Royal Mail warns on competition threat from rivals

A Royal Mail worker walks past a group of delivery vans Royal Mail has warned competition from rivals including TNT is hurting its revenues

Related Stories

Royal Mail has warned that competition from rivals could threaten the "fundamental economics" that support its six day a week letters delivery service.

Royal Mail is legally required to deliver letters to the whole of the UK under its universal service obligation.

It warned its competitors will be able to "cherry pick" where to provide rival services.

But rival TNT Post UK told the BBC that Royal Mail should "stop whinging".

TNT has launched its own direct letters delivery service in Manchester, London and Liverpool and plans to eventually deliver letters to between 40% and 50% of the UK.

Direct delivery services are commercial services offered by postal businesses and typically include mailings of bank cards, banks statements or insurance documents.

Unlike Royal Mail ,TNT is not bound by the universal service obligation and does not have to deliver letters to the whole of the UK.

Royal Mail said as a result it can "cherry pick " commercial delivery contracts to "easy to serve urban areas". Such competition could lead Royal Mail to suffer a loss of revenue in the region of £200m a year by 2017-18, it added.

Royal Mail has put a threat to the universal service obligation on the table today. It says that competitors such as TNT cherry picking lucrative door-to-door delivery routes in cities means the Royal Mail will be left with the less economically viable rural services which it is legally obliged to operate. By 2016, the business suggests it could be costing the Royal Mail £200m a year by 2016.

It will now be complaining to the postal regulator, Ofcom, and demanding "immediate action" to protect the service obligation.

Ofcom has given its response. "We would expect Royal Mail to take appropriate steps to respond to the challenge posed by competition, including improving efficiency," it said this morning.

In plain speak, Ofcom seems to believe there is a lot more Royal Mail can do to save costs before it make a serious point about the threat of the competition.

BBC Business Editor Kamal Ahmed said Royal Mail had "put a threat to the universal service obligation on the table".

"It will now be complaining to the postal regulator, Ofcom, and demanding "immediate action" to protect the service obligation," he said.

However, the communications regulator rejected Royal Mail's call for a review saying it did not believe there was presently a threat to the financial sustainability of the universal postal service.

"In plain speak, Ofcom seems to believe there is a lot more Royal Mail can do to save costs before it make a serious point about the threat of the competition," explained the BBC's business editor.

And Nick Wells chief executive of TNT Post, told BBC Radio 4's World at One programme: "I think, personally, Royal Mail should stop whinging. They have just delivered some record profits.

"Clearly, TNT Post are trying to create innovation in the postal market. We're delivering choice for our customers and that's good for the market over all, as well as creating jobs."

The warning came as Royal Mail released its first set of financial results since it was privatised in October - with annual operating profits rising to £671m. Overall sales rose to £9.46bn in the year to 30 March, up from £9.15bn a year earlier.

Royal Mail's share price fell 7.5%. or 43.10p lower to 531.9p.

Royal Mail

Last Updated at 30 Jan 2015, 05:15 ET *Chart shows local time Royal Mail intraday chart
price change %
439.20 p +
'Adverse financial impact'

The group's chief executive Moya Greene said the company's performance was in line with expectations but she admitted it faces a "couple of headwinds".

She said: "The competitive environment on the parcels side is more intense. We are taking steps to remain the leader in this growing market.

"On the letters side, the headwind is direct delivery and we have strategies in place to counter its adverse financial impact."

Ofcom is already investigating a complaint from TNT over Royal Mail's decision to change conditions and increase the prices it charges to deliver post collected and pre-sorted by its competitors.

Royal Mail believes an investigation into this complaint will lead to a long period of uncertainty around the prices it charges other postal operators.

Royal Mail parcels Royal Mail's parcel delivery service now contributes more to revenues than letters

Ms Greene said: "TNT Post UK can cherry-pick easy-to-serve urban areas, delivering easy-to-handle post to homes less frequently than Royal Mail and to no defined quality standard.

"Royal Mail is required to deliver six days a week, overnight, throughout the whole country, to stringent quality standards and at a uniform, affordable tariff.

"Moreover, we are also required to deliver any items TNT Post UK does not consider economic to deliver itself. If TNT Post UK is successful in delivering its stated objectives, this could threaten the fundamental economics of the universal service."

An Ofcom spokesman said: "Ofcom keeps the market under constant close review, examining the future business plans of major operators. We have a duty to secure the universal service, and if we identify any future threat we have powers to step in to protect it.

"We would expect Royal Mail to take appropriate steps to respond to the challenge posed by competition, including improving efficiency."

Start Quote

In the past, and bear with me here, Royal Mail would deliver everything from stuffed horses (seriously) to fridges and flat screen televisions.”

End Quote

Royal Mail's parcel delivery service overtook its letters business to become the biggest contributor to revenue for the first time.

Sales in its parcel delivery business rose 7%, although parcel delivery volumes were flat. Letter delivery volumes fell by 4%.

Royal Mail has faced intense competition in its parcel delivery service over the past year as the market has boomed on the back of online shopping.

Its flotation on the London Stock Exchange last autumn was criticised for selling shares in the company too cheaply, as Royal Mail's shares rocketed as much as 87% above the initial share price of 330p in the first few days after it was listed on the stock market.

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories


Business Live

    Fridgeonomics 10:29: Via Blog Linda Yueh Chief business correspondent

    After a five-year effort, Unilever tells me that it has achieved zero waste in all of its 240 factories in 67 countries worldwide. It says that it generates efficiency savings of €200m a year by eliminating disposal costs. Read more of Linda's blog on the website.

    10:14: Housing minister Radio 5 live

    Housing Minister Brandon Lewis was on 5 live talking about house building. "I'm not a fan of targets," he says. Less regulation for small building projects is helping building, he adds. If we are short of housing, why the rise of detached houses? "We've had a period of [building] lots of apartments of flats... we need homes as well."

    10:00: Rental prices

    The graph above, courtesy of the ONS, shows the trend of percentage increases in rental prices. After rises nearing 3% in 2012, the dip to 1.5% may well have ended.

    09:43: Rental prices

    Private rental prices paid by tenants in Great Britain rose by 1.7% in 2014, according to the Office for National Statistics. A 2% rise in Scotland led the charge, while English rents grew 1.8%, and 0.2% increases were logged in Wales. As can be seen, London rent rises have outgunned the rest of the country.

    09:32: Bank of England lending data

    Mortgage approvals rose in December for the first time since June, the Bank of England said. This could mean that a steady reduction in home loans could be ending. There were 60,275 mortgage approvals last month, up from 58,956 in November.

    Via Twitter Richard Westcott BBC transport correspondent

    tweets: BBC News - Crossrail makes tunnel breakthrough under Liverpool Street Station

    09:12: Plane order

    All Nippon Airways has placed an order with a list price of $2.2bn (£1.46bn) for 15 planes from Boeing and Airbus. The Japanese flag carrier is looking to expand routes at Tokyo's central Haneda airport. The airline said it would acquire eight planes from US-based Boeing and seven from fellow duopolist Airbus.

    08:54: Eurozone crisis
    Alexis Tsipras

    Watch out for Greek fire. Or, continuing the Greek theme, maybe we'll see the golden mean. The prime minister who heads the nation's new anti-austerity government, Alexis Tsipras, has it in his diary to meet Jeroen Dijsselbloem, the current head of the eurozone group of finance ministers today to discuss the conditions of Greece's massive bailout.

    BT results 08:37: Via Twitter Rory Cellan-Jones Technology correspondent

    tweets: BT says ultrafast coming within a decade - but will it look that fast in 2025?

    08:29: Honda

    Honda cut its annual operating profit forecast by 6.5%. It has set aside more cash to cover its recall of cars to replace potentially faulty air bags. It now expects an operating profit of 720 billion yen (£4.1bn) for the year to March 31. It previously forecast 770 billion yen.

    08:16: Paper review

    The Guardian splashes on a report from the Institute for Fiscal Studies which claims young workers have been hit hardest by a squeeze in standards of living. The FT digests Shell and US rival ConocoPhillips's investment cancellations. The Wall St Journal says bets against currency pegs, like Denmark's krone with the euro, are on the rise following Switzerland abandoning theirs. The Telegraph reports on a likely windfall for gas companies as wholesale costs drop.

    Google results Via Twitter Stephen Shankland Senior writer at CNET News

    tweets: Google's capital expenditures jumped $1.13 billion sequentially to $3.55 billion in 4Q2014. Data centers ain't cheap.

    07:50: Market update

    Japan's Nikkei index added about 0.4%, clawing back some of the 1.1% lost yesterday, while the Hong Kong Hang Seng index dropped 0.1%, to 24,570.01. Japanese factory output rose 1% from the previous month, below forecasts, while household spending fell more than expected, down 3.4% on a year ago.

    07:33: PPI investigation

    The Financial Conduct Authority, the City watchdog, is planning to "gather evidence on current trends in complaints on payment protection insurance," it says. It could then decide to do an advertising campaign, a time limit on complaints or keep things as they are.

    07:25: BT results

    BT have updated everyone on their pension fund situation and how they will deal with a £7bn deficit. BT will pay £1.5bn into the fund by the end of April 2015. This will be followed by £250m in each of the years to March 2016 and March 2017. Low interest rates have hit the fund.

    07:16: Qatar Airways
    Qatar Airways plane

    Qatar Airways has acquired stake of just less than 10% in BA and Iberia-owner IAG. There's a cap on non-EU ownership of European airlines, but Qatar Airways might up its stake in future, it says.

    07:05: BT results

    BT says third-quarter earnings before tax and interests costs rose 2% to £1.57bn. Gavin Patterson, chief executive says: "All the major communications providers are responding to the strong market demand for fibre broadband, helping to drive take-up in what is already a very competitive market."

    06:57: US growth data BBC Radio 4

    US growth figures will be reported later on. What's the likely result, Today asks Ewen Cameron Watt of Blackrock? "The rate of growth is slowing a little bit but not enough to raise serious concerns," he says. Expect a "stable but robust rate of growth."

    06:45: Greece Radio 5 live

    Guntram Wolff is the director of European think tank Bruegel, and he's on 5 live, talking about Greece. "It was a mistake that Greece joined the euro, but it would now be a mistake for it to leave," he says. "We will have to come to a deal that will have a lower burden on Greece. I essentially think you will keep the nominal amount [owed to bond investors] but you will increase the maturity.. from 30 to 40 or 50 years."

    06:30: Amazon results Radio 5 live

    More from Ewen Cameron Watt of investment manager Blackrock on 5 live. He is giving his views on US results overnight. "Amazon and Google both essentially reported that underlying demand over Christmas was pretty decent," he says. After tax, margins at Amazon are below 1%, he says.

    06:20: Trademark news Radio 5 live

    The phrases "this sick beat" and "nice to meet you, where you been" have been trademarked by singer Taylor Swift, 5 live reports. Laura Harper of law firm Shoosmiths says she is trying to stop other people making money by putting the phrases on a t-shirt or other merchandise. She will have to prove the phrases are "synonymous" with her, she says.

    06:09: Shell results Radio 5 live

    Ewen Cameron Watt of Blackrock is the markets guest on 5 live, talking about yesterday's results from Shell. "These are very historic results because they reflect an average price of $75" per barrel of oil, he says. Bearing in mind oil is below $50 today, "the pain is yet to come," he adds. The firm has cut $15bn of investments. The longer the price remains at this level, the more likely more investment cuts will come, he says.

    06:01: House building Radio 5 live

    Figures from the National House Building Council show there was a 9% rise in homes built last year to 145,174, but the rise missed the government's 200,000 home target. Peter Vella of Countryside Properties is on 5 live. NHBC's figures don't take into account all homes started or built, so the industry could be closer to the target than thought.

    06:00: Howard Mustoe Business reporter

    Good morning all. Overnight, online retail giant Amazon has reported weaker profits for the busy Christmas period. Stay tuned for the best business and economics news and get in touch via email or on twitter @BBCBusiness



Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.