Why is Royal Mail failing to deliver?

Royal Mail could be hit with heavy fines after failing to hit its delivery targets last year as the communications regulator Ofcom launches an inquiry into the beleaguered postal service.

Quality of service targets require Royal Mail to deliver 93% of first-class mail within one working day of collection; deliver 98.5% of second-class mail in three working days; and complete 99.9% of delivery routes on each day that a delivery is required.

However, the company confirmed on Monday that it had missed all these targets, with just 73.7% of first-class mail being delivered within one working day. It would not be the first time it has been penalised for missing delivery targets after receiving a £1.5 million fine in 2019.

Tracing its history back to Henry VIII, “the Royal Mail was still one of the jewels of Britain” until very recently, said The Telegraph. But it has fallen on hard times as corporate mismanagement, competition and a terminal decline in letter writing has left it struggling to stay above water.

What did the papers say?

The former state-owned monopoly service has endured a tumultuous decade since it was privatised in 2013 by David Cameron’s coalition government. It has spent much of this time “attempting to revamp the business to cope with the long-term decline in the posting of letters and the rapid increase in online shopping, fuelling increased volumes and competition in the more lucrative parcels market”, said The Guardian.

With e-commerce returning to pre-Covid levels following a surge in online goods and Covid testing kit deliveries during the pandemic, Royal Mail is “saddled with a vast, expensive network from Land’s End to John O’Groats, and a government-mandated universal service obligation (USO) to deliver to every postcode of the UK six days a week for a flat fee”, said The Times.

“It also has a highly unionised workforce that does not want the value of pay and benefits to be eroded,” said the paper. And “now its handling of the nation’s letters is under the microscope”.

In what Sky News described as “a contentious hearing” with MPs on the Business, Energy and Industrial Strategy (BEIS) select committee in February, Royal Mail chief executive Simon Thompson admitted prioritising more lucrative parcels over letters.

Last week, he announced he was stepping down following a bruising two years at the helm, just days before the company’s annual results are expected to “lay bare the damage inflicted on the 507-year-old postal service by a bleak year in which it was battered by 18 days of strikes, a slump in parcel deliveries and a cyber-attack on its international delivery operations”, said This is Money.

The biggest problem, according to The New Statesman’s Will Dunn, is that “the core service it is required to provide – universal delivery at fixed prices – is expensive to operate and declining in popularity”. The amount of addressed letters being posted is down by 23% since 2019 and is now about what it was in the mid-1930s. But while they may be in long-term decline, letters still generated 44% of the company’s revenue in its last financial year.

“It won’t be long till the letter itself becomes completely redundant,” said The Telegraph, at which point “Royal Mail will simply become a parcel delivery service like DPD, but probably less reliable”.

What next?

According to Refinitiv data, analysts predict Royal Mail will report a loss of £500 million for the year to the end of March, compared with a profit of £416 million in the previous year. A warning that it was losing more than £1 million a day and could be forced to call in administrators if the situation did not improve has led the stock price of its parent group International Distributions Services (IDS) to drop more than 30% from last year.

The challenge for a successor is “to continue Royal Mail’s never-ending modernisation programme – but, in theory at least, Thompson has done the hard yards of overseeing a deal with the union”, said The Times. The paper reported that the company plans to shed 10,000 roles from its 150,000-strong workforce as it seeks to tackle its costs and wants to renegotiate the universal service obligation to ease its financial pressure. While it would continue to deliver parcels seven days a week, one long-term option would be to drop Saturday letter deliveries.

It’s worth noting, said Dunn, “that the social value of the Royal Mail’s services is high; its communication services are still relied upon by millions of people, a significant proportion of whom are elderly or vulnerable. And in an ageing society, a regular door-to-door presence could be vital; some in the industry have suggested a further diversification into services such as meter readings.”

He said “it is all but inevitable” the letter and parcel delivery arms of Royal Mail will split. “The government will then have to decide whether a company that has been integral to British identity for five centuries is worth taking back on as a public service or being allowed to wither away, becoming another bankrupt subsidiary of UK plc.”