TNT Post, Royal Mail’s largest private sector rival, plans to go head-to-head with the state-owned postal operator by launching its own delivery service for bulk and direct mail. 

The move would break Royal Mail’s near monopoly of the “final mile” of delivery of letters to homes and offices and could create thousands of jobs at TNT Post.  We’ve trialed the service in Liverpool and are now looking at launching it in other urban centres. 

“Watch this space. We will be extending our plans this year. It will not be long before you see orange postmen on the streets,” said Nick Wells, chief executive of TNT PostUK, referring to the Dutch-owned company’s distinctive livery. 

TNT Post collects sorts and transports mail for customers including Revenue & Customs, BT, Centrica and Sky. But like other private sector operators, it relies on Royal Mail’s postal staff for the final mile. 

Mr Wells said the move, which would have to be approved by Ofcom, the regulator, could lead to thousands of new jobs at TNT Post, which employs 1,500 in the UK. Its annual turnover is more than £500m ($786m). 

It would be another headache for Royal Mail. The coalition plans to privatise the company, probably in stages, but is not expected to do so until at least 2013, in part because of its fragile financial state. 

Royal Mail increased operating profits to £67m in the six months to September, but its letters and parcels business lost £41m and the daily postbag continued to fall because of the shift to email and social media. 

While Mr Wells’s move would create jobs at TNT, it could accelerate job losses at Royal Mail, where the workforce has already fallen by 50,000 to 163,000 over the past decade. 

The biggest barrier to TNT’s expansion plan is that it has to charge value added tax at 20 per cent while Royal Mail does not. It is challenging the disparity at the European Court of Justice but ministers show no interest in ending Royal Mail’s exemption, which would reduce its attractiveness to a private sector buyer. 

Royal Mail has the exemption because of its universal service obligation, which ensures six-day-a-week deliveries at uniform price to every address. Mr Wells said that it would be “outrageous” if the VAT exemption continued after privatisation. 

Ofcom has proposed to free Royal Mail to set prices for most of its products as part of a lighter-touch regulatory regime. Royal Mail would be free to set wholesale prices for access to its network for competitors such as TNT Post and UK Mail, subject to transparency about costs and monitoring by the regulator.

Source: Brian Groom, Business and Employment Editor, Financial Times