Royal Mail boss: Universal service is ‘simply not sustainable’

Royal Mail’s parent company achieved its best Christmas for fours years in 2023, but its boss has warned the postal service is not sustainable in its current form. 

Martin Seidenberg, the chief executive of International Distributions Services, said it was ‘simply not sustainable’ for the Royal Mail to run a delivery network built to handle 20 billion letters when it currently only delivers 7 billion letters. 

Seidenberg has previously said the postal service might need a taxpayer bailout to help stay afloat, amid an ongoing decline in letter sending. 

Not fit for purpose: IDS chief executive Martin Seidenberg recently said it was ‘simply not sustainable’ for the Royal Mail to run a delivery network built to handle 20 billion letters

In a letter to Liam Byrne MP, chairman of the business and trade select committee, he said that Royal Mail will deliver 3 billion fewer letters annually within five years while serving ever more addresses – leading to higher delivery costs.

Seidenberg, who became CEO last August, suggested ‘significantly’ hiking prices or receiving a ‘government subsidy’ to help turn things around.

He also wants media regulator Ofcom to reform the Universal Service Obligation, which requires Royal Mail to deliver letters from Monday to Saturday.

Seidenberg told investors on Thursday: ‘With Ofcom due to publish options for the future of the Universal Service imminently, now is the time for urgent action.

‘We are doing all we can to transform, but it is simply not sustainable to maintain a delivery network built for 20 billion letters when we are now only delivering seven billion.’

He made the announcement as IDS declared its strongest operational Christmas for four years following a ‘marked improvement’ in the final quarter of 2023.

Royal Mail delivered 387 million parcels in the three months ending December, 21 per cent up on last year, while GLS, its international business, delivered 6 per cent more at 245 million.

Revenue increased by 9.8 per cent to £3.59billion thanks to the lack of industrial action, which left letters and parcels piled up at sorting offices across the UK during the previous festive period.

IDS admitted that turnover growth in the first nine months of the current financial year was offset by higher costs.

Yet the FTSE 250 business expects to make a second-half operating profit that will ‘broadly offset’ the £319million first-half adjusted operating loss and continues to have annual guidance at ‘about breakeven’ levels.

Matt Britzman, equity analyst at Hargreaves Lansdown, remarked: ‘Royal Mail must drive top-line growth if it wants to return to profit, and a large part of that needs to come from winning back customers lost while industrial actions wreaked havoc. Early signs are positive, but there’s a long way to go.’

International Distributions Services shares were 0.5 per cent up at 247.2p on Thursday morning.