Royal Mail Fleet looks to grow third party R&M while managing changes in red fleet

Royal Mail is the UK’s pre-eminent delivery company and as the sole designated universal service provider, it delivers a ‘one price goes anywhere’ service on a range of letters and parcels to over 30 million addresses across the country, six days a week.

It is now nearly five years since Royal Mail was floated on the Stock Exchange. Since then the company has evolved to meet the changing market demands from the growth in parcels and falling mail volumes.

Royal Mail’s ubiquitous red trucks and vans are as familiar a sight on Britain’s roads as the famous pillar boxes, which is hardly surprising bearing in mind the company easily tops MT’s Top 100 league table with annual turnover of £10.1bn and it operates 41,500 vans and 6,200 trucks and trailers.

Royal Mail Fleet is taking advantage of privatisation and a strategic mandate to grow revenue by using its expertise and national workshop network to break into the third party vehicle repair and maintenance (R&M) market.

Paul Gatti, director of Royal Mail Fleet, says the organisation had two choices. “We could look at how we leverage the assets that we've got and start selling R&M services, or we got smaller,” he says. “The red fleet has been pretty flat for the last two or three years but there's a lot going on in the background which may mean that we have a slightly different portfolio going forward. With the advent of electric, 10 years from now, will vehicles require as much maintenance as they do now? Probably not."

Potential market

After doing some research that indicated there was a large potential market, Gatti built a business case for the Royal Mail board and recruited Duncan Webb, who had 13 years experience with BT Fleet, to become commercial director.

Initially Royal Mail Fleet opened up just six of its UK-wide 110 sites, in the Midlands, to third party work, but found winning new business hard going. “Our USP is that we are national network and we were saying to our customer base we were only opening six sites,” says Gatti. “It was an early lesson for us and we quickly moved to open 20 sites. That was also about the time Duncan joined and he brought a much clearer understanding of the various channels to market, where we could compete and the risks of competing in these different markets.”

The company’s strategy is to grow the third party R&M business while managing the red fleet in a professional and commercial way. With workshops open into the evening and some 24/7, the market is responding positively to how Royal Mail Fleet can make a difference to their business.

“With 100 sites open, we are now looking at adding more workshops where we see customer demand. A good example is a new 24/7 location in the north west that is focused on trucks and trailers.”

Expanding the volume of third party work has led to significant re-engineering of how we trade within the group. SLA performance now drives a customer/supplier model ensuring we deliver all of commitments for all customers.”

As well as providing R&M services to the red fleet, Royal Mail Fleet also acts as a rental provider, holding a reserve fleet of 1,200 vans to replace those in the workshops.

Royal Mail Fleet also has a strong national network of workshops able to handle heavy vehicles as well light commercials.

“Within the infrastructure that Paul runs, 50 sites can do trucks, and 15 of those are 24-hour already,” says Webb. “In terms of our growth strategy, we haven't really exploited the heavy end yet. Our focus has been on establishing ourselves as a good maintenance provider into either end users or leasing companies out there.”

When it comes to R&M contracts, Royal Mail Fleet is able to compete well with operators’ own workshops and the OEM dealer networks, both of which are suffering from shortages of skilled technicians.

“We are at the point of resourcing our network where we've probably got a little more flexibility than most because we can move around some of our skilled staff,” says Webb. “We employ around 1,100 technicians but we can adjust the mix of work they do, so we've got some headroom to change our resourcing model slightly.

“Needless to say, HGV technicians remain in our high-risk box.”

Levy

Like most transport firms, Royal Mail Fleet struggles to recoup the sizeable chunk of cash it pays each year for the apprenticeship levy, despite employing 110 apprentice technicians and recruiting 40 more this year.

“We pay millions of pounds, and we're looking at how we can leverage that,” says Gatti. “We are looking at the broader picture because apprenticeship schemes tended to be engineers, technicians, project management, procurement and a few in finance. Now there are hundreds of different apprenticeships.

“We are for example looking at apprentice storemen and customer service advisors and we just need to be more innovative.”

While Royal Mail has its preferences when it comes to buying vans and leasing trucks, Webb says Royal Mail Fleet will maintain just about any mainstream CV make.

“Recent purchases have been Mercedes-Benz, Peugeot and VW vans,” he says. “We also have a significant volume of Fiat and Vauxhall vans on the fleet. We source vehicles in tranches so all manufacturers can come in and compete.

“On HGV, we predominantly bought DAF but we are looking around to see what's available at the moment. In terms of maintenance capability, we can do anything. We choose not to do some high end cars but there's not a van or a truck we wouldn't do.”

Co-located

Of the 110 workshops in the network, two thirds are co-located with Royal Mail centres, while the rest are stand-alone sites.

“Customers quite like the co-located sites as they are safe and with some of the more specialist vehicles they like the fact that their vehicle's going to be in a very secure environment,” says Webb. “We also have mobile vans at each workshop that support the biggest of the 1,400 Royal Mail operational sites and our external customers.

“The mobile fleet support vehicles fix all the running faults.”

Royal Mail Fleet also educates and trains postmen and postwomen to do minor repairs such replacing bulbs, wiper blade and lenses.

The company looks after all the vehicle acquisition and disposal of the red fleet, and currently runs vans for up to nine years and trucks for up to 10.

“Because we have a Christmas spike, we put about 5,000 extra vehicles on for Christmas which would be a top 10 UK fleet on its own,” says Webb. “So we would actually keep a unit for the Christmas window and get rid of it in the new year. This is co-ordinated along with the recruitment of around 20,000 temporary staff, which is a major undertaking.”

A proportion of the HGV fleet is still Euro-5, though since privatisation Royal Mail has invested in renewing its trucks and trailers. “We've put a lot of money into the heavy fleet, especially trailers, over the last four or five years,” says Webb. “In terms of resale markets, there's not a lot of latent value in the products after 10 years so we try to shift them as quickly as possible through the auctions.”

The company is also recycling older vehicles to salvage what Webb calls “second-hand green parts” to keep the DAF CFs on the road.

“A channel we haven't actually opened yet is formally becoming part of manufacturers’ dealer networks,” he says. “We've done some modelling with a couple to look at their network footprint and see if there are any spaces we can fill.”

Coping with a changing red fleet

Royal Mail remains Royal Mail Fleet’s largest customer by far and it is going through a period of restructuring as letter volumes continue to decline at 5% to 6% every year and parcels continue to grow at a similar rate. Add to that the uncertainty over the future of diesel power as more clean air zones are rolled out and it is hard to predict what the red fleet will look like 10 years from now.

“As a business they are still reformulating that,” says Gatti. “Probably five or six years ago, there was a view that we were a letters business carrying parcels. Now we're almost a parcels business carrying letters. Parcels are also getting bigger, so the number of items we deliver is getting smaller but the volumetric is getting bigger. We need bigger vans, bigger trucks and double-deck trailers.

“Then we are looking at the delivery method. Currently, you will probably get a bigger van filled with parcels and letters with two people onboard. That has replaced a replenishment model where the posties go out with a bag, the vehicle would follow them and replenish the posties on foot.

“Interestingly, it looks like we are moving back towards the replenishment model. In cities there is a drive to increase electric vehicles - is that a van or a trike, for example? Is that a different operating solution? When they design that then we need to follow up with a technical solution that fits.”

To keep up with the parcels delivery specialists Royal Mail is also having to offer next day delivery on more routes.

Big change

“The other big change is that people expect their parcels next day even when they order later and later in the day. The problem that we have got with that is all of our mail goes out on the one route,” Gatti says. “We've got to have a universal service, so we'll deliver all the letters during that day. The economics say ‘do the parcels at the same time’ so everything that's going out that day needs to be in the delivery office by 8am, no later.

“The couriers that are delivering for the likes of Next, that can take orders up until midnight, they'll be getting their mail maybe on the second drop at 11am or 12 noon. Then they take them out there in the afternoon. We're looking at what the operational dynamics are to support that. Will it need more vehicles of different types and size?

“We are looking at a possible better design of van with a locker on the side so the postie could open it from the pavement and take the mail out. Then at night maybe that converts into a click and collect. There are lots of things that you could do with a vehicle to be much more customer-focused. We've got 10,000 vans going down every street of the country every day - why don't we use them as a pillar box?”

Letters and parcels are now sorted together in the same centres, meaning an increase in the volume that has to be trunked to the delivery offices.

“Most of our core networks run with double-deck trailers now,” says Webb. “We have more double-deck trailers in our fleet than we have single deck so we have increased our capacity 50% or 60% on some runs and the cost per item is far keener.”

Royal Mail is already experimenting with Peugeot and Arrival electric vans and is ready to place significant orders for EVs in 2019 if the supply chain is there, but for the time being it is switching from diesel to petrol.

“We can't stop replacing vehicles because if we stop then the age profile goes up and up,” says Gatti. “We've got to keep investing and at the moment we try to buy petrol rather than diesel vans.

"If London became emission-free in five years time, then we can move vehicles around but there will become a time when there will be nowhere to move them to!”

Webb adds: “We've mitigated the short-term effects through petrol which has had a hit on the financials but de-risks us in the short term. Ultimately it’s about delivering a great customer experience nationwide and keeping our delivery method options open as we go into a period of rapid supply and legislative change.”