A bitter dispute between mailing houses and Royal Mail, over a sudden increase in reversion surcharges for envelopes that don't adhere to the latter's specification requirements, has ground to a temporary halt following intervention by the DMA.
Royal Mail has bowed to pressure from the DMA by agreeing to waive surcharges on envelope sealing issues for three months, and to refund 90% of surcharges on sealing issues dating from 26 March 2012. But the question is – what will happen after the grace period expires in September?
A letter sent out in June by the DMA to its members appeared sympathetic to the production difficulties faced by Royal Mail when processing jobs with sealing issues. It said that improperly sealed envelopes could create stoppages in Royal Mail’s sorting machines of up to 20 minutes at a time, which cumulatively was significantly increasing processing costs. The letter also urged members to "take the necessary steps" to improve "maintenance, quality control and adherence to the published production specifications", as "this will help avoid reversions in the future and help improve the efficiency of mail delivery".
The DMA attributed the sudden increase in reversions to a doubling in staff at Royal Mail’s revenue protection facilities and to better training to improve identification of potential reversions. It said: "in short, the specifications have not changed, but the policing of the specifications will be increasingly robust."
While the three-month respite period has been welcomed by the industry, many businesses feel it is unrealistic to suggest surcharges can be avoided merely by improving their quality control procedures.
John Ellis, sales director of Sunline Direct and chair of the DMA Mailing Houses Council, says: "Royal Mail implemented this policy quickly and offered no help to the direct mail industry. Some businesses face extra charges of £70,000. There is an issue with how realistic these charges are. Are these checks actually random or are people being paid to look for faults? If someone is looking to find fault, then generally they will find something."
Ellis calls for Royal Mail to implement a system where surcharges would be based on the proportion of faulty envelopes – rather than applying the extra charge to the whole job.
"What we want to see is proportionality – if only a tiny number of envelopes are stuck together, for example, is that really representative of the whole job? If a job runs over several days and there are only problems on the third day, surely these surcharges should only be applied to the day where there was an issue rather than the whole job."
Ellis says there is a further problem with transparency of the surcharges. "There are issues with the way the reversions are communicated," he argues. "You can’t discuss them with anyone at Royal Mail and you can’t go and inspect the job yourself because it will be mixed in with other jobs."
Another mailing house source says his company faced surcharges of more than £2,000 for a job where only 0.4% of envelopes, out of a mailing of 250,000, did not meet Royal Mail’s specification requirements.
"The issue with this mailing was that some of the address lines were too long, but we could prove through our computer software that this only affected 0.4% of the mailing," he says.
Elsewhere, others have been more damning, accusing Royal Mail of threatening the future of the entire direct mail industry.
One source, who did not wish to be named, argues: "If Royal Mail had continued down this path and not implemented this grace period, they could have wiped out the entire industry. On a job of a couple of million envelopes, you could be looking at surcharges of £75,000.
"Royal Mail is the judge, the jury and the executioner – we don’t get to see if what they are telling us is true."
"There is a general feeling in the industry that Royal Mail sampling procedures are unrealistic and not fit for purpose."
These comments are echoed by another mailing house boss, who tells of a major client that is currently considering putting its mailing activity on hold, following the recent postage price increases and after being hit by reversion surcharges.
He says: "We have had a few jobs that have run into hundreds of thousands of items that have been hit by these reversion charges, all based on a small sample. We never saw any proof. We are talking about formats that we have mailed in their millions for years and only now is Royal Mail saying they are not quite right."
What happens over the next three months will be the subject of fierce debate between mailing houses and Royal Mail, with a key meeting for stakeholders due later this month.
Whether Royal Mail will continue to "bite the hand that feeds it" – as one industry source put it – or whether its recent goodwill gesture is indicative of a change of tack remains to be seen. Either way, it will have a major impact on the future of publishing.
A response by Stephen Agar, Royal Mail's director of regulated business, to the points raised above can be found here.
- Mailing houses have been hit with a sudden increase in reversion charges after Royal Mail stepped up efforts to police its specification requirements
- Industry sources reported facing surcharges of up to £70,000, even if a small sample of the job did not Royal Mail has agreed to a three-month grace period on sealing surcharges from the 18 June and to refund 90% of charges related to sealing issues from 26 March 2012
- Mailing house sources have called Royal Mail’s sampling procedures "not fit for purpose"
- The direct mail industry wants Royal Mail to be more "realistic" and for surcharges to be based on the proportion faulty envelopes
- Mailing house sources warn that the charges could threaten the entire industry, with some clients rethinking their direct mail activity after being hit with postage price hikes and reversion charges
- Key stakeholders are to meet later this month to try to agree on a permanent solution
Chief executive, The Lettershop Group
"I would like to see a more practical approach from Royal Mail on how they handle mail and to have confidence that they are going to deliver the product. While I understand that Royal Mail needs to have a product that runs through the machinery, this sudden increase in reversion charges has caused a serious loss of confidence from a producer and client point of view and I’m not convinced they realise the impact it is having on the medium."
Sales and marketing director, 4DM
"There’s been anxiety about reversions from the Strategic Mailing Partnership members and fortunately Royal Mail has recognised that and we’re now working together to find a solution, which is a positive step that is good for the industry. The key issues are proportionality, in terms of only applying the surcharge to faulty packs, and transparency. The vast majority of recent cases have been via the DSA network, so we have no direct point of contact and a lot of the time we’re finding out weeks later, when you can’t do anything about it."
Client services director, KPM
"Royal Mail has distinct print specifications on envelopes and you can be hit with a surcharge if the print is a millimetre out of spec. We sent out a large shareholder mailing where this happened and we were hit with a charge of several thousand pounds. We produce quite a lot of fast-paced, urgent mailings and trying to get pre-approval from Royal Mail takes five days. The biggest issue is pre-printing reply envelopes. Apparently Royal Mail’s machine doesn’t have a tolerance of 2mm, but that seems very unforgiving and not at all realistic."