Royal Mail faces combined might of UPS and TNT

Royal Mail was yesterday facing up to the creation of an aggressive new competitor as it took another step on the path to privatisation.

America's UPS is paying €5.2bn for the Netherlands' TNT to create Europe's leading parcel delivery firm. The new company will go head-to-head with German-owned DHL to win business in the only part of the moribund mail market that is growing. Letters are on the slide thanks to the popularity of email, but parcels are booming thanks to e-commerce firms such as Amazon.

UPS-TNT will command 18 per cent of Europe's parcels market, according to figures from research firm Transport Intelligence, compared to DHL's 17 per cent.

The state-owned Royal Mail, which lags with just 5 per cent, has pinned its hopes on building its parcels arm to prove it has a commercial future. It gained a fillip as the Government said it would take over its giant pension fund, which will see £28bn of assets and £38bn liabilities transferred to the state at the end of this month.

"This deal is another example of how competitors are moving to seize commercial opportunities which Royal Mail needs to respond to," said David Stubbs, a postal expert at ESL UK. "Capitalising on the growth in ecommerce distribution is essential to its survival."

Royal Mail made a £67m half-year profit in its most recent set of figures, but its letters delivery arm lost £41m as the nation's daily postbag fell 6 per cent to 59 million items. GLS, its European parcels arm faces a new squeeze from UPS-TNT. The division was already under threat from Brussels, which could force Royal Mail to dispose of assets to compensate for the pensions bailout if it judged the move state aid. Competition authorities will report back in a few days.