Royal Mail could save £225m by stopping Saturday post

Royal Mail (RMG.L) could save up to £255m ($299m) per year by 2022-23 and still meet the needs of most of its customers by cutting Saturday letter deliveries, a report has suggested.

According to research from Ofcom, scrapping the service would have no significant impact on customers, but the move itself would not be enough to make Royal Mail sustainable in the long-term, it said.

The postal service, which was privatised in 2013, has struggled in recent years amid rising costs, declining letter deliveries and a shift in demand for more parcel deliveries from online shopping, which has been boosted by the coronavirus pandemic.

Royal Mail’s universal service obligation means it has to deliver letters for six days a week and parcels for five days. The Ofcom survey found that this service currently meets the needs of 98% of residential users and 97% of small and medium-sized businesses (SMEs) in the UK.

Cutting back Saturday letter deliveries would still meet the needs of 97% of consumers and small businesses, the report said. This amounts to a saving of £125m to £225m a year.

“While the pandemic has made 2020 a particularly challenging year for Royal Mail, the issues facing the company due to the changing market and consumer behaviour were apparent before the pandemic started to have an impact,” said Ofcom.

“Unless Royal Mail can modernise its network to adapt to parcel customers’ changing needs, and operate more efficiently, the sustainability of the universal service could be at risk in the longer term.”

READ MORE: Royal Mail posts operating loss amid pandemic but pins hope on parcel delivery

Lindsey Fussell, the postal regulator’s network and communications group director, said: “It would ultimately be for parliament to decide whether the change is needed. However, Royal Mail must still modernise and become more efficient, to keep pace with customers’ changing needs.”

Ofcom also looked into consumer reaction to other features it provides, including scrapping its first-class service and creating a single service offering a two-day delivery speed.

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The research found this option, which would be slower than first-class mail but faster than second class, would not “have a large impact on users’ acceptability of the service”.

In September Royal Mail delivered 1.1 billion fewer letters in the five months to the end of August compared with the same period last year. It posted a 31% increase in UK parcel volumes between April and September, as home deliveries were accelerated by the pandemic.

In the six months to the end of September its UK business lost £180m.

A month later Royal Mail revealed that it plans to start picking up parcels from people’s homes as it aims to capitalise on the online shopping boom.

It aims to charge 72p per parcel collection while pre-paid return packages will be charged at 60p per item. It will collect up to five parcels per address.

The new Parcel Collect service, which will rival the likes of DHL, Hermes and DPD, has so far been trialled in the west of England and will be available every every except Sunday. Customers will have to pay for the service online or by using the Royal Mail app.

Royal Mail said it was “one of the biggest changes to the daily delivery since the launch of the post box in 1852.”

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