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Posts Tagged ‘Royal Mail’

The Royal Mail

With Christmas approaching, sales will once again begin to rise and cards will be written. Mail services will be at their busiest as we post millions of cards and parcels every day. But, the question is: will they arrive? Workers in the supply chain at Royal Mail have voted to strike over pay.

Since the part privatisation of Royal Mail, many criticisms have emerged, ranging from the price at which shares were sold, the efficiency of the Royal Mail, suggestions of varying prices for delivery depending on location, and now over pay. As with any labour market, there is a demand and a supply of workers and the intersection of these curves creates our equilibrium wage. If the wage is forced up above the equilibrium wage by the actions of trade unions, then there is the potential for unemployment to be created.

The Communications Workers Union (CWU) feels that their pay is insufficient. Dave Ward, Deputy General Secretary of CWU said:

“Thanks entirely to the unreasonable attitude of Post Office management, a pre-Christmas national strike is looking inevitable…The workforce has made a major contribution to the company’s success and have every right to their fair share.”

However, the head of the supply chain at Royal Mail has responded to the threats of strike, referring to the 5% pay rise promised to its workers over the next three years, saying:

“We are undertaking the biggest modernisation programme in UK retail history to ensure we become commercially viable and reduce our reliance on public money…We urge the CWU to reconsider their unrealistic demands and discuss an affordable pay deal rather than call strike action which can only cost our people money.”

The row over pay is not the only way that job losses could emerge. A major criticism levelled at the Royal Mail is its lack of efficiency, especially in terms of cost reductions and work flexibility. The Royal Mail has become increasingly concerned by competition, especially as its low-cost competitors can choose to whom they deliver. Those living in built up areas receive mail, but for those living in more rural areas, some of Royal Mail’s competitors will not deliver there, because of the higher costs. Royal Mail does not have this luxury and hence must deliver to loss-making places. Royal Mail says that this is creating unfair pressure to its business and is calling for these competitors to be forced to deliver to rural areas and small businesses. However, one such company, Whistl, has said that the figures from Royal Mail suggest that ‘productivity is not a sufficiently high enough management priority.

If the strike does go ahead in the build up to Christmas, then the management priorities of Royal Mail will certainly be under scrutiny. The following articles consider the current situation.

Exclusive: Ofcom to criticise Royal Mail efficiency Independent, Mark Leftly (24/11/14)
Post Office facing pre-Christmas strike action BBC News (18/11/14)
DPD seeks to put Royal Mail under further pressure with hiring Financial Times, Fill Plimmer (23/11/14)
Royal Mail’s Moya Greene should stop whinging and start delivering The Telegraph, Jeremy Warner (22/11/14)
CWU deem Post Office strike over Christmas ‘inevitable’ Post&Parcel (19/11/14)

Questions

  1. If there is strike action in a labour market, what can we conclude about the market in question in terms of how competitive it is?
  2. Is strike action completely pointless?
  3. What actions could workers take, other than strike action, to achieve a resolution of their grievances? Discuss what employers could offer in an attempt to resolve the situation?
  4. What are the arguments for making Royal Mail’s competitors deliver to all places, just as the Royal Mail must do?
  5. The efficiency of the Royal Mail has been called into question. If efficiency improved, would this mean that pay rises were more or less feasible?
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Postman Pat

Calls for an independent Scotland have focused on a variety of economic issues. These have included taxation, government spending, currency, fiscal policy and monetary policy. However, the BBC News article below looks at another factor which may be affected by a ‘yes’ vote – the price of stamps.

Having just returned from 10 days in the Highlands, I certainly agree with the BBC article that it would be an expensive business to deliver to the remotest parts of Scotland and would definitely require ‘trains, planes, ferries, Land Rovers and vans’ and, in an extreme case, a fishing boat.

So is the price we pay for postage to less rural areas of the UK used to subsidise the higher costs of delivery to the remotest parts of Scotland and, in particular, to the small islands off the Scottish coastline? What would a ‘yes’ vote mean for the cost of stamps in Scotland and in the remainder of the UK? The following articles consider this rather odd question.

Why postage should be cheaper in UK if Scots vote ‘Yes’ BBC News, Brian Milligan (19/4/14)
Tories warn over post service costs The Courier (6/4/14)

Questions

  1. What happened when the Royal Mail was privatised?
  2. What are the benefits and costs of privatisation?
  3. Using a cost and revenue diagram, explain how the different costs of delivery between urban parts of the UK and the remotest parts of Scotland should be reflected in different prices of postage.
  4. If the price of postage is the same for delivery everywhere in the UK, use your diagram to explain how this happens.
  5. What does your diagram suggest will happen to the price of postage stamps if a ‘subsidy’ is no longer available?
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Stamp ‘profiteering’

46p – that buys you a First Class stamp. However, the price will now rise to 60p and the price of a Second Class stamp will increase to 50p from 36p, as Ofcom lifts some price caps. These significant price rises have seen shortages of stamps emerging across the country. As people anticipate the price rise, individuals and businesses are buying up stamps while they remain relatively cheap.

The problem is that this has started to result in a stamp shortage, so much so that the Royal Mail has now begun rationing retailers’ supply of stamps, capping each retailers’ supply this month to 20% of its annual allocation. A Royal Mail spokesman said:

“We are more than happy for retailers to receive the normal commercial return they obtain on stamps and no more than that … That is why we have put in place a prudent allocation policy to safeguard Royal Mail’s revenues and ensure there are more than enough stamps for people to buy both now and in the future.”

With postage volumes falling, as individuals turn to other methods of communication, Royal Mail says that this price rise is essential to keep this universal service going. Revenues have been low and the Royal Mail has been loss-making for some time.

However, while the price rise may help the Royal Mail, many businesses may suffer in its place. One optician, who sends out approximately 5,000 reminders to patients each year intends to bulk-buy 10,000 stamps in the hopes of saving some £1,400 when prices of stamps rise. An IT worker bought 20 books of 12 first-class stamps and said ‘If I could afford it, I would buy a lot more’. Many are unhappy at the ‘shameless profiteering at the public’s expense’, but whatever your opinion about the price rise, it does make for an interesting case of demand and supply. The following articles consider this stamp shortage.

Man’s 10,000 stamp panic: stampede for stamps leaves a 1st class mess as Royal Mail introduces rationing ahead of 30% price rise Mail Online, Colin Fernandez and John Stevens (15/4/12)
Stamps rationed by Royal Mail in run up to price rise (including video) BBC News (13/4/12)
Stamp rationing could hit pensioners Telegraph, James Hall (14/3/12)
Stamp sales limited ahead of price hike Sky News (13/4/12)
How stamp collecting came unstuck Guardian, Hunter Davies (13/4/12)
Royal Mail limits supply of stamps ahead of price rise Telegraph, James Hall and Andrew Hough (12/4/12)
’Profiteering’ Royal Mail limits supply of stamps before price rise Guardian, David Batty (13/4/12)
Royal Mail’s stamp price rises come into force BBC News (30/4/12)
How businesses will be affected by Royal Mail’s changing prices BBC News, Catherine Burns (28/4/12)

Questions

  1. If people expect prices to rise, what will happen to the demand curve? Illustrate this idea on a demand and supply diagram?
  2. If suppliers anticipate a price rise, what would their best strategy be?
  3. On a demand and supply diagram, illustrate the shortage of stamps that has emerged. If left to the free market, what should happen to the price of stamps?
  4. Why could pensioners and those in rural areas be the most adversely affected by this shortage and price rise?
  5. Why could ‘children and new collectors’ be priced out of the market?
  6. Why will small businesses be affected by this price hike? How could their customers be affected?
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Privatising Royal Mail

What is the future of the Royal Mail? One thing for certain is that it needs an injection of money, which has led the government to consider either privatisation of the Royal Mail or selling it. Over the past years, we have seen continued strikes by the postal service in response to proposed changes in working practices. Mr. Cable commented that:

‘Royal Mail is facing a combination of potentially lethal challenges – falling mail volumes, low investment, not enough efficiency and a dire pension position.’

However, there are concerns that the privatisation or sale of the Royal Mail could lead to higher prices, job losses and further pension problems. The transfer of the Royal Mail to the highest bidder could shift the pension deficit, currently standing at £13.3 billion, to the taxpayer, potentially costing each taxpayer £400. The choice for the public is stark: either lose the right to send a letter anywhere in the UK for the same price or take on postal workers’ pensions.

Expecting massive opposition from the Communication Workers Union (CWU), Ministers are looking to pursue an arrangement similar to that of John Lewis, whereby staff are given shares in the company. This will give the staff an incentive to perform well to improve the performance of the company and hence increase their future dividend. Read the following articles and then try answering the questions that follow.

Royal Mail is to be privatised, government confirms BBC News (10/9/10)
Royal Mail sell-off is confirmed BBC News, Hugh Pym (10/9/10)
Royal Mail privatisation backed Press Association (10/7/10)
Royal Mail sale could cost £400 per home as taxpayers set to fund £13.3 billion pension deficit Mail Online, James Chapman (10/9/10)
Royal Mail pension plan challenged by regulator BBC News, Ian Pollock (30/7/10)
Ministers consider offering 20 per cent of shares in Royal Mail to staff Telegraph, Christopher Hope (10/9/10)
Cable to privatise ‘inefficient’ Royal Mail Independent, Cahal Milmo and Alistair Dawber (11/9/10)
Royal Mail revolution needed, say bankers Telegraph, Louise Armitstead (10/9/10)

Questions

  1. What are the problems that the Royal Mail is facing? Why have they occurred?
  2. What are the arguments for and against privatisation of the Royal Mail?
  3. How might privatisation lead to job losses and higher prices?
  4. What type of business arrangement does John Lewis have? Explain why this may improve overall performance of the company?
  5. If the pension deficit is passed on to the government, why will it cost the taxpayer? Is such an arrangement (a) efficient (b) equitable? Explain your answer.
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The Winter of Discontent: the sequel?

You may ask how on earth bins are related to the post. The simple answer is that these are two things that may not be collected. They say that one wedding brings on another, but it looks like that this also applies to strikes. The Winter of Discontent in 1978-9 saw widespread industrial action, where the country almost came to a stop. Is this really where we are now?

The postal strike has been widely publicised, but it’s not just your post that may not arrive. Bus drivers have been striking against First Bus in Greater Manchester and various other places following pay freezes. British Airways is to face the possibility of strike action over new contracts, working practices and pay freezes after talks broke down. The Spanish company Iberia had to cancel over 400 flights over two days due to protests, and in Leeds, rubbish hadn’t been collected for eight weeks.

So, what’s causing all of this discontent? Are we going to see more and more workers protesting over contracts, hours of work and notably pay?

One key thing about strikes is that they affect everyone, whether it’s walking past piles of bin bags; not receiving birthday cards; getting to work late; cancelling holidays or receiving fines for late payment, and even for not submitting your tax returns. These are all problems that people have been facing, not to mention the loss of income some businesses have seen, especially resulting from the postal strike. With the government looking to reduce public-sector debt by increasing taxes or spending cuts, including public-sector pay freezes and controls on banking bonuses, we could be in for another winter of discontent with further disruptions to come.

Gordon Brown faces ‘winter of discontent’ with further strikes Telegraph, Alistair Jamieson (26/10/09)
Christmas travel threat as BA cabin crew vote on strike The Times (27/10/09)
British Airways boss enjoys jolly in Las Vegas as Christmas strike is threatened Mirror, Clinton Manning (27/10/09)
Iberia cancels over 400 flights scheduled for today and tomorrow Avio News (27/10/09)
India’s Jet Airways reports loss, shares plummet AFP (27/10/09)
Hundereds of flights cancelled as Iberia workers go on strike Gadling, Sean McLachlan (26/10/09)
British Airways strike could be in the works again Travel News (8/10/09)
Leeds binmen strike: Union view Yorkshire Evening Post (26/10/09)
Pay row bus drivers strike again BBC News (26/10/09)
Postal union and bosses in war of words Mirror, Clinton Manning (26/10/09)
Postal strike hangover could hit Christmas Guardian, Jamie Doward and Martin Wainwright (25/10/09)
How the postal strike might change Britain BBC News Magazine (27/10/09)
Postal strike costs London £500m Parcel2Go, Tom Sands (26/10/09)
Postal strike: union warns of more disruption over £7 billion pension deficit Telgegraph, James Kirkup (26/10/09)
Postal union plans legal action BBC News (27/10/09)
Postal strikes: union takes legal action over temporary Royal Mail staff Telegraph (27/10/09)
Origins of the Royal Mail strike BBC News (22/10/09)
Pass notes: 2,672: The winter of discontent The Guardian (27/10/09)

Questions

  1. What is the purpose of a strike and how effective are they likely to be? What are the costs?
  2. One of the reasons for strike action is pay freezes. What happens in an individual labour market when pay is frozen? What happens to the demand and supply of labour? Illustrate your answer with a diagram.
  3. Some news articles have referred to ‘picket lines’ forming. What are they?
  4. What is the difference between collective bargaining and individual bargaining? Which is more effective?
  5. Illustrate on a diagram the effect of a trade union entering an industry. How does it affect equilibrium wages and equilibrium employment? Is there any difference if the trade union faces a monopsonist employer of labour?
  6. Do you think the strike action is right? Why or why not? What are the things you have considered?
  7. Discuss whether we are heading towarads another ‘winter of discontent?’ Can it be stopped?
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