Royal Mail needs 'radical change'
Royal Mail’s survival depends on major initiatives to slash costs, such as contracting out part of its operations, according to a Postcomm report.
The UK mail service regulator called on Royal Mail to introduce radical measures to modernise its business so that it could face more competition.
Royal Mail has been losing market share to rivals since it ceased to be a monopoly in 2006.
The group is currently involved in a bitter pay dispute with its workers.
A number of strikes since June have disrupted the UK postal service as the Communication Workers Union battles for a bigger wage settlement than the 2.5 pct pay rise on offer.
Union officials are also opposing large-scale changes to the Royal Mail, which would see greater use of automation in sorting mail. This could lead to an estimated 40,000 job cuts, they say.
Radical proposals
In its report on the future of the mail market beyond 2010, Postcomm blamed Royal Mail’s financial troubles on rising labor costs and significant pension scheme obligations.
In 2010 Royal Mail’s current pricing agreements will come to an end.
Declining market volume and discerning purchasing by customers has also contributed to to reducing profitability at the group from GBP 159m in the first six months of 2005-06 to GBP 22m in the first six months of 2006-07, the regulator observed.
It raises the possibility of Royal Mail franchising out some of its sorting, delivering or collections operations to keep costs down. Similar solutions have been found by national mail operators in Germany, US, Australia and New Zealand.
