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Royal Mail is paying the price for its failure to deliver

01 Dec 2019, 21:09

https://www.telegraph.co.uk/business/2019/11/30/royal-mail-paying-price-failure-deliver/

Royal Mail is paying the price for its failure to deliver

Royal Mail is scrambling to turn around the business and expand its parcels division as fewer people send letters

Oliver Gill

30 NOVEMBER 2019 • 5:00AM

A bitter dispute with its workers threatens to undermine the need for rapid change to stave off terminal decline

As she prepared to leave Royal Mail, chief executive Moya Greene took a final meeting with Terry Pullinger, the union boss who had been a constant thorn in her side.

It was the summer of 2018, and with weeks left before Greene stepped down, Pullinger resisted the urge to revisit his objections to her £2.6m payoff. She repaid the courtesy with assurances that Royal Mail would keep its promises to its 140,000-strong workforce. Despite their many differences the pair warmly shook hands and wished each other well.

Greene had insisted that Rico Back, the German handed a £6m golden hello to succeed her, would honour a hard-fought pay and pension deal struck earlier in the year. Pullinger could rely on Sue Whalley, she said. Once a front-runner for the top job, Whalley remained in charge of Royal Mail’s main business delivering post and parcels in Britain.

Greene’s confidence in her legacy quickly proved misplaced, however. Within months of her departure, Whalley was gone too. Royal Mail had disappointed investors with a big profit warning and Back needed someone to take responsibility for the failure to deliver.

It was a hammer blow to Pullinger, the deputy general secretary of the Communication Workers Union (CWU). He had lost two respected adversaries in quick succession and was left negotiating with an unknown quantity in Back, a Zurich resident who commutes to London for work. For both men, and for Royal Mail, the period since has been a struggle.

The company’s privatisation six years ago was the most popular float in British history. Shares rose sharply during a frenzied first day of trading on Oct 11, 2013, sparking criticism it had been sold off on the cheap. Such criticism rings hollow today. Royal Mail has halved in value since Greene’s exit, with Back seemingly unable to convince investors he can stop the rot.

There was good reason for optimism in 2013, industry watchers say. Like other state-backed monopolies, Royal Mail was armed with a string of natural advantages. It had the name and address of every Briton, a vast network of warehouses and the country’s biggest fleet of lorries and vans.

However, as Cantor Fitzgerald analyst Rob Byde points out: “A lot of their business is hard-wired towards inflexibility.” Royal Mail remains shackled by a regulatory requirement to deliver to every house in the country, six days a week. While a big revenue earner,
sales were £1.9bn over the last six months, the traditional market for letters is in terminal decline. The end is coming more quickly than Royal Mail thought.

To replace lost letters income, Royal Mail had planned to hitch onto the burgeoning e-commerce market by investing in parcel delivery. With the coalition government overseeing sweeping austerity cuts, private investors, rather than the taxpayer, would be tapped to fund the strategic shift.

Yet Barclays analyst Mark McVicar explains that Royal Mail ran into its familiar problem with rapid change. After privatisation, the company struggled to offer the kind of parcel tracking that was hugely important to the likes of Amazon.

The US tech firm developed its own logistics capabilities in the UK alongside more nimble partners, instead of using out-of-date Royal Mail services.

“This meant for a couple of years they didn’t really grow their overall parcel volumes,” says McVicar. Byde sums things up: “Royal Mail had a tough task. Managing down costs and lifting productivity in a highly unionised letters business, and against the backdrop of sharply declining volumes.”

Driving through fundamental reform has also proved a challenge for both Greene and Back. Royal Mail is playing catch-up.

“Royal Mail was a latecomer to the private sector: it is not a Thatcher-Major era privatisation,” says Professor Len Shackleton of the Institute of Economic Affairs. “Countries such as Austria, the Netherlands, Belgium and Germany privatised well before the UK.

Deutsche Post, first privatised in 1995, has made a considerable success of its liberation from the state. It is now the world’s largest courier service and operates in many countries. If politicians had shown the courage to privatise Royal Mail when the idea was first mooted 25 years ago it might well have done something similar.

Instead it came out of the public sector at a time when the traditional mail business was in freefall and with legacy employment structures ill-prepared for a changed market.”

McVicar adds: “She [Moya Greene] was only three years into the plan. All of those other postal services went through a significant modernisation programme before floating.” Back’s plan is to spend around £500m-a-year developing three titanic parcel delivery warehouses on the outskirts of London, Manchester and Birmingham. It’s a move that analysts believe could wipe out profits.

Back is also facing the prospect of the first full-blown industrial action on the postal network in a decade. Greene, after a last-minute deal with Pullinger, narrowly avoided a similar crisis two years ago. While the industrial row in 2017 was bitter, 2019 looks worse.

Two years ago, the row centred on CWU demands for compensation when Royal Mail announced the closure of its final salary pension scheme. This time Back faces a deeper grievance. Workers say they have been betrayed.

The union believes they have given ground and now the company wants more with Back refusing to honour Greene’s promises on working practices.

Royal Mail managing director Shane O’Riordain disagrees. “We have honoured the agreements to the letter,” he says. “We just ask in return for a commitment to change at pace.” That means asking workers to better embrace technology – for instance replacing manual clocking in-and-out machines with digital ones, or tracking posties’ movements to better plan routes.

Shackleton suggests there’s an inevitability about industrial action. “New management is almost always resented by union activists when it inevitably starts doing things differently.” Yet beyond the union and the Labour Party he does not detect a clamour for nationalisation.

“There has been no big increase in consumer complaints about the service since privatisation.” Former Liberal Democrat leader Sir Vince Cable, takes pride in his decision to privatise Royal Mail. “It’s been a big success in the sense that Royal Mail was in serious difficulty,” he says.

“In the world of email, Postman Pat is as much a part of us as the stagecoach. Royal Mail needed to borrow, it wasn’t going to come from the government.”

The fact that shares languish at a fraction of where they were, “vindicates” the original pricing, he says. “We knew that this was a business that was going to struggle".

Royal Mail is paying the price for its failure to deliver

02 Dec 2019, 18:49

Telegraph view, and we are willing to accept changes but sticking to the original agreement rather than railroaded in different directions by management. That's the problem

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