://submissions.epetitions.direct.gov.uk/petitions/46737

And on a side note, I would be very wary of Franking Companies. I worked at Pitney Bowes for a year and a half and it was atrocious.
There are too many hidden charges. It is really inefficient and can be a nightmare to opt out of, coupled with diabolical customer service. It only works out if you are have high volumes and have a proper dedicated account manager.

Good luck to all the small businesses trying to weather this new challenge.
Comment by Jafrey Hisham - 2 Apr 2013 21:46
I've just started to update my shops with the new postage prices and I'm already finding it an incredibly depressing experience. I sell a lot of vintage items - these can be fairly light but they are often bulky as they need plenty of bubblewrap to ensure that that get to their destination safely. This means that the postage on quite a lot of my vintage items is going up 100%. Horrible!

I've tried to understand the OBA but can't find anywhere on the online information that suggests this is a cheaper way to do it... only that it helps you to organise your business postage needs. Can anyone point me in the right direction re pricing for OBA.

I'll have a wee look at CollectPlus .... but I do wonder if our customers would really be happy to have to go and collect something at their convenience store...
Comment by Peony and Thistle - 2 Apr 2013 12:28
When considering other carriers don't forget to check their 'exclusions' list, I haven't found any that will take glass items so have no other option than to use Royal Mail or Parcelforce.
Comment by Ann Blunt - 2 Apr 2013 11:00
Thanks for letting us know about CollectPlus
Comment by Juliet - 2 Apr 2013 10:11
I also use Collect Plus and just cannot recommend them enough. They are absolutely brilliant and the staff who cover the helpline are always excellent, even when something has gone wrong. Parcel2go on the other hand are useless when something goes wrong. One of their couriers tried to deliver to the wrong address and it took them nearly 90 minutes to sort it, using ng the instant chat service. They don't publicise a phone number, apparently because it would cost us too much to ring them and they refused to ring me. I haven't used them since. I do use my hermes from time to time and have never had a single problem with them.
Comment by Kirsty Devine - 2 Apr 2013 09:51
Hi Juliet, I did mention CollectPlus as another alternative which is much more cost effective, perhaps you could add this option? For example if the customer picks up the parcel at their local convenience store, it's only £3.49 for up to 5kg in weight, as long as the parcel is smaller than 50x30x30 cm which is large compared to Royal Mail options. We are trying this out at the moment and have had no problems.
Comment by Loraine Birchall - 2 Apr 2013 08:25
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