As Emma Gilthorpe begins her new job as head of Royal Mail, one issue will be front and center. tray.
Just a day after announcing her appointment, the struggling postal operator has outlined proposals for a shake-up of its letter delivery system that it hopes will secure its future.
Plans that have been submitted to regulator Ofcom as part of a review of Royal Mail's so-called universal service obligations, aimed at cutting the loss-making company's costs without causing even more political backlash.
For Gilthorpe, a former Heathrow airport boss, maintaining that delicate balance will be crucial as she tries to free Royal Mail from costly, outdated regulations and prepare it for the future.
But as losses mount, the company struggling with difficulties. Will this shake-up be enough to save Royal Mail given its huge labor costs?
New Royal Mail boss Emma Gilthorpe must find ways to cut costs without causing a political backlash. Photo: ROYAL MAIL GROUP/AFP via Getty Images
Under the proposals outlined on Wednesday, second class letters would be delivered every other weekday, giving households a maximum of three deliveries a week. Business mail such as bank statements and invoices will also fall into this category.
In the meantime, Royal Mail will continue to deliver first class mail six days a week. It is also in talks with the NHS about special arrangements for sending urgent medical letters.
For Royal Mail bosses, the overhaul is nothing short of necessary as it frees the company from decades-old rules that have put jeopardizing its future amid a decline in letter sending.
They also say the moves will bring the UK in line with other European countries such as France, Italy and Greece, which have introduced similar measures.
However, the plans represent a reduction in Royal Mail's demands following a backlash over plans to ditch the Saturday. delivery.Fraser Nelson, editor of The Spectator, said the move posed a “real threat” to the magazine industry, while greeting card makers warned Royal Mail risked falling into “final decline”. Prime Minister Rishi Sunak also weighed in, saying the government was committed to delivering within six days.
Bosses hope keeping the Saturday service for first-class mail and cutting second-class deliveries will keep everyone happy.
Royal Mail is also trying to limit its plans to regulatory rather than legislative reforms. Failure to make more fundamental changes, such as eliminating six-day shipping altogether, allows the company to bypass parliamentary votes and speed up the process.
However, Royal Mail's proposals are likely to face resistance. The company called for lower service quality targets, which require the Postal Service to deliver 93% of first-class mail and 98.5% of second-class mail on time.
However, the regulator has already done this before. said lowering delivery targets was not an option for reform, insisting that any changes must improve existing levels of reliability.
The shake-up may also be difficult for consumers to come to terms with. Under the plans, households will receive three second class letters one week and two the next.
Currently a second class letter sent on Wednesday is due to arrive on Saturday. If the changes take effect, they may not be made until next Tuesday.
One industry analyst calls the reforms a “sleight of hand,” adding: “You're getting a downgrade of second-rate services. Essentially, there is an element of continuing to ask customers to pay more for worse service.»
Some businesses are also unhappy with these proposals, warning that they would effectively be forced to pay for first-class mail to ensure timely delivery to their customers.
Sajida Merali, chief executive of the PPA, which represents magazine publishers, says many publications will be «at the mercy» of first-class reporting because of the time-sensitive nature of their products.She adds: «Royal Mail has come up with a model that will allow they force publishers to provide first-class services, which also does not imply any restrictions on price.”
A Royal Mail spokesman said the company recognizes the importance of Saturday deliveries for publishers, adding: “As part of our offer we will continue to offer a next day service for six days to meet this need, along with a range of other services to give customers choice over speed. and price.»
Last year, Royal Mail workers went on strike over wages, costing the company 1 million pounds sterling per day. Photo: Thomas Creech/SOPA Images/LightRocket via Getty Images
In a further headache, Royal Mail risks another clash with unions after violent strikes last year. this costs the company £1 million a day.
The changes are expected to reduce the number of delivery routes by almost 9,000 — a move expected to result in around 1,000 staff being made redundant.
Although Royal Mail says the vast majority of cuts can be made through natural turnover of staff without any forced dismissals, the support of trade union leaders will be crucial in carrying out any reform.
Regardless of the political implications, the fundamental question remains whether the proposed changes will be enough to save Royal Mail.
The company, a unit of International Distribution Services (IDS), which is listed on the London Stock Exchange, suffered losses in the first half of the year. losses of £319 million. Ofcom estimates that the USO burdens it with costs of £675 million each year.
Executives said the proposed changes would save the company up to £300 million a year from both lower costs and increased revenue by moving delivery to first class.
Peel Hunt expects Royal Mail will send messages Pre-tax losses will be £370 million this year and £77 million in 2025. «If this is implemented, it will pave the way for the company to profitability,» says analyst Alexander Paterson.
However, optimistic forecasts depend on the speed of reforms. Royal Mail has called on Ofcom to introduce new rules no later than April next year and warned changes could take up to two years after that.
In a sign of growing frustration, Martin Seidenberg, chief executive of IDS, said the company » is seriously concerned that Ofcom is not adequately recognizing the urgency of the situation.»
Savings will also depend on how quickly the number of emails continues to decline. The company warned that letter volume could fall to four billion in the next five years, from a peak of 20 billion two decades ago.
As a result, reforms alone may not be enough to turn Royal Mail around.
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As the e-commerce boom continues and mail volumes decline, parcels are becoming a key area of focus. The company has expanded its pickup and delivery services to corner stores across the country and will introduce its first parcel terminals this month.
However, the bottom line is that Royal Mail faces huge fixed costs, a sign of the high level of unionization in its workforce.
«The fundamental problem with Royal Mail is that it is an expensive business,» says an industry analyst. “Essentially, their staff work fewer hours and earn more per hour than all their competitors, and this is not offset by higher productivity.”
Beset by service quality problems, Royal Mail is struggling to convince customers is that its postal services offer a premium service compared to competitors, which limits the scope for higher prices.
Consumers are also likely to resist further increases in stamp prices after the price of a premium stamp rose to £1.35 this month.
There are other opportunities for change. Seidenberg is pushing ahead with reforms aimed at boosting productivity with new policies aimed at tackling persistent problems such as high levels of sickness absence and vacancies.
In a more radical scenario, Royal Mail has also pointed to such opportunity. taxpayer-funded subsidies similar to those implemented in several European countries.
But observers warn government intervention will only come when the service is on the brink of collapse — by which time it is too late. Instead, it should take chances when they come.
«Royal Mail has very wisely concluded that they are not going to solve this problem overnight,» says an industry analyst.
“If they're £300m better off, that's a very good start. This is enough? Probably no. But is this better than doing nothing? Yes.»
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