The regulatory body outlines potential pathways in the examination of the mandate to provide services throughout the entirety of Britain, six days per week.
The communications regulator, Ofcom, has revealed in its highly anticipated postal service review that Royal Mail could potentially achieve savings of up to £650 million by transitioning to a three-day-a-week letter delivery model and a further £200 million by ceasing Saturday deliveries. Ofcom presented various options for the future of the universal service obligation (USO), which mandates Royal Mail to provide nationwide delivery six days a week at a fixed cost.
These options include saving an estimated £100 million to £200 million by reducing delivery days from six to five per week or achieving cost reductions ranging from £400 million to £650 million with a move to a three-day delivery schedule. The review responds to the evolving landscape shaped by a decline in traditional letter volumes and a corresponding surge in parcel shipments due to the growth of online shopping.
Letters in long-term decline
Ofcom has expressed concerns about the increasing risk that Royal Mail could face long-term financial and operational challenges due to the expenses associated with delivering the universal service obligation (USO).
While not endorsing specific proposals, Ofcom highlighted two primary options under consideration: reducing the number of letter delivery days or implementing changes that could extend the delivery time for first- and second-class mail to up to three days or more. This would be coupled with a next-day service for urgent letters.
The first option would necessitate parliamentary approval, while the second falls within the regulator’s jurisdiction. Ofcom, having conducted consumer research and financial modeling for Royal Mail, is now seeking input from stakeholders until April 3.
In Ofcom’s consumer polling, 88% of respondents emphasized the importance of delivery reliability, surpassing the 58% who considered a Saturday service important, down from 63% in 2020.
Despite Royal Mail’s past efforts to reduce Saturday deliveries, the government rejected the proposal last year. Although recent discussions have surfaced again, Downing Street signaled opposition to such a plan, a sentiment reiterated by Rishi Sunak, emphasizing the government’s commitment to maintaining the USO.
The CEO of Royal Mail’s parent company, International Distributions Services (IDS), Martin Seidenberg, stressed the urgent need for action, citing a more serious situation arising from the lack of government and Ofcom intervention. Seidenberg highlighted that while other countries have adapted, the UK is falling behind and emphasized the need to explore various options beyond Saturday letter deliveries.
In a recent letter to the Commons business and trade committee chair, MP Liam Byrne, Seidenberg described the USO as unsustainable in its current form, citing similar adjustments made in other European countries. Byrne echoed the importance of securing the future of the USO through serious discussions between the government and Royal Mail.
Dave Ward, the general secretary of the Communication Workers Union, stated, “While we are not opposed to change, we cannot endorse a three-day universal service obligation. Such a move would fundamentally alter the nature of Royal Mail, potentially jeopardizing numerous jobs.”