Yahoo Finance Saturday post ‘under review’ as struggling Royal Mail looks to cut costs
Royal Mail is seeking to axe Saturday letter deliveries after the regulator promised to review the postal service’s six-day week amid a scramble to cut costs.
Ofcom has launched a review of Royal Mail’s universal service obligations, which require the company to deliver letters from Monday to Saturday.
It came as the former FTSE 100 company said it will raise the price of a first class stamp by 15p to £1.25 from October, meaning a book of eight stamps will cost £10 for the first time.
Bosses blamed increasing cost pressures and a challenging economic environment for the decision.
Royal Mail has been calling for an overhaul of regulation amid a continued decline in letters, which it says has driven up the cost of its six-day service.
At the same time, the company is looking to increase its parcel delivery to seven days a week to meet surging demand driven by the rise of online shopping.
Ofcom acknowledged that letters remain important, particularly for vulnerable people who have difficulty relying on electronic communication and transactions.
But it pointed to a 46pc drop in the number of letters sent and received over the past decade as people increasingly switch to digital alternatives, as well as rising demand for parcel services driven by online shopping.
The regulator added: “The last few years have demonstrated the importance of postal services, but the way people use them is changing, and we expect these trends to continue.”
The review will revive the prospect of an end to Saturday deliveries after business minister Kevin Hollinrake blocked Royal Mail’s calls for a change in postal laws.
In a letter to the Business Select Committee in June, he wrote: “The ability to send and receive letters and parcels is important both socially and economically. This is particularly true for consumers who might be more vulnerable.”
Ofcom will publish evidence later in the year on how demand is changing, the costs of delivering universal service and potential alternatives, although it will not make the final call on whether Saturday services should continue.
Any change to the obligations, which include a requirement to deliver to every address in the UK at an affordable, uniform price, must be voted through by MPs.
Scrapping Saturday deliveries and upgrading parcel services to seven days a week is a key part of Royal Mail’s plans to turn around its struggling operations in the UK.
Ofcom has estimated that the change would save Royal Mail up to £225m annually.
Royal Mail slumped to a £1bn loss last year as it grappled with a wave of disruptive strike action.
The company is already under investigation by Ofcom after delivering more than one in four first class letters late last year – its worst performance on record.
Earlier this year, the Telegraph revealed the emergence of “postal deserts”, with some neighbourhoods receiving post as infrequently as once a fortnight.
Salvaging postal services and rebuilding relations with unions will be key tasks facing Martin Seidenberg, who took over as chief executive of Royal Mail last month following the departure of Simon Thompson after just two years in the role.
A Royal Mail spokesman said: “The Universal Service Obligation (USO) – which currently requires Royal Mail to deliver letters to all 32 million UK addresses six days a week – is outdated and in need of urgent reform. So we welcome that Ofcom is looking at options for the future of the USO and the recognition that it needs to evolve to reflect the changing needs of postal users.
“Being required to provide a service that customers have said they no longer need, at significant cost to Royal Mail, increases the threat to the sustainability of the USO. We want to work with all stakeholders including Ofcom, Government, our unions and our customers to enable change quickly and to protect the long-term sustainability of the one-price-goes-anywhere Universal Service.”
A government spokesman said: “As the independent regulator, Ofcom is reviewing the future of the universal postal service in response to changing consumer demand.
“There are no current plans to change the statutory minimum requirements, but we will carefully consider any advice that Ofcom puts forward to meet the needs of consumers.”
Why Royal Mail’s decline spells the end of Saturday letter deliveries
By James Warrington
When Martin Seidenberg took over as chief executive of Royal Mail last month, his task was clear: to redefine the postal service for an era without letters.
Just weeks into the job, the 50-year-old German can claim an early victory after regulator Ofcom announced a sweeping review of Royal Mail’s requirement to deliver letters from Monday to Saturday.
While power to change the postal rules – known as universal service obligations (USO) – ultimately lies with Parliament, the review is a major breakthrough for the company, which has been campaigning for an overhaul for three years.
The issue has so far been met with political resistance, as ministers are reluctant to wield the axe on a service that remains important to a minority of Brits.
But Royal Mail’s worsening financial position has forced the regulator to step in. Moreover, as the threat of further strikes and potential nationalisation under a Labour government looms, ministers may be left with no choice but to abandon Saturday letters to save the historic institution.
At the heart of the tussle is a sharp decline in letter writing. Letter volumes have tumbled by 60pc from a peak of 20bn in 2005 to just 7bn last year, according to Royal Mail. That is despite the number of addresses rising by 4m over the same period.
The company has argued that Saturday deliveries are becoming more expensive to maintain. In turn, it has warned of significant increases in the price of first class stamps to balance the books.
Meanwhile, bosses want to increase parcel delivery to seven days a week to help meet surging demand fuelled by online shopping and stave off increased competition from rival couriers.
Yet the group’s pleas for a scrapping of the six-day-a-week letter delivery requirement have proven politically sensitive.
Announcing its review on Tuesday, Ofcom acknowledged that letters remain important, particularly to vulnerable people and those who have difficulty relying on electronic communications and transactions.
The move could have an impact on some sectors, too, such as magazine publishers who rely on Saturday deliveries.
As a result, the Government has so far blocked Royal Mail’s efforts to change the law.
In a letter to MPs in June, business minister Kevin Hollinrake wrote: “The ability to send and receive letters and parcels is important both socially and economically. This is particularly true for consumers who might be more vulnerable.”
Yet the intervention by Ofcom, which is tasked with monitoring the sustainability of the USO, highlights the urgency surrounding Royal Mail’s finances.
The postal company crashed to a £1bn loss last year after it was left reeling by the impact of a bitter dispute with unions that resulted in repeated strikes.
Royal Mail is facing a more structural decline, too. The company has only achieved a “fair return” – defined by Ofcom as between 5pc and 10pc – twice since it was privatised a decade ago.
The financial woes have translated into Royal Mail’s worst ever annual performance, with one in four first class letters delivered late last year. The dire figures have already sparked an investigation by Ofcom, which could hand down a fine of up to £750m.
Earlier this year, the Telegraph also revealed the emergence of “postal deserts”, with some neighbourhoods receiving post as infrequently as once a fortnight. Bosses are grappling with chronic staff shortages, while morale among posties is in the doldrums.
Recent research by Citizens Advice found that 16m Brits – or around one in three people – were hit by Royal Mail delays in June.
Matthew Upton at Citizens Advice says the company’s “ongoing failings paint a dire picture”.
“The purpose of the USO is to protect consumers by ensuring the postal service is fair and affordable – but this is not what people are getting at the moment,” he says. “Currently, USO targets are missed year-on-year with few consequences for Royal Mail, this needs to change.”
As a result, support for USO rules – in particular the requirement to deliver a one-price-goes-anywhere service – remains strong. Yet there are growing signs that six-day deliveries will be consigned to history.
The Government has softened its rhetoric on the issue. While previously ministers insisted there were “no plans” to change the rules, this wording has changed to “no current plans”. They have also agreed to carefully consider Ofcom’s advice.
And for some politicians, quality is more important than quantity when it comes to letter deliveries.
David Johnston, a Tory MP and member of the backbench business committee, said earlier this year: “My constituents are most concerned about ensuring that delivery is reliable, however many days it happens on, that they get things in a timely fashion and that they do not miss serious things they should have taken part in or done, because that can sometimes have a financial or a health cost.”
A spokesman for the Communication Workers Union (CWU) accuses Royal Mail of a “deliberate dismantling of the USO” and takes aim at Ofcom for its review, saying the regulator “should be holding Royal Mail to account, not opening the door to facilitate their manufactured crisis”.
Yet comments by CWU leader Dave Ward in July, as Royal Mail reached a pay deal with the 115,000 striking members, suggested a change in position. “We want to keep the USO, but we’re going to have to look at a five-day option… It may well be the right time to change,” he said.
An industry source says this is evidence of a change in the mood music, adding: “There is a recognition that things must change… Now may be the tipping point.”
Ministers may also consider that changes to the USO are preferable to the risk of more fundamental reform.
Royal Mail bosses are conscious that, with an election looming, any decision on its future could be made by a Labour government.
While details of its manifesto remain unknown, the party is likely to be more aligned with unions’ demands as the threat of further strikes hangs over Royal Mail.
More fundamentally, a number of Labour MPs have called for the postal service to be brought back into public ownership.
Addressing members earlier in the summer, CWU boss Ward hinted at a “completely different model” for Royal Mail, adding that discussions with Labour had already taken place behind closed doors.
For ministers, then, the death of Saturday letters may be a small price to pay to ensure the survival of struggling Royal Mail.
