A parcel of profits!

A touch of déjà vu in October as the Government sale of Royal Mail, and staff and investors earning a quick and substantial profit, takes us back to the Thatcher years and the successful sale of other state owned organisations like BT and British Gas.

Those of us with memories of the operational efficiency of the now privatised organisations before the sale, and their comparative performance after, can only come to one conclusion – it worked. The injection of competition into what had been monopoly services resulted in the new private companies upping their game, giving the customers what they wanted, and positively reacting to market forces. Winning results for both operators and customers.

The Royal Mail sale is rather different with the field of postal and parcel deliveries already subject to enormous and growing competition, and with much of this competition doing rather well thank you very much. And not all of the operation will be privatised – up to 62 per cent was sold, with a further 15 per cent likely to be made available as demand was so very high.

But if any operation was in the right place at the right time then it surely has to be Royal Mail. With the growth of internet retailing over the last decade, and the mind boggling prospects of what growth is to come over the next, then the newly privatised group will surely in a position to adapt and use its centuries of skill and experience in order to maximise this fast developing market.

So what have the new investors bought into? The Royal Mail can trace its origins back to 1516 – all but 500 years of deliveries! The scale of the present establishment entitles it to claim to be the biggest logistics operator in the UK. Moving post and parcels by road, rail, sea and air the operation is truly multi-modal. And with a fleet of around 30,000 red vehicles on the roads customer recognition is no problem. Pre-privatisation Royal Mail claims to deliver to 29 million addresses and to handle a staggering 1.4 billion parcels each year. All carried out by a workforce of close to 150,000. It is estimated to be worth around £9.1 billion.

The Government, together with Royal Mail management, say that privatisation is essential in order to generate access to private capital to enable the organisation to exploit the opportunities of the internet shopping boom whilst similar technological communications developments have resulted in a continuing reduction in letter post – e-mail being quicker and cheaper than snail-mail.

UK retail habits are undergoing a major change. Currently some 70 per cent of consumer sales are made at retail premises – the high street. But it is estimated that by 2020 this figure will reduce to just 40 per cent with a consequent growth in home deliveries taking up the slack.

Last Christmas saw a phenomenal boom in internet sales. There were 84 million visits to retail websites on Christmas Eve, 107 million on Christmas Day and 113 million on Boxing Day. And all of the results of this bonanza share one fundamental – somebody has to deliver them. Not surprising then that Royal Mail wants get the biggest possible share of this gravy train.

Is there a downside to the privatisation? Well, the unions are not happy and there is talk of a strike. They say that the company is already in profit and does not need the private capital to achieve its ambitions.

And the universal letter post, which means that the price of a letter is the same whether the destination is next door to the sender or at the other end of the country, and indeed was a foundation service of the group, may be at risk, even though at present it is protected by law. Letter post is falling fast and maybe needs a new approach. Before the Second World War letter deliveries were made up to eight times a day. Not now - this week my postman arrived close to five o’clock in the afternoon! 

The financial market seems to have come to the conclusion that the sale is a very good idea, although this may be based on suggestions that the organisation has been badly undervalued. Private investors saw an immediate 38% gain on investment as soon as shares were traded on the London Stock Exchange. 

But, with an overview of the UK logistics sector, there can be little doubt that the Royal Mail privatisation is a winner. The organisation has the history, experience and know-how in order to exploit a boom market. A no-brainer.