Royal Mail has lost a "critical" £8m contract to collect second class mail from online retailer Amazon.
Amazon is a key Royal Mail contract
The group blamed higher costs caused by their "failure to modernise operations" for the loss of business.
The blow comes as Royal Mail staff prepare to strike for the first time since 1996. They are demanding a better pay settlement than the 2.5% offered.
Earlier this year, the postal service was ditched by the Department for Work and Pensions in favour of UK Mail.
Royal Mail will continue to make Amazon's first class deliveries in the UK.
"It's vital that we urgently change and modernise if we are to be able to compete against more efficient rivals who have already done so," a Royal Mail spokesman said
"Customers like Amazon are critical to us, and to our competitors," he continued.
"They represent an important area of growth in a market which is otherwise declining as fewer items of mail are sent."
Shadow Trade and Industry Secretary Alan Duncan called the event "another blow to Royal Mail, which is still coming to terms with the competitive postal market".
"A strike at this point would be damaging to Royal Mail and its employees," he added.