Royal Mail delivers growth and predicts demise of rivals

The boss of Royal Mail expects rival parcel-delivery companies to disappear amid intense competition (Getty)

The boss of Royal Mail expects rival parcel-delivery companies to disappear amid intense competition, claiming “there’s too much capacity” and that the current low prices are unsustainable.

After City Link and Yodel toiled in the run-up to Christmas, Royal Mail’s Canadian chief executive, Moya Greene, hinted that more firms could collapse this year, saying: “There’s too much capacity in the market, and it’s put pressure on prices. I don’t want to predict the demise of other companies, but I’ve been in this country for five years now and we’ve had an awful lot of players in the market, with many of them sadly not being financially successful. There needs to be a new equilibrium in this industry.”

Ms Greene believes this is the year when “big retailers will realise that quality counts” and opt for its services over those of smaller upstarts.

Her comments came as Royal Mail delivered unexpectedly decent festive results, with UK parcel deliveries up 4 per cent, sending it to the top of the FTSE 100 for a time. After City Link went bust on Christmas Eve and Yodel admitted it couldn’t keep up with demand, Ms Greene said: “Our early Christmas planning, which we started on April 1, paid dividends.”

Royal Mail delivered 120 million parcels in December, which Ms Greene boasted was “more than the vast majority of parcel industry participants deliver in a whole year”.

She added: “This year some of our competitors unfortunately saw their networks struggling under the weight of the surge in Christmas traffic. We’re very happy that did not happen to us.

“This year, big retailers will realise quality counts and it’s worth paying for. A good delivery partner has a halo effect: consumers are more likely to order from them again.”

However, asked if the stronger results meant Royal Mail’s universal service was safe, Ms Greene batted back: “I’m only going to talk about Christmas.”

Royal Mail’s UK business was flat in the nine months to December, but 8 per cent growth in its European parcels business meant group revenues rose by 1 per cent.

The company made a stark warning in November that Amazon’s decision to launch its own next-day delivery network would clobber its parcels business. Royal Mail said that, as a result, it was more than halving its expected growth rate in the UK parcel market: the 6 per cent it predicted at its floatation in 2013 was chopped to 1 per cent to 2 per cent for the next two years.

The shares rose 15.30p, or 3.55 per cent, to 445.80p.