Postal cherry picking threatens universal service, warns Royal Mail

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Competition from TNT Post UK could cost Royal Mail more than £200m by 2017-18 threatening the universal postal service, Moya Greene, CEO of Royal Mail, has warned in the group’s annual results.

TNT Post, which is part of Dutch post office PostNL, now has direct delivery operations in London and in Manchester and in Liverpool and aims to cover around 42 per cent of addresses by 2017.

Greene complained that TNT Post could cherry-pick easy-to-serve urban areas; delivering easy-to-handle post to homes less frequently than Royal Mail and to no defined quality standard.

“Royal Mail is required to deliver six-days-a-week, overnight, throughout the whole country, to stringent quality standards and at a uniform, affordable tariff. Moreover, we are also required to deliver any items TNT Post UK does not consider economic to deliver itself.

“If TNT Post UK is successful in delivering its stated objectives, this could threaten the fundamental economics of the Universal Service. Based on our estimates of the impact of TNT Post UK’s publicly-stated plans, this could reduce Royal Mail revenue by over £200 million in 2017-188. At the same time, our ability to reduce costs to offset this would be limited by our obligations to deliver the Universal Service,” she said.

Royal Mail said letter revenue declined two per cent to £4.6bn in the year to 31st March. At the same time parcels revenue was up seven per cent to £3.2bn in the UK Parcels, International & Letters (UKPIL) division.

Greene said the move to size-based pricing has driven significant growth in revenue, while parcel volumes were flat. “Declines in consumer volumes were greater than expected. We recognised this quickly and took action to fix it – expanding small parcels dimensions in October 2013.”

Sales at GLS, Royal Mail’s European parcels network, were up seven per cent on a like for like basis to £1.6bn.

Group operating profit after transformation costs was up from £403m to £430m. Greene said: “While we are satisfied with our progress in 2013-14, we are facing increasing challenges in the parcels and letters markets in the UK.”

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