I mentioned at the last WAG meeting that Royal Mail was continuing its work on trying to get approval for a change in the Universal Service Obligation (USO), and I am writing to update you with some more specific information.

The current nature of the USO means that a significant proportion of our costs are fixed, and change is needed to address that issue for letters. Indeed, as Ofcom stated in its 2022 Regulatory Review “We expect bulk letter unit costs to continue to face upward pressure over the next five years as letter volume decline trends will continue to put pressure on Royal Mail’s (largely fixed) costs”. Royal Mail is proud to deliver the USO, however it believes it needs to change to reflect modern posting habits for it to be a financially sustainable, market funded service going forwards.

You may also have seen Ofcom’s announcement this week that they are going to be gathering evidence to explore how the USO might need to evolve: Ofcom to produce potential options for the future of the universal postal service - Ofcom

Against this background, we are commissioning research to explore the viability of a number of options for the future structure of the USO, all geared towards finding a balance between a delivery service which meets future customer needs, and Royal Mail’s capacity to flex its cost base to letter volume demand.

We are formulating our plans to engage with Wholesale customers directly so that your views are appropriately captured as part of the research exercise. I do not have fixed views on how this should materialise, and would welcome views, maybe via one of the WAG/MCF channels, or direct from a customer on a 121 basis. We will be touch with you to confirm our proposed engagement approach.

In the meantime, we have commissioned an external agency, B2B International (B2Bi), to interview c50 large mailers over a range of vertical sectors, with the objective of getting a broad market perspective on the implications of a range of scenarios for  a revised USO, and its potential impact on posting customer behaviour. We expect the research to take place over the next few weeks.

B2Bi will be sourcing approximately half of the interviewees themselves, with Royal Mail providing suggestions for the other half, based on established Royal Mail relationships with decision makers, including Access Letter Contract holders, as well as mail originators who may post with you on your DSA account.

The results will be shared with Royal Mail in a way that does not identify who has been interviewed or enable us to attribute any responses to specific interviewees. We can assure you that in conducting the research exercise we will be compliant with all Market Research Society (MRS) Guidelines as well as our applicable confidentiality obligations.

We look forward to engaging with you further on this subject matter.