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30 Oct 2002 : Column 297WHcontinued
Sue Doughty (Guildford): Parcelforce is a wholly owned part of Consignia, which is run by the Government; or not, depending on how one looks at it. We have a strange problem, in that Parcelforce has failed to make a profit for 10 years, but now it looks suspiciously as if areas of Parcelforce's business might turn in a profit. However, it has started choking on the part of its business that might make a profit. During the company's restructuring, it pushed a different type of service on to its customers. It said that that service would be better, but was amazed when the service was accepted; it said, "We did not expect you to do this."
The company is owned by the Government and subject to regulation. I have written to the Secretary of State about the company, and I hope that the Minister knows about the problems that we have encountered. The company seems to be rushing headlong over the cliff despite the fact that the problems are avoidable. Parcelforce's operation could affect many people; people in business who sell goods and use Parcelforce to ship them to customers and people who enjoy shopping from their homes and receiving deliveries.
One of my constituents drew the problem to my attention. He owns a successful mail order company that has been in business for many years. It employs 35 people and dispatches 40,000 items a year. It pays its bills on time and does a good job. It delivers to household addresses, does catalogue work for itself and others and deals with offers in newspapers. For example, people might read their favourite newspaper and scan it for readers' offers to find the garden gnome of their dreams. They might think, "That's just the offer. The price is right. What's the charge for postage and packing?" Such a person might send away for the garden gnome to complete a collection, and my constituent might handle that business. He would wrap up the gnome, take the customer's details, sort out the money and label up the package. Parcelforce would then deliver the package, or that was the plan.
At this time of year, demand for such services increases due to a seasonal uplift. Looking at my favourite garden gnome, I might think, "Gosh! Wouldn't my dad really like a garden gnome? I'll send for one for him for Christmas." The time at which the events that I shall discuss happened is pertinent to seasonal uplift. Businesses print their catalogues around August because they want an uplift of their autumn and winter trade. Their prices must remain consistent, which is an important part of the running of the businesses.
My constituent has used Parcelforce for many years. He has considered other carriers but decided that Parcelforce understands the business. Parcelforce said that it could provide a better service using track and trace technologyI shall refer to that laterwhich was essential. My constituent invested £12,000 in software to run the technology, so that if a customer rang up to say, "I haven't had my garden gnome. Is he lost?" my constituent could reply, "No. He is running around a particular depot and you, madam, will receive your garden gnome tomorrow." That is important and it is what customers expect in this day and age.
After Parcelforce's announcement of the restructuring and rationalisation of its business, it met each of its customers to explain that it was withdrawing its 72-hour delivery service but could provide a 48-hour delivery service at an increased price. All the businesses said, "We do not want to hear that. We have already published our prices, but we accept that we will have to take that hit because we feel that Parcelforce is the right company to do business with. Having examined the options, we feel that the company is the only one we can do business with."
In June, Parcelforce said that it was withdrawing the 72-hour delivery service and would provide a 48-hour service, which could be better for customers. However, that service is offered at the increased price of £3.20 a parcel. On 22 August, after the contracts had been signed with all its customers, Parcelforce went back to those customers and said that it was sorry, but it had got its sums so badly wrong that it could not renegotiate on price. It then said to some, but not all, of its customers that it would stop working for them in three weeks, although the contract had been signed for a year. That was Parcelforce's approach.
Some of the parcels business is being absorbed by the Royal Mail, but mail order businesses do not have parcels that are all of equal weight. For a book-ordering business, a transfer to Royal Mail might be possible and, if so, Royal Mail has options to pass business on to others. However, that choice was not offered to my constituent. He asked Parcelforce if he could pay a higher price rather than look around to see what other options were available. Parcelforce said that he could not pay a higher price because it could not take his business.
There is no problem with Parcelforce wanting to make a profitthat seems a sensible thing for it to dobut what will happen to my constituent's business? If he gets his costs wrong, it could be the difference between being in business and going out of business. It is possible to absorb price rises. It may be tight and businesses do not like doing it, but in the interests of continuity they may decide to do so until they enter into a new contract.
Other issues would arise if my constituent moved his business to another company. The issues around domestic delivery are very different from those of commercial delivery. If a parcel is delivered to one of the big commercial companies, there is always someone there to sign for it and delivery is usually no problem. A signature is also needed for domestic deliveries, but an arrangement needs to be made for cases in which the customer is out. Is the price of delivering on an alternative day or holding on to the parcel included? Is there a different price for delivering to a different address?
Domestic deliveries work in a different way. If someone orders, for example, a set of garden gnomesa whole familythe price is related to weight, not to where the person lives. There is a universal price. If there is an established relationship with a customer, there are cages in which to pack things so that they are transported safely. Is international delivery possible,
Mr. Alistair Carmichael (Orkney and Shetland): I agree with absolutely everything that my hon. Friend has said so far. The impact on end customers in my constituency is more fundamental, because if her father wished his garden gnome to be delivered to Orkney or Shetland, for example, he would probably find that, in the small print of the terms and conditions of the Sunday supplement, the delivery would not be free or cheap. In many instances, delivery would not be made at all to those islands. Even if delivery were possible, there would very often be an extra charge of £15, £20 or even £30 for the package.
Mr. Alan Reid (Argyll and Bute): I am grateful to my hon. Friend for giving way and for making the point about remote parts of the country. Is she aware that Parcelforce has drawn a line across the country, stretching from Fraserburgh on the North sea to Arrochar at the head of Loch Long, and that those living north-west of that line are disadvantaged, because prices are doubled for delivery to that area? For example, in two villages that are seven miles apart, it costs more than double to deliver to the village that is further away.
Sue Doughty : I cannot answer that, but I thank my hon. Friend for drawing that to my attention, because we do not have those problems in the south of England. The point of mail order is to help those people who cannot get to shops. That includes people with disabilities, pensioners and people who do not have their own transport. A range of people want to shop at home, but may not be able to choose other places.
The problem cuts across other Government initiatives, such as e-commerce. I believe responsibility for postal services lies with the same Department as e-commerce. If my father, for example, had chosen his favourite garden gnome from a website and wanted it delivered to the north of Scotland, the e-commerce company might be deeply unhappy. The problem does not just apply to my constituent's business; it is much more widespread. My constituent contacted 15 companies to try to get them to take on the business. They had all sorts of reasons why they could not deliver: for example, they did not deliver in different parts of the country, there was differential pricing, they could not track the parcels and they did not have any arrangements to deal with signatures for domestic deliveries. Even worse, many of the 15 were going to come back with a price but had been rung by other mail order companies and backed off.
I wrote to the Department of Trade and Industry, and hoped for an answer in three weeks. I rang and rang and, eventually, an extension was given. However, that did not really help because it takes six months to bed in a new supplier, not six weeks. There is some discrimination going on, as well. There is another mail order company on the same trading estate as my constituent's business. In fact, it is a competitor. One was allowed to renegotiate the price, but not the other. Is that fair?
We wrote to the Office of Fair Trading. It replied that it was not its responsibility, but that of Postcomm. We contacted Postwatch, which seems to be rapidly going out of business, and were told that it had nothing to do with such cases, and in any case the man I spoke to was about to leave his job. That was the end of that.
Dr. Vincent Cable (Twickenham): Is not the essence of the problem that the company has a de facto monopoly in many areas of its business and is abusing that monopoly, and that the regulator isfor whatever reasonunable or unwilling to intervene?
Sue Doughty : Absolutely, and that is clear when we address the real nature of Parcelforce. The Government made it clear to me that the activities of Parcelforce were a commercial matter for the board of Consignia. However, we are now learning from Postcomm that Parcelforce may be in breach of its licence. I should like the Minister to follow that up with Postcomm, look at the licensing terms of Parcelforce and check whether Parcelforce is in breach of its licence. If it is a commercial issuewe have no problem with Parcelforce becoming commercial, and no problem with competitivenesswhere do we stand?
Let us consider the Government's history on the issue. In March, the Secretary of State announced the restructure. She said that Parcelforce Worldwide would concentrate on the growing market of guaranteed next-day and two-day deliveries in the UK and overseas, and transfer its universal service to the Royal Mail. However, when Parcelforce was renegotiating its contracts in June, was it looking to fit its customers into that growing market of 48-hour guaranteed deliveries? My constituent was moved on to that basis; it cost him more but he accepted it because he thought that there would be benefits, as well as disbenefits.
I have brought the matter to hon. Members' attention not only because I am deeply concerned about my constituent, but because I want to raise with the Minister the inconsistencies involved. The Government own the business. On 28 May last year, the then Secretary of State denied privatisation plans.
We must query the role played by Postcomm. It stated that the "threat of competition" is the best way of dealing with Consignia's inefficiency but, as my hon. Friend the Member for Twickenham (Dr. Cable) said, there is no real competition in the domestic delivery market; we wish that there were. To achieve what we want, consumers must be taken into account. Yes, let it make a profitthere is nothing wrong with thatbut it is important to maintain the domestic market, and nothing is happening to generate that. It is rather like the Government taxing fuel to manage a traffic-related problem, yet failing to invest in alternative transport.
I have other concerns. Do the Government really know what is going on with Consignia and Postcomm? Does Postcomm really know what Consignia is doing? Although Postcomm is now on the case, does it really understand what is happening? In April and May this year, the then Minister implied to the Select Committee on Trade and Industry that he had cautioned Postcomm about the possible effects of its proposals and stressed the need for Consignia to share information.
My constituent starts with a new supplier this week. He will work hard to make the system work, but switching takes six months, not six weeks. If there are snags in the system, his business will get the blame. When other mail order companies or newspaper businesses are looking for another supplier, he may fail because his track record has been damaged by the teething problems that he has encountered. I hope not, because he is desperately keen to make it work. How will all the other suppliers that are being dumped fare? Many jobs will be lost in those companies, as well as at Consignia, and the Government may be hearing from them before too long.
The process will be very difficult for everyone, but it is very much needed. The company showed a pre-tax loss of £1.2 billion for the last financial year. Much of that comprises exceptional costs from restructuring, but there was still an underlying loss of £318 million on its day-to-day operationsabout £1.2 million for every single working day. Turnover in that year grew by 3.6 per cent., but there was a 4.8 per cent. rise in costs. Clearly, such losses cannot continue. An aim of the renewal plan that has been announced by Consignia is that losses will be eliminated and the company will return to profit in the next three years.
The Government's view is that greater commercial freedom in the public sector is the right way forward for the Post Office. We know that in exercising its new freedoms, some decisions were made that, with the benefit of hindsight, were wrong. In his announcement, Allan Leighton made the point that
The Government have agreed a package of measures to help put the company on the right financial footing. They were outlined by my right hon. Friend the Secretary of State in June. The company will be able to use its balance sheet reserves of £1.8 billion, which represent accumulated past dividends and cash generated by the business, to back investment in the mails business to implement the renewal plan and to support the nationwide network of post offices, subject where necessary to the relevant state aid clearances. In addition, the Government do not intend to take any cash out of the business by way of dividends during the three years of the renewal plan.
Let me turn specifically to Parcelforce and the points that were raised by the hon. Member for Guildford (Sue Doughty) and other hon. Members. Parcelforce has been losing £15 million per month. As the hon. Lady said, in its 10 years it has never made a profit and has now amassed losses of nearly £400 million. Repeated attempts to make it work have not succeeded. Clearly, the situation could not be allowed to continue, because losses on the parcel business were draining the rest of the business of much-needed investment. For the sake of the company as a whole, the board decided that it had to restructure Parcelforce's operations in order to achieve profitability.
Radical reshaping has begun. Once it is complete, annual savings will be £500 million. In the future, the company will concentrate on high value, time-guaranteed express services. It has withdrawn its standard three-days-plus delivery service and is reducing its depot network from 100 depots to 51. The changes will mean that Parcelforce will have a capacity of 40 million parcels a year, reduced from 120 million in the past. The company considers that trading in excess of that capacity would put at risk the quality of service provided to its remaining customers. In particular, Consignia is concerned that delaying the restructuring or not going ahead with it would result in the board reconsidering the possibility of closing Parcelforce completely, with the loss of a further 5,000 jobs. Therefore, it is most important that the changes are put into effect.
Parcelforce will be smaller but it will be more efficient and competitive and better able to respond to the needs of its customers. It is in a fully competitive market, in which many hundreds of competitors offer courier and parcels services.
Mr. Carmichael : I am very interested in the Minister's remarks about competitive markets and commercial freedom. Today, he has heard a description of the deregulation of Parcelforce, which has meant the end of a universal service for my constituents. Postcomm seems hell-bent on doing exactly the same thing to the delivery of letters. Will what happens to letter post be any different from what has happened to parcel post?
Mr. Timms : It is important to emphasise that a universal parcel service will continue. Consignia is licensed to provide a universal postal service by Postcomm, which can take action under that licence if Consignia fails to meet its obligations. The Parcelforce division of the business will not deliver the universal service, but will be integrated into the Royal Mail, which will, of course, operate on the basis of a uniform tariff. Consignia will continue to meet the universal service obligations that we have enshrined in legislation, and the Royal Mail will take on that task. People will be able to send parcels from their local post office, just as they do now, at a uniform tariff to every part of the country.
I want specifically to comment on the case raised by the hon. Member for Guildford. She has pursued it diligently, and I commend her on that and the work that she has done on behalf of her constituents. She will recognise that Consignia now has greater freedom to operate commercially without interference from the Government, and that it is for the company to determine how to deliver a range of services that best meet its customers needs and to decide the structure it needs to deliver those services.
As a result of decisions taken by Parcelforce, there is no doubt that some services used by some customers will be changed, or even withdrawn altogether, and replaced by others. I understand that 350 out of the total 30,000 account customers will be affected by the termination of express contracts in the way in which the hon. Lady has outlined, due to the reduction in capacity by Parcelforce. That is because Parcelforce has concluded that it cannot serve those contracts profitably.
Consignia has also offered to support the company in reconfiguring its software systems to allow them to be used with the new supplier. The hon. Lady made a fair point about the difficulty facing the company in changing its system, which it had recently done, making a substantial investment in doing so. It is absolutely right that Consignia should make an offer, which I understand has been agreed, to help the company to reconfigure its system to deal with the new supplier.
Mr. Timms : It is helpful that an alternative supplier has been found. The hon. Lady was right to draw attention to the importance of e-commerce because online purchases increased by more than 40 per cent. last year; it is an area of rapid growth. It is important that the needs of everybody in the industry should be met, whether they are supplying garden gnomes or other products. Given the variety of suppliers in the marketplace, we can expect that to happen.
The hon. Lady referred to the Office of Fair Trading, which investigated the case and concluded that Parcelforce did not infringe the requirements of competition legislation. I understand that Postcomm is considering whether there was a breach of the licence conditions, and it will shortly notify the hon. Lady's constituent of its conclusion.
I well understand, as do all hon. Members here, the desire of many of Parcelforce's customers to remain with a well-known and trusted postal service supplier. Royal Mail and Parcelforce will between them continue to offer a wide range of services, including the standard universal service, at a uniform tariff to every part of the country and a range of competitive services that have been developed to compete with other suppliers