Royal Mail seems to have been caught with its trousers down over an accelerated decline in letter volumes, triggered by the coronavirus, even though the online shopping boom has come to its rescue, with parcel revenues and volumes up by a third since Covid erupted.
In its latest trading update, Royal Mail said: “We are failing to adapt our business to fundamentally lower letter volumes and are holding on to outdated working practices and a delivery structure that no longer meets customer needs.”
In response, the company has hinted that it may ask Ofcom to drop Saturday letter deliveries – a key tenet of the Universal Service – although it is also looking into providing a seven-day parcel service, to meet growing demand.
Even so, the rise in parcel deliveries has proved a double-edged sword, costing the business an additional £85m. It has also taken an operational hit from Covid, shelling out £75m on coronavirus measures, such as covering staff absence, social distancing and extra protective equipment.
In total, Royal Mail delivered 177 million more parcels in the five months to August 30, up 34% year on year, with revenues up 33%. At the same time, it delivered 1.1bn fewer letters, with revenues down 21.5%. Total revenues rose by £139m.
Royal Mail now expects revenue growth of £150m, an improvement to an assessment in June when it projected a fall of as much as £250m.
However, the company warned: “There are still significant ongoing challenges including the impact of the recession, changes to international postal rates and the potential frictional impact on cross border trade from Brexit.”
Royal Mail Group interim executive chairman Keith Williams added: “These findings tell us the best way to ensure the ’Universal Service’ continues to meet our customers’ needs is to rebalance our service model more towards the growing parcels market, particularly urgent parcels, and urgent letters.
“Any substantive change is a matter for the regulator, government and ultimately parliament. But we need to make sure this review process is considered swiftly given the rapidly changing customer needs and the financial sustainability of the Universal Service.”
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