Q&A: The Post Office Crisis

Britain's state-owned postal service Consignia has shocked workers and raised concerns over the British letter service by slashing 30,000 jobs. BBC News Online takes a closer look at how bad the situation is, and how it got itself into such a mess.

How bad are Consignia's problems?

Financially, Consignia is looking very weak. Its operating losses increased by 500% to £100m in the first six months to 23 September.

And losses at its package division Parcelforce are expected to reach £200 million by the end of the year.

The poor results are a sudden downfall from what was previously a healthy company.

The Post Office has been profitable during the past 40 years, and in the last 10 years it has made a profit of about £350m every year except for the last two years.

Why the sudden heavy losses then?

The sudden plunge into the red is a reflection of a combination of events that have rapidly changed the balance sheet over the past two years:

Fewer letters being sent, due to e-mails and text messaging

New competition meaning that increased efficiency is needed

The decision not to raise the price of first and second class stamps

Stiff competition in the Parcelforce business and spiralling losses from that international division

Higher wages agreed at a meeting with Unions last year

Less revenue from junk mail deliveries due to the downturn in the advertising sector

The increased cost of using Britain's troubled rail service plagued by delays

The high cost of maintaining rural branches which are increasingly sidelined for city superstores

And its 40 year of monopoly status has undoubtedly meant that the Post Office has not paid enough attention to its efficiency and productivity levels.

Who's to blame?

The management of the firm must take a great deal of the blame, Ian Senior, an economist who has written extensively about the postal service told the BBC Radio 4's Today programme.

Consignia's main aim over the last two years has been to fend off the concept of liberalisation of the postal service, he said.

But the government has decided that the monopoly must be broken, and other companies such as Hays and Business Post Group are allowed to compete with Consignia to deliver the nation's letters.

Licences are already being awarded. So far these have not been for full scale competing services, but for small pockets of interest here and there.

Consignia was partly-privatised in March. It has a limited amount of commercial freedom, but is still subject to stiff regulatory control to ensure social objectives are met.

Is cutting jobs the right solution?

Many analysts say the postal service is over heavy in senior management.

With a new wave of competition, Consignia must become more efficient.

It hopes that the job losses will cut its £8bn cost base by £1.2bn.

The 30,000 jobs make up 15% of Consignia's extensive workforce of 200,000.

Many companies across the UK have cut a similar proportion of their staff.

Other countries such as Sweden and New Zealand have already abolished their postal monopolies, and they have found that cutting staff was necessary to increase efficiency.

In Germany, Deutsche Post has faced similar problems to Consignia and announced thousands of job cuts this year.

Will there be fewer postmen and women?

There will probably not be a significant reduction of posties.

The bulk of the job cuts are focused on managerial and administrative roles.

But Consignia has admitted that some of the cuts will also effect frontline sorting and delivery jobs.

Consignia has previously announced that it is going to abandon the 'second post', a late-morning delivery. That will mean that fewer postmen and women will be needed and some jobs will go.

Can Consignia get itself out of this mess?

It certainly should be able to, according to Mr Senior.

"It should perfectly well be able to make a profit and a good profit at that," he told the BBC's World Business Report.

Consignia is likely to remain the dominant supplier of letters for the foreseeable future, with 90-95% of the market over the next few years.

This grip on the market should ensure that Consignia returns to the profits it enjoyed in the past.

What about the quality of our service?

While the news has alarmed many people, a drastic overhaul at the firm may be good news for the nation's letter service in the long run.

The sudden financial losses have provoked a serious review of the way the business has been run over the last forty years.

And the efficiency-drive together with new strategic thinking - even if it means less staff - may just pay off.

But the news of job losses at the sorting office has immediately provoked concern over the quality of service.

And a potentially long and bitter battle with Unions could also mean short-term chaos.

The task of improving efficiency at the same time as cutting costs and fending off increased competition certainly doesn't look easy.