Royal Mail’s CEO has issued a stark warning to Labour and government ministers, emphasising the necessity of postal reforms for the future stability of the postal service.
The universal service obligation (USO), which mandates uniform pricing for deliveries across the UK, has become increasingly outdated due to declining letter volumes and a rise in parcel deliveries. Simon Thompson, Royal Mail’s chief executive, stressed the urgent need for reforms, stating that without ministerial support, the burden will ultimately shift to the government. ‘The problem will land on the desk of the government,’ Thompson asserted in a recent interview, coinciding with Ofcom’s announcement of a consultation on potential changes, including the elimination of Saturday second-class deliveries.
Royal Mail has been lobbying various governments and Ofcom for adjustments to the USO, which it sees as a significant barrier to transitioning from a struggling letter carrier to a competitive parcel delivery service. The forthcoming Ofcom consultation, expected early next year, could result in substantial changes, such as reducing delivery days and reallocating resources towards the burgeoning parcels market.
Thompson, who assumed leadership of Royal Mail last year after successfully steering the European parcel arm GLS, highlighted the inefficiencies, noting that without reform, postal workers would be ‘walking around with an empty bag … and then you lose tons of money.’ He has consistently urged both Conservative and Labour ministers to act promptly, making it clear that he will continue to advocate for changes until a firm decision is reached.
Meanwhile, Royal Mail is contending with a £3.57 billion takeover bid from EP Group, supported by Czech billionaire Daniel Kretinsky, its principal shareholder. In an effort to alleviate financial pressures, the company recently announced a 30p increase in the price of first-class stamps to £1.65, effective from October 7, highlighting the ‘urgent’ need for revenue enhancement. The Department for Business and Trade has acknowledged the importance of a reliable and affordable postal service, with a spokesperson affirming its significance for UK businesses.
Ofcom has initiated a review to ensure the postal service meets contemporary usage patterns, and the government is currently considering its recommendations. Thompson’s tenure has been characterised by efforts to stabilise Royal Mail amidst financial losses, dwindling market share, and the aftermath of a prolonged industrial dispute that resulted in 18 days of strikes over pay and conditions. Despite some advancements, the company has failed to meet its delivery targets for two consecutive years and faces potential fines from Ofcom.
Under Thompson’s leadership, Royal Mail has improved operational efficiency and delivery reliability, employing logistics experts and investing in fixed-contract employees to address staffing shortages. He has also introduced incentives for workers to achieve key performance targets, culminating in the best Christmas delivery performance in four years. Nevertheless, Thompson remains adamant that without USO reforms, Royal Mail’s long-term viability is in jeopardy. ‘The future is, I’m afraid to say, parcels,’ he remarked, pointing to a dramatic decline in traditional letter volumes from 20 billion annually in 2004-05 to just 6.7 billion today.
As Royal Mail looks to the future, Thompson is optimistic about the potential benefits of Kretinsky’s takeover but cautions that regulatory delays and a lack of urgency could impede progress. Ofcom’s consultation is expected to conclude next summer, coinciding with the postal industry’s peak Christmas season, yet Thompson advocates for expedited action, insisting, ‘It just needs urgency.’ With plans to expand into parcel lockers and electrify its vehicle fleet, Royal Mail is positioning itself for the future. However, without crucial reforms to its service obligations, Thompson warns, ‘That’s a tricky one, because I wouldn’t even want to think about it.’
In summary, the call for postal reforms by Royal Mail’s CEO highlights the pressing need for regulatory changes to ensure the company’s sustainability. The ongoing efforts to stabilise operations and attract investment underscore the urgency of adapting to evolving market demands.
