With fewer of us sending letters, dealing with the nation’s post is becoming an increasingly unprofitable and costly business. How long can it keep delivering? Simon Wilson reports
What’s happened?
The days of six-days-a-week postal deliveries to all 32 million addresses across the UK are looking more shaky than ever after the communications regulator Ofcom last week unveiled its proposals for reform. The number of letters we send each year has slumped from 20 billion two decades ago to just seven billion now, and is predicted to shrink further. That means the Royal Mail’s commitment to “universal service” is “getting out of date and will become unsustainable if we don’t take action”, according to Ofcom boss Melanie Dawes. The options proposed by the regulator include cutting delivery days from six to five (scrapping Saturday deliveries) or even three; or changing the model entirely by merging first and second class into a new, slower service, but with a super-premium charge for urgent next-day delivery.
Who owns Royal Mail?
Royal Mail Group Ltd, trading as Royal Mail, is a subsidiary of International Distributions Services, a stockmarket-listed holding company that also owns Parcelforce Worldwide and GLS Group, which operates in Europe and North America. For most of its history it was a public service, but it was privatised by the coalition government in 2013, having been legally separated from the Post Office the year before. The government kept a 30% stake in Royal Mail, but sold its remaining shares (at a profit) in 2015, ending 499 years of state ownership. Then, in 2022, Royal Mail changed its name to the unlovely International Distributions Services.
How has it done as a business?
Overall, it’s lost its shareholders money. The initial float price was 330p, a significant underpricing: it closed at 455p on the opening day. The peak price, in 2018, was above 630p, and it nearly hit the 600p mark again in 2021. But it’s currently trading at less than half that, around 276p, and is worth less now than at IPO. As such, many commentators would accuse it of “squandering the financial legacy it was bequeathed at privatisation”, says Andrew Ellison in The Times. When it was flogged off, the government sweetened the deal for investors by relieving Royal Mail of nearly $40bn in pension obligations and gifting it ownership of public property worth hundreds of millions of pounds. Since 2013, the firm has sold land worth
