Royal Mail set for loss despite parcels booming in Covid crisis | Business

Royal Mail has reported a big boost to parcels during the Covid-19 pandemic, but has also run up extra costs of £160m, and said outdated working practices needed to change to return the company to profitability.

A surge in online shopping has led to strong growth in parcel volumes for Royal Mail, while the long-term decline in letters continues, resulting in a “substantial shift” in its business in the past five months.

Royal Mail delivered 177m more parcels in the five months to 30 August, 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 said the shift from letters to parcels drove up costs by £85m. It incurred additional costs of £75m related to the Covid-19 pandemic from increased staff absences, physical distancing measures and protective equipment, with a further £65m to come in the next seven months.

At the height of the pandemic, the firm faced accusations from the Communication Workers Union that many of its sorting offices were not providing workers with enough masks, gloves and hand sanitiser to protect them from coronavirus infection.

At its parcels business, GLS, and at Royal Mail, parcel revenues were far ahead of the company’s expectations, but while this has increased profits at GLS, Royal Mail is still expected to make a material loss this year, and will not become profitable without major changes, the firm said.

It is looking into providing a seven-day parcel service, as demanded by customers.

Last year, its former chief executive, Rico Back, set out a five-year £1.8bn turnaround plan to revamp Royal Mail as an international parcel-led business. But changes have been held back by strikes. Royal Mail has long been at loggerheads with trade unions about changes to working practices, and expressed disappointment that no deal had been reached.

It said: “Currently, too many parcels are sorted by hand and we are failing to adapt our business to fundamentally lower letter volumes and are holding on to outdated working practices and a delivery structure that no longer meets customer needs.”

Changes include new parcel hubs and trials of separate daily parcel deliveries; moving to automated clock-in, clock-out systems from handwritten sign-in sheets; and removing old letter-sorting machines.