Thursday, 8 October 2009

Royal Mail - managed decline?

Today postal workers in the UK voted to strike nationally, following a series of local disputes regarding a range of issues affecting the organisation, which mostly stem from the gradual decline of post on paper. Royal Mail, which remains a state owned enterprise whose role is to provide a letter and parcel delivery service to every UK address, says that letter and parcel traffic is falling by 10% per annum, meaning a reduction in income of around £170m per annum. Despite this the company did manage to make an operating profit of £321m in the year to March 31 due to efficiency savings. Naturally however such efficiency savings are unpopular with the unions.

The decline of the Royal Mail does have true historical significance - it is one of the world's oldest surviving businesses, and particularly unusual in this sense that it still fulfils the same function. Its roots can be traced back to the 16th century at least, when it was literally the 'Royal Mail', carrying mail for royalty and government business. In this sense its roots parallel the internet somewhat, which was originally established by the US government for internal purposes. Members of the public were able to use the system from 1635 onwards, when Charles I opened up the service. It was granted a monopoly as the 'office of postage' by the dictator Oliver Cromwell in 1654, a monopoly only removed by government in 2006. A network of horse drawn carriages conveyed mail on contract for the post office, although originally the recipient paid for postage. This system was changed in 1840 with the innovation of the postage stamp, which meant that the sender paid the postage, which was reduced to 1d., or old penny (about 30p today). This, and the introduction of rail transport for letters led to a real boom in post office business, and about half of Prime Minister Gladstone's civil servants were postmen. The mail remained a government department, the 'General Post Office' until 1969, a period in which it had control over all communications in the UK (such as telgraph, telephony, radio and tv). Since that time it has been administered as a separate business, but still remained in the state sector, and still employs over 120,000 people today. With postal volumes declining so rapidly it seems unlikely to be a viable candidate for privatisation anytime soon - but at the same time it seems likely that unions may have to concede that with postmen having less to deliver, it may eventually become economically inefficient for society to continue to pay them to walk round everybody's front door every day. But how long will this take?


  1. If it was true that privatisation is unlikely, why did TNT express interest in taking a 35% stake in the business?

    The 'last mile' of postal delivery does have some value to other postal operators (and TNT, who deliver mail in Holland have some experience here)

    I'm the admin over at - there has been massive interest recently in alternatives to Royal Mail, although cost is always an issue (as with anything) perhaps at this point privatisation isn't the worst idea? PPP as an alternative?

  2. The problem is that Royal Mail is always going to be a natural monopoly, because the marginal costs associated with having two or more parallel 'last mile' services would be too high. Best value might remain for the government to keep it.

  3. Part of your assumption for the basis of this article revolves around that same old, mantra-like chant that everyone else is also saying -- that there is decline in letter mail volumes.

    This is simply not true, though to prove it for all to see is another matter.

    Perhaps, I can wet your appetite by supplying another url that may yet convince you that there is a lot more to this than meets the eye...

    Btw, I liked your piece on the history side of things. :)



About Me

London, United Kingdom
I'm Lecturer in Management at The York Management School, at The University of York, UK. I teach strategic management to undergraduate and masters students, as well as running the masters dissertation module. My research focuses on business and management history.