Critical list: Royal Mail

Prospects for the Royal Mail are far from first-class these days.

Last Updated: 31 Aug 2010

Hamstrung by decades of political vacillation over whether to privatise it or not, it has been left dangling as competition in the postal market has been opened up. Neither public utility nor independent commercial entity, its position is untenable. With poor service levels and a militant workforce that strikes at the drop of an envelope, RM struggles to keep up in the world of 'always on' communications.

Danger signs First Secretary Lord Mandelson has tried to force modernisation on Royal Mail by selling it off. Mandie had a deal on the go to flog 30% to private equity house CVC as little as two months ago. But it's off again now - the £2bn offered wasn't enough, it seems, and Labour backbenchers have vowed to rebel over anything that might threaten the universal, one-price-goes-anywhere UK letter post. Meanwhile, Royal Mail's market is disintegrating. Last year, the number of letters sent in the UK fell by 5.5%, and the firm forecasts double that fall in 2009. Last year, e-mail use cost RM about £500m in lost profits too. Internally, things are even worse. There's a £10bn pension deficit costing £800m a year for starters, appalling customer service and work practices straight out of the '70s. Richard Hooper's 2008 report on postal services, Modernise or Decline, found massive inefficiencies, including overpriced stamps and a failure to achieve the levels of automation seen in other European postal companies.

Prognosis There is growth out there - online shopping is on the up and the number of parcels sent hit 860 million in 2007. But until RM's management can determine its own commercial destiny, free of political interference, it won't see much of it. As things stand, it's an unmanageable hybrid that even Allan Leighton - RM chairman until March and one of the country's most capable managers - couldn't really get to grips with. He left it profitable but with most of its systemic failings unresolved.

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