Royal Mail saw parcel volumes rise 34% in the five months to the end of August, but found profit growth hampered by the costs of transitioning its business from letters.
The UK incumbent shipped an additional 177 million parcels in the period, pushing total revenues up £139 million as the mix of business moved away from letters. Royal Mail attributed this to growth in B2C parcels and ecommerce during the Covid-19 pandemic.
However, the operational changes required to ship fewer letters and more parcels led to £85 million in additional costs, while Covid-19 led to £75 million in additional costs due to elevated absences, social distancing and additional protective equipment.
As the UK incumbent, Royal Mail has a universal service obligation to continue to deliver letters to every address in the country for the same price. With no sign of profitability in letters returning, the company wants to make changes to its business, such as increasing automation and changing shift patterns. Royal Mail argues that changes to contracts will be necessary to support new services such as two van deliveries per day.
However, it has been battling the Communication Workers Union (CWU) over these changes, which the latter complains will cost jobs. Former CEO Rico Back has already been ousted from the company after failing to resolve the issues.
Royal Mail said talks are still ongoing with the CWU and Unite (which represents management). Striking a deal will be essential for the company to push ahead with what it sees as a necessary transformation.