Much media coverage has been generated from the, some say, audacious move which Daniel Kretinsky has made to acquire IDS which owns Royal Mail. The same Royal Mail which is losing £1 million each and every day as it grapples to continue to honour the Universal Service Obligation (USO) which requires it to deliver to every single UK address daily, at the same flat rate and to offer both 2nd and 1st class letter services.
Whilst the UK is certainly not by any means the largest territory covered by a national postal delivery service, certain areas of it are far-flung, sparsely populated, and take a lot longer to cover than a typical built-up town, suburb or city round. The problem is further compounded by the many offshore postal addresses enjoying a significant subsidy on the actual cost of providing the service. Whereas rival delivery operators might seek to compete with Royal Mail, were they permitted to, they would certainly not do so were they bound by the USO. They would instead cherry-pick the densely populated and more lucrative zones, then passing the awkward and more costly to deliver letters on to Royal Mail for last mile delivery. Currently, due to Royal Mail’s monopoly, bulk domestic mail services carry out the sortation but then must pass all of their pre-sorted mail volume to Royal Mail for onward last mile delivery.
The market is, of course, keenly awaiting the report from Ofcom which has been examining how any reduction in the terms of the USO might affect: a) consumers, b) businesses using the mail; c) businesses which print & process volume mailing pieces like catalogues and magazines, and d) employees of Royal Mail whose jobs could possibly be at risk if Royal Mail is able to achieve its goal of delivering second class mail less frequently.
Some suggest that Mr Kretinsky is betting on a relaxation of the terms of the USO which would enable Royal Mail to operate more cost-effectively. In some quarters it is also being mooted that the CWU is accepting that there is more potential threat to the jobs of its members if Royal Mail continues to lose money complying with the USO, than if change is brought about. That, of course, could change.
Business Secretary Kemi Badenoch is on record as saying that Royal Mail’s six-day per week commitment to providing a second-class delivery service to UK households under the USO is not up for negotiation. Chancellor Jeremy Hunt has said that the Government would examine the risks presented by Mr Kretinksy’s offer of which there are potentially many, including the very real one that the Royal Mail business could be taken private.
Kretinksy currently owns 27.5 per cent of IDS and the £3.5bn offer he has made for the business, which includes European parcels business GLS, has not been summarily dismissed by the board of IDS, rather it appears to be in favour of it.
Mr Kretinsky now has until May 29th ’24 to formalise the terms of his proposed takeover.
With or without new ownership, most consider that the opportunity to become profitable is within Royal Mail’s grasp, if/when Ofcom agrees to changes in the requirements of the USO, and Government concurs.
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