Royal Mail frets over Amazon threat to parcels business

Postal giant blames Amazon’s introduction of its own delivery vans, as well as it cutting the minimum order required to qualify for free delivery, for drop in parcel revenues

Shares in Royal Mail today touched their lowest level since October’s privatisation as it delivered the gloomy news that revenues at its crucial parcel division are being threatened by strong competition from Amazon.

Royal Mail placed its parcels division at the centre of its growth plans in its £3 billion flotation, claiming it was “well-positioned to benefit further from predicted levels of growth in the overall UK parcel market” and telling would-be investors that between 2013 and 2016 online shopping parcel volumes would grow by as much as 6 per cent.

But today the postal giant blamed Amazon’s introduction of its own delivery vans, as well as it cutting the minimum order required to qualify for free delivery, for parcel revenues falling 1 per cent in the three months to July, despite volumes rising 1 per cent.

“Competition in parcels has intensified more than expected as other carriers seek to fill capacity in their networks by aggressively reducing prices,” Royal Mail admitted. It cast blame on “a slowdown in the retail sector” too, and the number of letters in postmen’s sacks fell 3 per cent in the three months.

After the post operator floated at 330p — the biggest state sell-off since the railways — shares soared, hitting a peak of almost 620p in January, and the Government was accused of selling off the business too cheaply. But today’s news sent shares falling 4.5 per cent to 445.1p, before settling down nearly 1 per cent at 462.7p.

Royal Mail said it was opening later on Saturdays and launching Sunday delivery services to try to turn around the trend in parcels. Chief executive Moya Greene, who was paid nearly £1.2 million last year, added: “Given the increasing challenges we are facing in the UK parcels market, our parcels revenue for the year is likely to be lower than we had anticipated. Our parcels revenue will be dependent on our performance in the second half — which includes the Christmas trading period — and on no further weakening.”

Royal Mail also faces competition from France’s DPD, which began a nationwide seven-day delivery service this month, and from TNT Post, which has launched mail delivery services across the country.