By switching to a charging system based on the size of a letter rather than its weight the Royal Mail is expecting to make savings. But the changes could also benefit its customers. Geoff Haw explains why weighing and franking may soon become practices of the past
12 November 2004
The Royal Mail is proposing to switch from the traditional weight-based pricing to a system based on the size of the outer envelope. Essentially, pricing will be based upon the length, width and depth of an envelope.
Currently, the charge levied by the Royal Mail for all mail processed (through stamps and franking) is based upon the weight of the item. But, it has been apparent for some time that the size, and not the weight, of an item of mail is the key cost driver of the postal service.
The most cost-effective processing involves small, flat uniform-size letters which can be sorted using machines, fit easily through letter boxes and into mail bags. As the Royal Mail currently charges by weight alone, the small items such as C5 envelopes are cross-subsidising the large and bulky but lightweight items.
Although the new pricing method is not due to take affect until September 2005, the change will have an impact on the format of and equipment required to process outgoing mail, and therefore needs to be taken into account now. In essence, the new pricing structure will mean that the smaller the envelope, the cheaper the postage cost. The majority of items will no longer require weighing and franking.
It currently costs 28p to send an unfolded single page A4 statement via first class Royal Mail. From next year the cost of sending the same item will increase to 46p. But, if the format is changed and the letter folded into a C5 size envelope, the cost would remain the same at 28p.
For example, Company A routinely sends out 1,000 single sheet A4 statements by first class Royal Mail (all under 60g) which are inserted (unfolded) into an A4 envelope. The cost for despatch of these items under the current and proposed systems are as follows:
Current (weight-based charging) -
1,000 x £0.28 = £280
Proposed (sized-based charging) - 1,000 x £0.46 = £460
Therefore, dispatching statements unfolded in A4 envelopes will increase postage costs by around 164 per cent. The simple solution is to fold the statements and insert them into either DL or CL envelopes (both of which are classified as letters). This change in procedure would eliminate the cost increase entirely.
The idea of pricing by size is not a new one, and is already in place in a number of countries across Europe such as Germany and Italy. Sized-based pricing would be applicable to inland letter services only. International, special services, such as Special Delivery and Recorded, and items weighing over 1kg would continue to be priced dependent purely upon weight (and their destination).
It is clear that action or inaction following the sized-based pricing introduction will have a significant impact on the budget for outgoing mail. But to ensure that each company maximises the potential advantages of the introduction of sized-based charging, a detailed analysis should be undertaken within the next six months. The aim for each analysis should be to document the current profile of outgoing mail. The most important aspect will be to identify light mail items (such as those under 100g) currently being despatched in A4 (or larger) envelopes, where the biggest potential savings advantage exists.
The change proposed by the Royal Mail has one major implication for mailrooms over and above the possible change to the type of envelopes being processed, namely the use and configuration of the franking machines. Currently all post despatched via the Royal Mail, regardless of size, weight and destination must be weighed and franked. The proposed changes would require only the following items be processed in this manner: overseas mail items; Royal Mail Special Deliveries and Recorded; and items weighing more than 1kg. Therefore, while the majority of items will no longer require weighing and franking, a small percentage will continue to be processed in this way.
In addition, it appears that all items, except the above, will no longer require franking (as the basis of the charge is on size not weight), as long as the sender's details are clearly marked on the outer envelope. This type of despatch methodology is very close to the current Postage Paid Impressions (PPI) process and the
Document Exchange (DX) circuit.
As a result, mailrooms will in future probably require reduced weighing and franking capability which will impact on both staff and technical resources. This will have a further beneficial effect on postal budgets and resource allocation for the mailroom service.
MailSource has produced a bulletin about the implications of the switch from weight- to size-based pricing which is available at www.mailman.co.uk. Further information about the changes is also available at www. postcomm.gov.uk and www.postwatch.co.uk
Geoff Haw is business support director at MailSource UK
You've got mail: new business tariff structure and sizes
Proposed new size, maximum thickness and weight:
Letter: Size not to exceed 240mm x 165mm (larger than A5); 5mm thick and 0-100g
Large Letter: Size not to exceed 353mm x 250mm (larger than A4), 10mm thick; 0-250g and 251-500g
Packet: More than 10mm thick, longer than 353mm, wider than 250mm or heavier than 500g; 0-250g and 251-1000g
For a full version of this table, including additional and changed specifications for business contact pricing compared to the public tariff, plus full public and business price tables, download 'Size-Based Pricing' which can be found at www.royalmail.com/pricebysize