Royal Mail parcel volumes will stay “significantly higher” than before Covid-19, group predicts

Royal Mail parcel volumes will continue at a “significantly higher” level than in pre-Covid-19 times, according to its latest trading update.

The group reported that in the five months to August 2021 its domestic parcel volumes had dipped by just 5% year on year, after leaping 34% in the same period last year, when the first lockdown and the closure of non-essential retail saw volumes soar.

However Brexit has taken its toll, Royal Mail reported, with total parcel volumes declining by 12% year on year, as a result of increased customs processing and reduced air freight capacity.

However, the group is predicting that enhanced customs clearance capabilities, taking effect in the second half of the year, and a strategy to drive additional import volumes should see an improved performance for international parcels in the second half of the year.

GLS, the group’s international parcels subsidiary, which is based in Amsterdam, saw a 7% year on year volume growth in July and August, with revenue growth at 4.5% year on year and 21.5% compared to July and August 2019. Underlying revenue growth was driven by higher volumes and better pricing, the group said, with revenue growth impacted by the strengthening of sterling.

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Addressed letter volumes increased by 13% year on year but declined by 19% compared to the same period in 2019.

The update also revealed that interim group underlying earnings are set to jump to between £395m and £400m, which would mark a significant rise on the £37m posted a year earlier.

However the group cautioned over “significant short-term uncertainty as we unwind from the impacts of the pandemic”.

Keith Williams, Royal mail chairman, said: “The first five months saw continued revenue growth across the Group, with both Royal Mail and GLS reporting higher revenues than the prior year.

"In Royal Mail, we are increasingly confident that domestic parcels are re-basing at a significantly higher level than pre-Covid and believe we are maintaining our share of the market. Domestic parcel volumes are up around a third compared to pre-Covid.

“Domestic parcels performance continues to be more robust against ongoing challenges in international. Whilst we continue to expect further normalisation of parcel performance as we unwind from the pandemic and anticipate some upward pressure on costs, both adjusted operating profit and margin are expected to be higher in H2 compared to H1.

"GLS continues to deliver good volume and revenue growth, both year on year and against 2019. Whilst we are seeing upward pressure on costs in a number of our markets, we maintain our outlook for the full year of low single digit % revenue growth and circa 8% operating margin."