Today the Royal Mail issued a turnover warning – blaming competitive pressures on a fall in its UK parcels business. It’s worth putting this rather astonishing comment into perspective.
One of the newly privatised Royal Mail’s strategic priorities, in fact its first priority, is “Being a Successful Parcels Business”. It wants to “maximise the proportion of UK traffic we can handle profitably”. Letters is a declining market and, hamstrung by the need to provide a universal service, Royal Mail is unable to maximise its profit in this sector. A booming parcels business is designed to offset this – but a warning (no matter what the size of the fall) will do little to protect it from previously robust investor sentiment in the business.
Secondly the Royal Mail is the single biggest operator of commercial vehicles in the UK. It has a fleet (including vans) that tops 30,000. Financially it is in a position of strength: it managed a turnover of £9.45bn in the 12 months ending 31 March 2013 and a pre-tax profit of £1.7bn. No post or parcel operator can hold a candle to such a robust balance sheet: Royal Mail’s rival TNT Post managed a turnover of £554.6m in the 12 months ending 31 December 2012 and a pre-tax profit of £5.7m; UPS’ figures are £697m and £20.3m respectively.
Looking at competitive pressures from the other end of the looking glass begs the question: “Who should be scared of whom?”
Finally – this note is nothing more than a harsh dose of reality for Royal Mail. These are the competitive pressures that every single private post and parcels operator has had to operate under for the past 30 years. A big customer decides to bring operations in-house? Tough. Market prices don’t fit your business model? Tough. Now is time for Royal Mail to do some growing up.