End in sight for Royal Mail strike saga

Posties have been encouraged to accept a deal that will see Royal Mail increase their pay by 10 per cent over three years and share any operating profits until 2025. The Communication Workers Union (CWU) said members need to “back this deal, regroup, stay in the game and prepare for the future battles that lie ahead”. Ballots close on 7 June. The pay offer comes after months of industrial action. 

Under the terms of the agreement, International Distributions Services (IDS) will introduce a 10 per cent salary increase and a one-off lump sum of £500 for postal grade employees in Royal Mail and Parcelforce. This includes a 2 per cent pay rise applied from 1 April 2022; a consolidated 6 per cent pay rise from 1 April 2023; and a consolidated 2 per cent pay rise from 1 April 2024.

In addition to higher wages, employees will be entitled to 20 per cent of the UK courier’s adjusted operating profits in the years up to and including 2024/25. 

Profits are unlikely to be forthcoming, however. In January, Royal Mail reported a year-to-date operating loss of £295mn, claiming that 18 days of strike action had cost the business £200mn. Revenue in the first nine months of the financial year was down by over £800mn.

International Distributions Services – which also has a European delivery arm – expects Royal Mail to incur an adjusted operating loss of between £350mn and £450mn for the full year ended 31 March 2023, and does not target a return to profitability until 2024/25. 

The company said the agreement was “an important step forward in the turnaround of Royal Mail” and represented a “good outcome for customers, employees and shareholders”. It remains  unclear, however, what effect the agreement will have on its cost base. Over the past five years, staff costs have represented a growing proportion of group sales, prompting management to introduce a variety of efficiency measures. 

At the half-year mark, however, Royal Mail reduced its annual cost saving targets from £350mn to £200mn because of its “inability to reduce [full-time equivalent] costs in line with lower volumes quickly enough in the period”. The performance of other cost-saving measures was also labelled “disappointing”. 

Royal Mail has agreed to no compulsory redundancies until April 2025, when the CWU agreement will be reviewed. Any headcount reduction will instead prioritise natural attrition, voluntary redundancies and less use of agency workers. 

If agreed, the CWU deal should allow Royal Mail to compete more effectively with its younger rivals. The union has agreed to later start times from March 2024, which is expected to make next-day parcel delivery more feasible. New employee contracts will also include a requirement for regular Sunday working, enabling Royal Mail to grow its seven-day parcels business. IDS has come under heavy scrutiny from MPs recently, with a parliamentary committee referring it to Ofcom over assertions it is not holding to the six-day delivery requirement for letters. 

International Distributions Services will publish its full-year results on 18 May.