‘The future is parcels, I’m afraid’

The answer to his wife’s “why” was the lure of living in Britain, where he had attended the London School of Economics, where previously he had run the British business of DHL, a Royal Mail rival, and where his children are now studying, and the challenge of reviving Royal Mail. “I’ve always taken jobs that were about transformation, change and fixing things, but then also having the ability to grow.”

Seidenberg, 51, likens the company he took charge of to an ailing patient. “If you don’t stop the bleeding, the patient is dead, right? And we did it with quite unconventional measures.” Royal Mail, he said, was beginning to recover, but, crucially, still urgently needed help from Ofcom, the regulator.

Two days after talking to The Times, on Thursday, a lifeline was delivered when Ofcom agreed to begin consultations on loosening the former state operator’s so-called universal service obligation, which includes a requirement to deliver items everywhere in the UK for a uniform price.

Seidenberg has been lobbying the regulator and ministers to reform the obligation to give Royal Mail, which was privatised in 2013, a “fighting chance” in its shift away from a dwindling letters market to compete in the ecommerce-driven parcels boom, arguing that the “house is burning. It’s massive.”

Ofcom plans to start a formal consultation early next year on proposals including scrapping second-class deliveries on Saturdays but continuing to deliver within three working days, and retaining a next-day first-class service for six days a week. This, the regulator said, would enable Royal Mail to improve “reliability, make substantial efficiency savings and redeploy its existing resources to growth areas such as parcels”.

A win for Seidenberg, perhaps, but not everyone is on board. The Greeting Card Association and the Communication Workers Union remain staunchly opposed. Amanda Fergusson, chief executive of the association, which styles itself as the voice of the British greeting cards industry, has said that any changes “must prioritise the needs of small businesses and consumers, not Royal Mail profitability”; the union said “the debate on the future of postal services in the UK cannot be led by Ofcom and Royal Mail”.

The IDS boss maintains that “the future is, I’m afraid to say, parcels”. Letter volumes have fallen from a peak of 20 billion a year in 2004-05 to 6.7 billion a year, meaning that Royal Mail now delivers on average only four letters to each address per week.

Ofcom plans to publish a decision next summer (later than April, when Seidenberg had wanted changes), at about the time the industry begins to prepare for the peak Christmas delivery period.

“It just needs urgency,” the executive said, “because other countries have changed and we need to change as well. And that’s something which is really, really bothering me, because that’s the one that I can’t change myself. It needs a regulator to change that.”

In the meantime, he has focused on what is within his control. To “stabilise” the Royal Mail “patient” and to compete with rivals such as DHL, Evri and Amazon Logistics, he has addressed the “few vital things that need to be done to really change”. To improve delivery times, which have been behind regulatory targets for two years, he brought in “some people with really good logistics expertise, who know how logistics works, to beef the team up”. Thus he has parachuted in Emma Gilthorpe, a former chief operating officer of Heathrow airport, as the chief executive of Royal Mail.

“Unconventionally”, he decided to spend money that Royal Mail “didn’t have” to hire more fixed-contract employees before last year’s Christmas period, because the industrial dispute had left the business without the “right mix” of agency workers and employees, who are more likely to “buy into the values of the company, that know the walks and so on”. Data and a quality control centre at Mount Pleasant, the big, busy Royal Mail hub in central London, are also being used more carefully to improve transparency around which postal routes are being fulfilled.

“When I came in, some of the complaints I normally got were people saying, ‘I didn’t get the mail for a week or two weeks. And then somebody pops up and gives me the mail nicely bundled at the doorstep.’ That’s not what we wanted. We have the data and we see when a walk is not being walked, but we needed to follow this up and we needed to make it transparent.”

To further improve quality, workers were given incentives to hit key targets over the Christmas period. “If we delight the customer, I will delight you guys as well,” Seidenberg told them.

Royal Mail “delivered the best Christmas in four years” in 2023, according to the boss of its parent company

ALAMY

The results were clear. “We delivered the best Christmas in four years and that’s what started turning things around. Because in logistics, it’s not just one thing, you need to do a couple of things right. Then it’s like an upward spiral.” Royal Mail “stopped bleeding” cash, customers noticed an improvement in deliveries and volumes “came back”.

Despite improvements, Royal Mail failed to meet its regulatory delivery targets under its service obligation for the year to March for a second consecutive year. It is required to deliver at least 93 per cent of first-class post throughout the UK within one working day of collection and 98.5 per cent of second-class post within three working days, over the whole financial year. Ofcom fined the business £5.6 million last November for missing targets in 2022-23 and another penalty is expected after officials opened an investigation in May for failing to meet targets last year.

As part of the changes to the service obligation, Seidenberg also wants the targets to be changed, including to reflect the “tail of the mail”, or secondary targets to mitigate the risk of significant delays. He also insists it is unhelpful to fine Royal Mail when funds are needed for an “under-invested” company. “I’m saying, ‘Look, I’m already standing there naked and you’re trying to get money out of my pocket. There is no money in my pocket, right? Let alone a pocket.’ ”

The industrial dispute set back Royal Mail by “two to three years”, but today the focus is squarely on the road ahead, not the potholes it has left behind. With Royal Mail expected to return to making an adjusted operating profit in the year to the end of March, excluding voluntary redundancy costs, investment is going into electrifying its vehicles and to expand in the growing out-of-home parcels market. Last month it agreed a partnership with Yeep, the parcel lockers provider, and it plans to launch its own proprietary network next year.

Royal Mail’s under-investment and the need to compete in the parcels market are why Seidenberg backs the takeover by Kretinsky’s EP Group. “We shouldn’t underestimate the amount of change that still needs to happen.” Although he knew Royal Mail’s losses and IDS’s share price weakness had left the group vulnerable to a bid, he had not anticipated one until later, possibly next year, when the question of the service obligation was clearer. “EP Group is taking quite some risks right now because things are still progressing and evolving. But they have a vision and from what I’m hearing, what I’m seeing, they want to be in for the long term.”

A failure to complete the takeover, which remains subject to a government security review, would not put Royal Mail’s future in doubt, he said, but the absence of changes to its service obligation? “That’s a tricky one, because I wouldn’t even want to think about it.”