Royal Mail loses big business deals
Royal Mail has ‘lost’ 2.bn business letters – one in eight – to private competition in the past 12 months, Financial Mail can reveal.
The haemorrhage is accelerating as private postal companies cherry-pick Royal Mail’s biggest business customers.
About 18 of Royal Mail’s largest business clients, including HBoS, Lloyds TSB, Barclaycard, Centrica and the Department for Work and Pensions, have defected to private carriers. There are fears that other Government departments will also take their business elsewhere.
The loss of so many large customers is expected to have a strong impact on the company’s profits, which will be announced at the end of March. Operating profits last year were GBP 355m.
The Carphone Warehouse last week became the latest firm to dump Royal Mail and sign up with a new postal provider, UK Mail.
Executives at Royal Mail are becoming increasingly frustrated because, under the terms of its licence, the company cannot offer to cut prices to try to keep business.
It can compete with cut-price competition only by lowering all its delivery charges to business customers, a move that would have to be funded through increased efficiency and new technology.
Chairman Allan Leighton told Financial Mail: ‘I have been warning for some time that it is inevitable that this would happen because we are not allowed to effectively compete. The loss of these contracts proves what I was saying.’
One hundred top business clients are responsible for 40% of Royal Mail’s profits and traditionally business customers effectively subsidise domestic household mail.
The growing loss of customers will put further pressure on the Government to agree to Royal Mail’s restructuring plans. Later this week, Trade and Industry Secretary Alistair Darling is expected to give the go-ahead to a massive new investment in Royal Mail that will allow the company to start an ambitious £2bn modernisation programme and deal with its pension deficit.
His decision has been delayed for months while the Department of Trade and Industry argues on the merits of a scheme to give shares to 200,000 Royal Mail workers.
An agreement on the share scheme is a vital component of the overall package. It is understood Darling will agree to a ‘phantom share’ scheme, which will allow employees to trade internally.
