Royal Mail threaten declaring business insolvent

Category: Operations
Royal Mail threaten declaring business insolvent

Talks between the CWU and Royal Mail are close to collapsing, with the company threatening to declare the business insolvent and go for administration if a slightly better pay deal isn’t accepted. However the deal is a long way short of Union demands.

Declaring the business insolvent is the nuclear option, and it wouldn’t be the entire business – it would be the parts covered by the Universal service – basically letter post. This would be crippling for ecommerce as letters, especially large letters, are the service that so many items are shipped by and it’s the one service for which alternatives at a reasonable cost don’t exist. Royal Mail would happily hang on to Parcelforce and Tracked parcels as they’re the more profitable part of the business.

This news coming out has obviously been planted in the press by Royal Mail, although they have said it’s not a negotiating tactic. No one I’ve spoken to in the industry can make much sense of the intentional leak, it doesn’t appear designed to assist with negotiations, doesn’t appear to have dented the share price in any significant way and doesn’t make much sense.

Making the Universal Service part of the business insolvent would have to be approved by the Government and would lead to questions as to why such massive returns were paid to shareholders just last year. It also begs the question as to what would happen with letter post if Royal Mail simply told Ofcom they can no longer deliver it and want to hand it back – who would pick up delivering letters in the UK if not Royal Mail? There don’t appear to be any likely administrators ready and with the skill and preparedness to run the business.

What Royal Mail would really love is to force Parliament to radically reassess the Universal Service. They’ve already asked and been refused permission to reduce letters to a five day a week service, but what they would really love is a three day a week service where half the country got their letters Monday, Wednesday and Friday, with the other half covered on Tuesday, Thursday and Saturday… and most of the population would likely either not notice or not care that they only received post every other day.

The end result of any play – administration or radical rethinking of the Universal Service only comes to one conclusion however, and that’s that a lot less Posties would be needed to deliver the mail and the 115,000 posties could be reduced to a fraction of the current workforce. Unless a resolution is found soon, we could perhaps see as few as 40,000 Posties left in work with the others seeking alternative employment or being pushed into the parcels business which will include later start times, working evenings, and delivering seven days a week.

In the mean time, Investors seem to think some value is going to come out of the business as they are now holding shares that paid a healthy dividend last year but have no prospect of another dividend in the near future. If the price isn’t dropping then someone somewhere thinks a buy out or break up could return value that makes a hold position worthwhile.

9 Responses

  1. The Government should force Royal Mail to put the WHOLE business into administration if they want to go that way, not allow them to pick and choose the good bits that they want to keep, however knowing our present useless lot that will never happen.

    When it was originally privatised they knew the letters side was decreasing and if I remember correctly, although I’m not certain, I’m sure they were told part of the deal was they have to cross subsidise it, if it wasn’t expicitly stated then they would certainly have known that at the time.

    As for letters v parcels, presumably the Government could open up letters to anyone who wants to deliver them although whether parcel carriers would want them only they know and the price would see a large increase. There is also the problem of ebay / amazon / etsy, etc. deliveries of items that are small enough for letters / large letters, customers would expect them to be delivered asap not delayed for a few days until Royal Mail could be bothered to deliver them.

    Looking at it from the outside Royal Mail’s present top management seem to be doing their best to totally p… off their workers, it seems to be a deliberate policy for some reason that I can’t understand but it’s no way to run a company, you should want your workers to be reasonably happy in their jobs.

  2. Why not just charge what is necessary to make a profit? Losing a million a day sounds like a lot, but a few pennies onto the price of everything is all it takes to change that to break even, and a few pennies more would mean making a million a day.

    1. Royal Mail has done nothing but put the prices up every year for the last three years. Simply charging more doesn’t work.

    2. People are reducing their use of letter post precisely because prices are continuing to increase.

      If RM do put the universal service into administration, let’s hope all the ecommerce businesses dependant on the letter/large letters service, sue the shareholders and management into oblivion.

      1. People reduced their use of letter post because electronic messaging got invented. Instant, fast and free. If you sent someone a letter nowadays, they’d wonder why you had printed off an email/text and sent it to them.

        Letter post now is mostly just bills, statements and advertising. If someone is wasting money on sending a greetings card, they’ve already splashed out £2 maybe on that, so an extra 5p on postage, not really a big deal. Easily affordable by people or business. No other sane business would aim to sell their goods or services for a loss.

  3. Posting a very urgent parcel from Switzerland. Withing 24hours of handing over to local Post Office in Zurich, tracking shows that it has been 5 stages & has been handed over to courier for transport to UK. Tracking is now up to Her Maj. Royal Mail.
    “Silence”
    For 7 days!
    Now tracking has come alive again.
    To be delivered today.
    Is this reasonable?
    9 days from Switzerland to London, UK???

    1. UK to UK deliveries can take longer than that, but it could have been a customs issue rather than RM.

  4. There are literally no winners here.

    The government was wrong to privatise RM when many analysts predicted that the public service obligation would not sit well with delivering shareholder dividends in the long rong.

    RM management has handled the company post privatisation extremely badly, both alienating its workforce whilst failing to modernise the business or maintain its service obligations. Failing to stick to its agreed path for modernisation with the unions has permanently damaged the business.

    The unions have also shot themselves in the foot by harming the business they rely on for employment and they deserve their share of the blame for not reaching agreement to modernisation., as well as failing to acknowledge the changed nature of what customers want.

    Even customers, who have been kicked from pillar to post by both management and unions, deserve criticism for going back to RM in sufficient numbers to enable both sides to carry on this dance of death in RM.

    The only way for any business to secure their business is to ensure they do not rely on RM.

    If your business only uses RM services, such as letter / large letter, you need to change your model now.

  5. Making the letters 5 days a week if that helps would not be a major issue for most. However 3 on 3 off that is not going to work not in this day and age.
    I have mainly been selling video games this last 15 years and have been very reliant on large letter and RMG but was fuming about the way they treated our large letters in December. Thompson is not getting my vote this year.
    The shares are not exactly booming but have not crashed either ( no divi arrived this year) I have a load of money in it. I expect the real owners the Czech Billionaires will try and just spin off the letters to the Gov or outsource and sack half the Posties.
    How they can’t make money on letters and large letters is beyond me they are actually nearing the price of parcels with easier handling.
    I never even use them for parcels they are awful anyway that does to Evri and that is actually including more and more games.
    It is just yet another hurdle anyway we have had enough of them these last 4 years.

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