Life in the private sector is proving to be a real challenge for Royal Mail, with reports of shares and profits falling sharply.
Challenging competition for Royal Mail
One of the reasons Royal Mail has stated for their fall in profits is the ‘unfettered’ competition from the likes of Amazon and smaller postal rivals . They believe it is these companies that are affecting their parcel delivery business and have even gone as far as saying threatening their ability to fulfil the ‘universal service obligation.’
The chief executive of Royal Mail, Moya Greene, has said that the company will need support from the regulator in order to continue meeting its service obligation, which requires Royal Mail to deliver letters throughout the UK.
Competitors Cherry Picking the Best Mail Routes
One of Ms Green’s main complaints was that it was ‘unfair’ that their rivals (which include newly branded postal service Whistl) to ‘cherry pick’ the country’s most profitable letter delivery markets and routes. It is this that she believes was causing the sharp fall in Royal Mail’s profits and shares.
The postal service provider has said that its operating profits dropped 21% to £279m for the first half (30th September) which was a significant drop from the £353m recorded at the same stage last year. Shares in the company have also fallen by 8.3% to 430p yesterday, after floating at 330p last year.
Amazon’s Delivery Service is Denting Royal Mail Profits
As well as blaming TNT’s city-focused mail service Whistl for its fall in profits and shares, Royal Mail is also putting the blame firmly on Amazon – its biggest client.
The ecommerce giant recently launched its own delivery service, which means that it will rely less on Royal Mail for getting orders to customers. Over the next two years, growth in Royal Mail’s parcel delivery service is expected to reduce between 1% to 2%, which is less than half the 6% growth in parcels expected at the time of its flotation last year.
Ofcom Rejects Royal Mail’s Unfair Competition Claims
If the news of falling profits and shares wasn’t bad enough, Royal Mail recently received another blow when it was told Ofcom had rejected its claims that competition was under-mining it’s ability to deliver a nationwide service. On top of the rejection, Ofcom also said that it would be launching an investigation into Royal Mail’s ability to provide the universal postal service, examining both its efficiency and parcel delivery performance.
Ofcom believes that the competitive environment should not affect Royal Mail’s ability to provide the universal postal service and should instead give them a reason to improve processes and become more efficient. Chief Executive Ed Richards was recently quoted saying ‘At this point in time we do not believe the direct delivery competition poses a threat to the universal service- the evidence just doesn’t support that.’
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