Royal Mail hints it may seek to end Saturday letter deliveries

Royal Mail has signalled that it may ask the regulator to drop Saturday letter deliveries, as the pandemic accelerates the long-term decline in volumes, and online shopping drives a boom in parcels.

Royal Mail, which delivered 1.1bn fewer letters year-on-year in the five months to the end of August, hinted that it is likely to question whether Saturday letter deliveries should continue when it contributes its findings into what consumers need from its service to a review being conducted by postal regulator Ofcom.

The group, which is facing strong resistance from unions over a five-year plan to refocus as a parcels business, revealed the headline insights on where the business should focus from surveys of thousands of customers and hundreds of sessions with staff.

The group said that while there is still a demand for an affordable next-day letters service – it is “especially important for businesses during the working week” – there was an indication that a Saturday service is potentially no longer seen as a core offering. It is also looking into providing a seven-day parcel service, to meet growing demand.

“These findings tell us the best way to ensure the ’universal service’ continues to meet our customers’ needs is to rebalance our service model more towards the growing parcels market, particularly urgent parcels, and urgent letters,” said Keith Williams, interim executive chairman at the Royal Mail Group, in a letter to staff as the business held its annual general meeting on Tuesday.

“But to be clear, this does not mean following other countries such as New Zealand or Italy that have reduced letters delivery to three days a week in some areas, for example. We will keep delivering letters to every part of the UK, for one price. And we would like to deliver the items that customers want more often, not less.”

Royal Mail said that it will be meeting with more customers and other stakeholders to “explore these issues in greater detail”.

Under its universal service, Royal Mail is required to deliver to every address in the UK, six days a week, at a standard price.

Ofcom is currently conducting a “user needs” review of Royal Mail, which is due for publication in the autumn, while a wider review of the financial sustainability of the regulatory framework governing the postal market is due by 2022.

“Any substantive change is a matter for the regulator, government and ultimately parliament,” said Williams. “But we need to make sure this review process is considered swiftly given the rapidly changing customer needs and the financial sustainability of the universal service.”

On Tuesday, Royal Mail reported a big boost to parcels during the Covid-19 pandemic, but has also run up extra costs of £160m, and warned it would make a “material loss” in the current financial year. It will not return to profitability unless it changes outdated working practices, it said.

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.

In June Royal Mail revealed a cost cutting plan that will see 2,000 management jobs by March 2021, in areas including IT, finance, marketing and sales. The company’s 90,000 postal workers would not be affected by the cuts, Royal Mail said at the time.

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.

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.