Providing a postal regulator with a robust evidence base for policy reform

“By adapting our established telecoms network costing methodologies, we gave the regulator a granular and independent view of postal network costs, creating a practical evidence base for potential policy reform.”

– Ian Streule, Partner, Analysys Mason

The challenge

A postal regulator needed a clear, independent view of cost drivers in the regulated postal network, and the potential savings achievable from different service reform options

Postal operators are facing significant market change as letter volumes decline, parcel volumes grow and pressure increases to improve efficiency while maintaining service levels.

Against this backdrop, the client needed an independent evidence base to understand how costs were distributed across the domestic postal network and which activities were driving expenditure. It also needed to assess how potential operational reforms, such as changes to delivery frequency, mail mix and network design, could affect costs, efficiency and service delivery. This evidence would help the client evaluate reform options objectively and understand the likely financial implications before making policy decisions.

Our approach

We developed a bottom-up cost model of mail processing and transport operations to assess the impact of alternative network and service scenarios

Analysys Mason developed a bottom-up model of mail processing and transport logistics, supported by a subcontractor with operational expertise in the postal sector.

We drafted a specification paper, setting out the structures and concepts that would need to be considered during model development. Extensive data from the postal operator was requested and reviewed for incorporation into the model. Our team visited a mail centre to understand at close proximity how mail was sorted.

We developed a bottom-up model (split into modules) to calculate asset and labour requirements for transport and mail sorting for a reference week. We retained actual node locations, but with equipment and labour requirements determined based on actual volumes, with transport plans (including vehicle fleet composition) optimised from actual schedules.

We converted asset and labour requirements into network cost estimates using validated unit cost assumptions and allocated these costs to mail volumes using routeing factors.

The model was built to estimate the impact of wide-scale changes to the postal network, including:

• shift to a single-class delivery system
• changes in volumes of mail types
• removal of a weekend delivery day.

The resulting model provided a flexible scenario-testing tool that enabled the client to evaluate alternative operating models and understand their implications for network costs, resource requirements and service delivery.

The impact

The model provided a robust evidence base for assessing postal reform options and understanding their financial implications

The model enabled our client to understand the cost impact of potential wide-ranging changes to the postal system, including different delivery schedules, different mix of letter/parcels, fewer postal classes and different quality-of-service targets.

Our analysis helped the client quantify the costs and benefits of potential reforms, identify the key drivers of network expenditure and evaluate the impact of future demand changes. The model continues to provide a valuable framework for assessing strategic and operational decisions across the postal network.

Learn more about how Analysys Mason supports postal regulators and operators with cost modelling and regulatory reform, or contact our experts to discuss how we can help.