Examination of Witnesses (Questions 120
- 139)
WEDNESDAY 13 FEBRUARY 2002
MR MARTIN
STANLEY AND
MR GRAHAM
CORBETT CBE
120. I do not need you to manage Consignia; I
need you to understand as a regulator that it is pointless regulating
a company that cannot improve because of the appalling level of
management. No matter how many sticks you use and how hard you
beat it, it cannot improve because it lacks that basic understanding
of how to improve itself as management.
(Mr Stanley) If so, the company is going
to continue having serious problems.
121. One of my colleagues asked you a question
about the duplication of boxes and delivery staff. Do you honestly
believe that we are going to duplicate our collecting boxes that
took us 100 years to build up across this country? Who is going
to take this on? Who is going to take on the delivery staff on
the rounds in towns or villages in this country?
(Mr Stanley) Most mail is not put through
boxes; it is delivered in bags to big customers or collected in
bags by Consignia.
122. But it is delivered.
(Mr Stanley) Yes.
123. To houses?
(Mr Stanley) Absolutely. Most mail is
delivered to houses.
124. If it is delivered to houses and I have
a duplication of deliverymen, he comes to my house not, as he
used to, at eight o'clock or 7.30 in the morning but now nearer
ten o'clock and 10.30, and the very enthusiastic, excellent postman
we used to have left for a better paid job so we do not have the
same staff any more, but if he comes to the house he carries normally
several envelopes with stamps on. They have payment on the stamps
so he pushes them through the door and it might have been a couple
of pounds in delivery. Following is the other man and he is going
to deliver a couple of pound as well. I suggest that when one
man was carrying that with four pounds in stamps, it was a bit
more efficient than two men carrying that with two pounds in each
in stamps. You have to improve your efficiency a hell of a lot
to cut out that sort of duplication.
(Mr Corbett) That is precisely why we
have said that we see very little likelihood in the short term—perhaps
even in the longer term—of duplication of the last mile
of delivery. That is the business which Consignia does extraordinarily
well. We want to be able to provide them with the opportunity
of expanding that business by taking more of it fed in from other
places.
125. We are not going to have a duplication of
boxes or delivery so how does a customer, as a person rather than
an MP, go about seeing the benefits of this miraculous change
in competition?
(Mr Stanley) We are not the managers
so I am repeating what I am told but we are told that the main
problems with the Royal Mail are not in delivery, but in the overnight
sorting which is not very efficient and in the logistics, the
use of vans and that sort of thing. A lot of vans are running
around half empty. The network is very rigid so if one little
bit goes wrong the service quality falls very quickly. We do not
know but maybe they ought to do what the Germans have done which
is cut the number of overnight sortings down to two through mechanisation.
You would then get a more reliable service and more efficiency.
You cannot ask the postmen and women to carry heavier or more
bags. They have enough work to do as it is.
126. I would not want to carry all that rubbish
they keep putting through the door. Their workload has increased
tremendously in the last few years.
(Mr Stanley) Could I give you one example
of how delivery might in a sense be made more efficient? At the
moment, the men and women start sorting the mail at five in the
morning and finish at 10.30. I cannot understand why there is
not a daily, same day delivery service in London. All those vans
do not do anything. There are men and women who do not do anything.
Maybe we could employ more men and women at a good price because
at the moment those of us who need to send stuff same day have
to spend £10 or £20 on a courier. Why does not the Royal
Mail, for instance, offer a same day service in London for a pound?
127. Why does it not become more competitive?
Why do they not beat up the competition by tendering as some places
do? When you push up your demand in a local area, you do not pay
27 pence. You pay 10 pence. You get a contractor in to push them
through every door in the area so the post can come in and compete
at that level. Then they have got you on their backs because they
are acting in an inappropriate manner, uncompetitive, stopping
entrance into the market place.
(Mr Stanley) I do not think a same day
London service would operate at 10p. It would probably be expensive
but we would all pay. Most of us would happily pay more than 27p
or more than 50p for that service. Consignia do not think about
doing that. We hope that freedom and encouragement to compete
will lead to that sort of thing.
128. The 10p is maybe where you deliver your
rate demand because they go from house to house and it is quite
cheap. If you wanted same day delivery it could have that sort
of arrangement.
(Mr Stanley) There is tons of scope for
fair competition.
129. One of the answers I had to smile at was
regarding fixed and variable costs and the difference between
them. You and I know that fixed costs are variable in the long
term but we know the convention, do we not? Wages are fixed costs
because they have trade union agreements. You cannot get rid of
staff and in the short term they are fixed. We are talking about
normal convention where you take a period of time like a year
and you cannot get rid of a building, a sorting machine or a van
very easily so we recognise that fixed costs are fixed. If you
want to argue on semantics with the Post Office and say, "I
am sure you can reduce your fixed costs" I can do that. It
is a pencil exercise but the places are either reduced or you
shut them down and get rid of them.
(Mr Corbett) I do not want to engage
in semantics. The point we are talking about here is an extremely
important one. The overriding belief within Consignia over a number
of years was that fixed costs were fixed costs and you could not
do anything about it. What any other organisation facing competition
and a fluctuating market share has to do is to be prepared to
re-examine its fixed costs over time. I absolutely accept that
these are not things that you can generally speaking do within
a period of months—maybe not even in a year or so, but the
preparedness to face up to the burden of your fixed cost base
and do something about it is absolutely a crucial part of a competitive
organisation. That is one of the incentives that we need to build
into Consignia.
Mr Jenkins: The way we look at it is very much
in accountants' terms but if you look at it in economists' terms
and decide on a management basis, you would not let an asset such
as a sorting machine run for two or three hours a day and shut
it down. You would run it continuously and you would utilise your
asset and maximise its usage. It is a management problem that
we have here and an efficiency problem but the system, as far
as competition is concerned, is very difficult.
Mr Bacon
130. Mr Stanley, you said that in a few years'
time you hoped, once it had cut its costs, Consignia would once
again be a great company. How do you understand Consignia is going
to go about cutting its costs?
(Mr Stanley) As I understand it, the
main areas they want to look at are, first of all, outside the
mail business. Parcel Force has problems and the Post Office network
has costs in there which they are looking at. Within mails, on
their own figures, the major sorting centres are probably only
running at around 65 to 70 per cent efficiency. If you go in there,
you can see what they call their EP, which is a proportion of
how efficient they could be if they were run effectively. There
is efficiency to be had there. A lot of efficiency too is to be
had, I understand—it is not our responsibility—in
terms of logistics, getting the mail around more effectively,
re-examining the way they run the mails. It has not changed for
decades, if not hundreds of years.
131. They are sacking 30,000 people, it was announced
just before Christmas. That is presumably related to cutting costs?
(Mr Stanley) It was before we brought
out any of these proposals. It is more a reaction to the fact
that they have known they have had efficiency problems for some
time but they have been brought up hard against them by—
132. Is the sacking of 30,000 people related
to cutting costs?
(Mr Stanley) Absolutely.
133. Mr Gibb mentioned earlier about how volumes
had increased hugely. My own local Post Office in Mulbarton gets
40 sacks a day. 10 or 15 years ago, they got six or seven sacks
a day. Can you explain to me how 30,000 fewer people are going
to cope with this increased burden?
(Mr Stanley) I do not know how they calculated
the 30,000.
134. I am not interested in how they calculated
the 30,000. I am not interested in you trying to guess how they
calculated it. I am asking a simple question: how do you improve
the service? How do you ensure that each postman or post woman
does not have more to carry when you have 30,000 fewer postmen
and women?
(Mr Stanley) You make sure you do not
cut any numbers of people carrying bags. You look at the huge
operations—
135. Of the 30,000 people, do you know how many
are people carrying post?
(Mr Stanley) I do not.
136. It may be all 30,000? You do not know that?
(Mr Stanley) Every conversation we have
had with Consignia would suggest they are not, but—
137. The announcement was made a couple of weeks
before Christmas that Consignia was sacking 30,000 people with
consummate timing. You are the regulator for the industry. Do
you mean you did not get on the phone instantly and ask for an
analysis of who these 30,000 people were and the sectors they
were in?
(Mr Stanley) No, we did not, because
we are very chary of getting involved in management decisions.
138. You do not know for sure? It could be the
case that these 30,000 people are all people who are carrying
letters and you would not know it.
(Mr Stanley) I would be extraordinarily
surprised, but—
139. I am not asking whether you are surprised
or not. It is possible.
(Mr Stanley) It is possible.
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