The U.K.’s 500-year-old Royal Mail faces a world of ‘more parcels and fewer letters’ as it announces major cost cuts

Royal Mail Group, the U.K.’s national mail carrier, will undergo a vast round of cost-cutting as it attempts to adapt to a world of “more parcels and fewer letters,” according to the company’s CEO.

It’s a long-term trend that has been “accelerated” by the COVID-19 pandemic, said Keith Williams, the company’s interim chief executive. The service, which acquired its first postmaster in 1516, was privatized in 2013. The paradox of a vast increase in parcel deliveries and a drop in letters reflects the challenges faced by postal services worldwide. It also hints at what could be in store as the U.S. Postal Service faces the prospect of being at least semi-privatized, as in Canada, France, and Denmark.

Williams said the Royal Mail Group, which is split into the domestic carrier Royal Mail and GLS, an international logistics and delivery service based in Amsterdam, would restructure management to lay off 2,000 people, or 20% of the staff, alongside a reduction in capital expenditure over the next two years of 300 million pounds ($372 million), as it attempts to shift further toward its parcels business.

That came after the company announced a 31% decline in operating profit in 2019–20 compared with the previous year, as domestic parcel deliveries failed to offset an 8% decline in letter volume in the domestic Royal Mail service. In April and May, that trend was exacerbated, as domestic parcel volumes grew 37% while the country was in lockdown, and letter volumes dropped 33%—and costs skyrocketed by 80 million pounds ($90.3 million) owing to the strains of social distancing, staff sick leave, and overtime.

The pandemic has simply highlighted Royal Mail’s struggles to adapt, argued professor Paul Simmonds, a strategic management expert at Warwick Business School.

“Since before privatization, Royal Mail letter volumes have been in decline, making the company’s transformation into an efficient parcels-focused business essential,” he said. “COVID is exacerbating the decline in letter volumes, but it already existed.”

The question, instead, was whether the business was being transformed quickly enough, he added.

It’s been a rough pandemic for Royal Mail in other ways. In late May, the company’s CEO, Rico Back, was suddenly removed from his position after less than two years on the job. Back had recently announced a nearly 1.8 billion–pound ($2.23 billion) restructuring program and had faced mounting tensions over his own salary and relations with the postal workers’ trade union, the result of both the restructuring plan and criticisms that workers hadn’t been provided with sufficient personal protective equipment. A potential strike over the previous holiday season had been only narrowly avoided.

The announcement of cuts will likely exacerbate those tensions. On Thursday, Williams called postmen and women “key workers on the front line.”