After MUCH tearing out of hair this is my final response from Hermes. CEO office.
My Q is - are they actually not liable to compensate for items lost within their system?
The parcel contained house and room key for my student son.
Cut and pasted below with identifying places removed.
Dear Brave
Thank you for your patience whilst we've been investigating this for you.
After conducting searches at our xxxx Depot and xxxx Depot we are unable to locate the contents and the xxxx depot confirm that the packaging was all they disposed as the contents were not available upon arrival.
I apologise that we could not locate the parcel contents on this occasion.
Whilst I appreciate this poses a potential security risk and now puts you/your son at a financial loss at having to replace the lock, we are unable to compensate you for this as a result and we cannot be held liable for this cost.
I apologise for the inconvenience this may cause you both and I am sorry that we are unable to assist you further here at Hermes.