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Last Updated: Monday, 1 November, 2004, 16:56 GMT
Royal Mail braced for change
Post Office Ltd
The Royal Mail is making money again, but the future is uncertain
News that the Royal Mail may get rid of some of its biggest post offices has thrown the spotlight once again on the company's efforts to prepare for the full deregulation of the postal services market.

Royal Mail is weighing up plans to dispose of half of the 560 post offices that it runs directly, most of them based in large High Street premises.

If the strategy goes ahead, a number of post offices will either be moved to less costly sites or franchised to independent operators.

Closures are also on the cards, the Royal Mail said.

Some consumers may lose out as a result, but the plan makes sense from a purely financial perspective.

The so-called Crown post offices, which lost about 70m ($125m) last year, are a drain on resources.

Royal Mail can ill-afford losses on this scale as it struggles to streamline its operations ahead of the imminent liberalisation of the postal services market.


At present, private sector firms are limited to distributing bulk mail in excess of 4,000 letters, equivalent to about 30% of the market by value.

But under a timetable drawn up by industry regulator Postcomm, all restrictions on private sector competition could be lifted as early as January 2006.

Postcomm had originally planned to open up the market in April 2007, but proposed bringing the deadline forward last month.

A final decision on the timing is not expected until next year.

Royal Mail's management, led by chairman Allan Leighton and chief executive Adam Crozier, has already gone some way towards preparing the firm for the rigours of the free market.

The company, dogged by poor industrial relations and hit by dwindling revenues as consumers embraced e-mail, lost hundreds of millions of pounds between 2001 and 2003.

But in its most recent financial year, which ended in May 2004, the firm managed to rack up profits of 220m, reversing a 200m loss the previous year.

The turnaround reflected an increase in the price of stamps, as well as efficiency gains generated by scrapping the second daily mail delivery.

The company has also launched a redundancy programme which will eventually claim 30,000 jobs.

Quality control

However, the improvement in the company's finances was marred by sharp deterioration in the quality of its service.

Earlier this year, Royal Mail admitted that it had failed to hit any of its 15 performance targets in the three months to June, while consumer body Postwatch said complaints over lost, late and damaged letters rose nearly threefold.

The decline in service standards - which unions blame on a shortage of trained staff - are likely to cost the company dear.

It had to pay some 7.5m in fines for missing its performance targets in 2003, and could now face further financial penalties.

These would come on top of about 50m the firm has had to pay out to compensate customers for disruption during a postal strike last year.

Meanwhile, uncertainty persists over who will own the Royal Mail once the market has been fully liberalised.

There has been speculation that the government, currently its sole shareholder, may launch a full-scale privatisation of the service.

Staff unions are vehemently opposed to any such move, and are pushing the Labour party to rule out privatisation in its next general election manifesto.

Mr Leighton has also contributed to the debate, saying he favours giving Royal Mail's employees a partial stake in the business.

Separately, Mr Crozier has argued that the Royal Mail's universal service obligation - under which it is required to charge a single price to deliver letters anywhere in the UK - should be relaxed in order to help it compete in the deregulated market.

Fears over post office closures
20 Apr 04 |  London

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