Royal Mail review could see cut in deliveries
Royal Mail deliveries could be reduced to just three times a week under options to reform the UK’s postal service.
Ofcom, the regulator said today that the service risks becoming unsustainable as fewer letters are posted and “reform in necessary to secure its long-term future”.
The company that owns Royal Mail, International Distributions Services, argues the system is not financially viable due to a sharp decline in the number of posted letters over the last decade.
The watchdog will now undertake a review of options for redesigning the universal postal service to secure its future, while ensuring it reflects the way people use it. Comments are invited up to 3 April.
“Under any scenario, Royal Mail must modernise its network, become more efficient and improve its service levels,” it said.
While Royal Mail’s obligations have not changed since 2011, letter volumes have halved and parcel deliveries have become increasingly important.
“Given the significant cost to Royal Mail of delivering the universal service, there is an increasing risk it will become financially and operationally unsustainable in the long term,” said Ofcom.
The two main options are to make changes to existing First and Second Class and business products so that most letters are delivered through a service taking up to three days or longer, with a next-day service still available for any urgent letters; or reducing the number of letter delivery days in the service from six to five or three. This would require Government and Parliament to change primary legislation.
The UK is not alone in needing to respond to these challenges. Across Europe and more widely, universal postal service obligations have been, or are being, reformed.
Other countries have reduced the frequency of delivery or extended delivery times for letters – including Sweden in 2018, Belgium twice since 2020, and Norway and Denmark twice each since 2016.
Ofcom estimates that Royal Mail could achieve a net cost saving of £100m-£200m if letter deliveries were reduced to five days; and £400m-£650m if reduced to three days. If the large majority of letters were delivered within three days, it could achieve net cost savings of £150m-£650m
Dame Melanie Dawes, Ofcom’s chief executive, said: “Postal workers are part of the fabric of our society and are critical to communities up and down the country. But we’re sending half as many letters as we did in 2011, and receiving many more parcels. The universal service hasn’t changed since then, it’s getting out of date and will become unsustainable if we don’t take action.
“So we’ve set out options for reform so there can be a national discussion about the future of universal post. In the meantime, we’re making sure prices will remain affordable by capping the price of Second Class stamps.”
Shares in International Distributions Services, which also ownsoverseas post firm GLS, gained 3% or 7.6p to at 261.9p last night. That followed a 3.4% rise in the previous session.
The stock remains well below the 330p a share float price in 2013 and the peak over 600p in 2018. Shares were still trading at over 580p in mid-2021.
Prime Minister Rishi Sunak this week said he would ‘not countenance’ allowing letter deliveries to be reduced to five days a week from six.
With the row rumbling on, some industry analysts warn scrapping the Saturday post would be the least bad option to avoid Royal Mail requiring taxpayer money to prop up its business.
“At some point, something’s got to give,’”said Gerald Khoo, analyst at broker Liberum.