Royal Mail, a mail delivery fixture in the U.K. for centuries, predates phones by 250 years. From monarchs to pandemics, it’s been through it all. Yet, with letters dropping by half in 12 years, from 14.3 billion to 7.3 billion, per Ofcom, its losses are rising.
Now the age-old institution is eyeing a major revamp to cope with dwindling demand.
Ofcom, the U.K. regulator that oversees the mailing company, is proposing to slash its letter delivery days from six days to three to modernize the “out-of-date” and “unsustainable” mail service.
The financial savings of this measure could be enormous—as much as £200 million ($255 million) if delivery is reduced to five days and £650 million ($828 million) if it goes to three.
“Something’s got to give, or the service is going to be too costly,” Ofcom chief executive Melanie Dawes told the BBC. “We’re opening up a debate on this today, we’re not proposing specific answers.”
Other options that Ofcom suggested include tweaks to how long it currently takes for letters to be delivered.
The report cited a consumer survey that found most customers want reliability and are willing to make a trade-off for services taking longer as long as the prices are under control.
The demand for letter services has seen a decline as parcel services have picked up, thanks to the growth in e-commerce.
This has been true of other countries the world over, and was made worse by the COVID-19 pandemic.
To keep up with the changing postal landscape, several other European countries have cut down their postal services to fewer days or slower delivery speeds, including Belgium, Italy, and the Netherlands, Ofcom noted.
But the U.K. has done little to upgrade its ancient system in recent years.
“Reducing letter delivery would allow Royal Mail to redeploy resources to its other services such as parcel delivery,” an Ofcom spokesperson told Fortune, adding that the unit cost of individual letter delivery has roughly doubled in the past decade.
“There are important questions to be asked about the long-term future of the postal service if we want to avoid paying significantly higher prices.”
Worth the change?
Any changes to how Royal Mail operates would need the government and Parliament’s signoff, as it’s written into legislation.
But the government is resistant to the idea of limiting postal services on Saturdays.
Kevin Hollinrake, who serves as the postal services minister, said that while the Royal Mail needs to “up their game,” the Saturday deliveries are “sacrosanct” and should not be cut out, according to the BBC.
Prime Minister Rishi Sunak also said the government is determined to ensure the mailing company’s services remain unchanged.
Recognition of the need for change at Royal Mail, which was privatized about a decade ago, seems unanimous—the CEO of Royal Mail’s parent International Distributions Services said that “reform is urgently needed” in a statement to Fortune.
“It is not sustainable to maintain a network built for 20 billion letters when we are now only delivering 7 billion,” IDS chief Martin Seidenberg said, adding that the group has called for the government and Ofcom to address the matter for years.
“The lack of action means that we are now facing a much more serious situation. Whilst other countries have grasped the opportunity to change, the U.K. is being left behind.”
Royal Mail reported its operating loss for the 2022–2023 financial year was £1.04 billion, down 518% from a £250 million profit a year earlier, which the company attributed to disputes with the union representing postal workers as well as other macroeconomic volatilities.
Royal Mail told Fortune it has entered a period of consultation to evaluate its options and hasn’t made a decision on whether it plans to change its services as yet.
