Royal Mail may be allowed to stop second-class Saturday post

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The UK’s communications regulator looks set to allow Royal Mail to end second-class postal deliveries on Saturdays as part of a package of changes that it said was vital to put the system “back on an even keel”.

Ofcom has been looking into Royal Mail’s universal service obligation (USO) — its duty to provide the same service to every address in the UK for the same price — since January.

On Thursday, the regulator said it largely accepted one of the delivery company’s own proposals not to have to deliver second-class items on Saturdays. Second-class items would instead be delivered on either three or five working days a week, Royal Mail has proposed. First-class deliveries would continue to operate six days a week.

“If second-class letters continued to be delivered within three working days but not on Saturdays, and first class remained unchanged at six days a week, it would enable Royal Mail to improve reliability, make substantial efficiency, savings, and redeploy its existing resources to growth areas such as parcels,” Ofcom said in a statement.

The regulator added that it would now carry out “further in-depth research” among postal users to determine whether the proposed option met their needs.

Ofcom launched the review of the USO to address the viability of Royal Mail, which has seen a drop in annual letter deliveries from 20bn to just 6.7bn over the past two decades.

International Distribution Services, the company’s parent, said Royal Mail made an operating loss of £348mn in the year to March this year. Ofcom has assessed that meeting the current universal service obligations costs Royal Mail between £325mn and £675mn annually in lost profits.

Royal Mail has argued that it can return to profitability only if its current obligation to deliver second-class mail six days a week is scaled back. Royal Mail was privatised between 2013 and 2015. International Distribution Service’s board in May recommended a takeover bid from Czech billionaire Daniel Křetínský valuing the company, which includes Netherlands-based GLS as well as Royal Mail, at £5.3bn.

Any changes will come into force only after a final decision from Ofcom, scheduled for summer next year.

The plans to reduce second-class deliveries have angered groups including the greetings card industry and magazine publishers, both of which have said slow and unreliable deliveries are damaging their businesses.

However, Lindsey Fussell from Ofcom insisted the regulator wanted to ensure it achieved the “best outcome for consumers”.

“We’re now looking at whether we can get the universal service back on an even keel in a way that meets people’s needs,” she said.

She insisted the outcome would not be a “free pass” for the legacy postal operator.

“Under any scenario, it must invest in its network, become more efficient and improve its service levels,” she said.

Martin Seidenberg, International Distribution Services’ chief executive, said Royal Mail faced “a very real and urgent financial sustainability challenge”.

“Change cannot come soon enough,” he added.