UK Rail company goes to court to keep the Royal Mail on track

Royal Mail is being taken to court by Britain’s largest rail freight company after the mail operator decided to scrap all deliveries by rail.

The 10-year rail delivery contract is worth £65m (€93m, $113m) a year to English, Welsh & Scottish Railways (EWS) and had been due to run until September 2006. But Royal Mail decided earlier this year to terminate the contract in March. Last year, EWS, which is contesting the Royal Mail decision, transported about one in five letters by rail.

No date has been set for a hearing, though the companies said they were still in negotiations on the issue. Royal Mail claims it would save £90m per year by switching all its delivery services to road and air, arguing that rail was too expensive and slow. It has already begun cancelling some of the EWS mail delivery trains because they had failed to meet reliability standards. EWS blames Network Rail, the track operator, for the delays. EWS also says early cancellation would cut its yearly revenues by 15% and could lead to more than 500 job cuts. It has also warned that the switch would mean an extra 160,000 lorry journeys per year, covering around 30m miles. The contract between EWS and Royal Mail was signed in 1996 and follows more than a 150 years of mail deliveries by rail in Britain.

Royal Mail also warned this weekend it could seek a judicial review of its own. Postcomm, the mail regulator, is expected on Friday to decide how much the mail operator can charge its rivals for allowing them to use its post boxes and postmen to deliver their mail. Royal Mail must open up its monopoly delivery network as part of plans to introduce full competition for mail by 2007.

Postcomm has already proposed that Royal Mail charge rivals 11.5p for light letters. Royal Mail complained that this would lead to significant losses and would threaten its obligation to provide a “one price goes anywhere” universal delivery service for letters in the UK. The mail operator wants the figure to be set at 13p a letter or higher; anything below this, and Royal Mail says it will seek a review.

Royal Mail is mid-way through a three-year restructuring plan put in place by chairman Allan Leighton that will lead to 30,000 job cuts.