Strikes and super hubs: can Royal Mail still deliver?

A sign above the entrance of the warehouse calls it Royal Mail’s “window into the future”. Inside, a network of conveyor belts stretches across an area about the size of Buckingham Palace. Eight robotic arms, roughly the height of two grown men, stand idle — for now.

When the machines are switched on next year, Royal Mail says this largely automated “super hub” in the Midlands town of Daventry will be able to sort up to 1mn parcels a day.

“This is the capability that we need,” said chief executive Simon Thompson, during an interview at the sorting facility, which will be the company’s largest. “[Faster deliveries are] what the ecommerce revolution wants.”

But any optimism about Royal Mail’s future is overshadowed by a dispute with postal workers that has escalated into one of the biggest crises in the organisation’s 506-year history.

Before they even cut the red tape at the Daventry facility, executives are issuing dire warnings about the company’s future. Chair Keith Williams uses strong words about Royal Mail’s fate should it not adapt quickly: “We have to start implementing change. Otherwise the company will die.”

The dispute with workers has opened up difficult questions about what form Royal Mail can continue as a viable business. The postal workers’ union has called for renationalisation, while the group itself has threatened to split the lossmaking UK brand from its profitable international subsidiary.

Friction centres on plans to modernise Royal Mail, of which the new Daventry hub is the centrepiece. 

After centuries as the country’s trusted courier, Royal Mail is facing declining demand for delivering letters. Although the group retains the largest share of the UK parcel delivery market, according to analysis by logistics group Pitney Bowes, it also faces competition from newer rivals that employ workers on lower salaries and more flexible contracts.

From the company’s London headquarters, executives are planning potential cost-cutting measures including automation, cutting salaries for new recruits and hiring more temporary staff.

But as a cost of living crisis bites, postal workers across the country are fretting about what this could mean for them.

In July, the Communication Workers Union announced that almost 98 per cent of members who participated in a ballot had voted to go on strike, paving the way for Royal Mail’s first national walkout since privatisation a decade ago.

The vote came after management offered a 2 per cent increase in salaries, a real-terms cut, with any further rise dependent on staff accepting changes to working conditions, including making Sunday shifts part of core hours and keeping operations running later at night.

“[The strikes are] not all about pay. It’s more about the terms and conditions,” said Ben Nash, a postman of nearly two decades who said he was worried about potential changes to sick pay and annual leave. “I don’t think a race to the bottom is the way forward.”

Several months on, with inflation now running at about 10 per cent, Royal Mail and the union appear to have made little progress, although the company is now offering a 9 per cent pay rise over two years.

In a year when thousands of workers have taken to the picket line, the strikes against Royal Mail have added to ill-feeling between frontline workers and their bosses.

Following eight days of strikes so far, the CWU has scheduled at least four more to maximise disruption in the build-up to Christmas, including during the Black Friday sales. Royal Mail has retorted with an announcement that 10,000 full-time roles will be axed within a year, warning that industrial action had increased the risk of further redundancies.

“It doesn’t feel like a resolution is in sight,” said Gerald Khoo, an analyst at Liberum Capital. “It’s become quite antagonistic . . . both sides are digging in.” 

Adding to the uncertainty is a lack of clarity over the future of Royal Mail’s ownership. The UK government in October called off its probe into plans by Czech billionaire and Royal Mail’s largest shareholder Daniel Křetínský to increase his stake in the company, potentially paving the way for a foreign takeover.

Founded in 1516, Royal Mail has long been one of the UK’s best-known brands. Its red postal boxes, marked with the royal cypher, are an internationally recognised British symbol.

When Royal Mail was eventually privatised in 2013, a modernisation strategy as well as legal protections for jobs were agreed with the CWU. Since then, a revolving door of executives have tried to set the business on track. Meanwhile rivals including French group DPD and US courier UPS rose up.

An online shopping boom during the pandemic hammered home that the company’s future was in parcel deliveries. In the six months to September 2021, profits before tax surged 21-fold year-on-year to £378mn, as the number of parcels delivered increased by a third compared to pre-pandemic levels.

The CWU is not opposed to a strategy of capturing more of the higher-margin parcel delivery market in principle, but it is against the changes to working conditions that have been proposed to make this shift. As Royal Mail looks to take on its rivals, workers have raised the alarm over a potential erosion of working standards.

Dave Ward, general secretary of the CWU, said he is not opposed to change, adding the union had never suggested that Royal Mail “can be doing what we did 20 years ago and think we can sustain jobs in this industry”. But he added that the union has resisted proposals that would lead to a “levelling down” in working standards, such as bringing in new employees on lower salaries and imposing later working hours.

Letters are typically delivered earlier in the day than parcels, so many postal workers have built their lives around being able to finish early and collect their children from school or take care of other responsibilities, Khoo said.

In July, Royal Mail said that it could split its UK brand from GLS, its international parcel sorting and delivery subsidiary that remained profitable even as the group swung to a loss amid a reduction in parcel volumes following the pandemic surge. The company has warned that the UK business is now bleeding up to £1mn a day, with one competitor telling the Financial Times that major retailers have been racing to secure its services during the strikes.

“Their plan is to make [the business] uneconomical,” Ward argued. “What they are then going to do is hive off the parcels [business] and give that to self-employed workers.”

A person close to Royal Mail pointed to the development of the Daventry hub as evidence that the group considers parcels a key plank of its future.

Chair Williams also argued that GLS, which is not beholden to the same legal commitments on jobs as the UK business, was a profitable company subsidising a failing business. 

He warned that any strike action would allow Royal Mail to introduce changes to working standards, per an agreement when it was privatised.

As the dispute continues, construction workers have been putting the finishing touches to the Daventry hub. A red carpet welcomes visitors at the entrance, while a newly built loading station awaits the trains that will take parcels north to Scotland.

“We cannot stay the same,” said Williams.