Ofcom has levied a fine of £5.6m against Royal Mail after it failed to meet crucial delivery targets this financial year.
The struggling courier’s performance report for 2022/23 revealed that it fell far short of benchmarks. Only 73.7 per cent of First Class mail was delivered on time, while 90.7 per cent of Second Class mail met its deadline.
Ofcom said it failed to meet targets by a “significant and unexplained margin”.
The watchdog’s regulations dictate that Royal Mail must achieve a 93 per cent on-time delivery rate for First Class mail within one working day and a 98.5 per cent on-time delivery rate for Second Class mail within three working days.
Ofcom made adjustments to account for industrial action, extreme weather and the Stansted runway closure, but performance figures still remained too low.
The £5.6m fine, to be paid to HM Treasury within two months, includes a 30 per cent reduction, acknowledging Royal Mail’s admission of liability and its agreement to settle the case.
Ian Strawhorne, Ofcom director of enforcement, said: “Clearly, the pandemic had a significant impact on Royal Mail’s operations in previous years. But we warned the company it could no longer use that as an excuse, and it just hasn’t got things back on track since.
“The company’s let consumers down, and today’s fine should act as a wake-up call – it must take its responsibilities more seriously. We’ll continue to hold Royal Mail to account to make sure it improves service levels.”
Last month Royal Mail reportedly failed to deliver on postal targets across the whole of the UK this summer.
Posties called the situation “diabolical” as they faced angry confrontations on doorsteps with people worried about missing health documents and other important letters.
“This isn’t simply a business dragging its feet, it is effectively confirmation that Royal Mail cannot do its job properly,” said AJ Bell investment director Russ Mould about today’s fine.
“Improving service levels is crucial if International Distributions Services wants to stand a chance of returning Royal Mail to profitability.
“The group seems to be in a constant state of flux and while its overseas parcel arm GLS is taking one step forward, this always seems to be offset by Royal Mail taking one step back,” he added.
IDS interim earnings ahead
Shares in International Distributions Services (IDS), the parent company of Royal Mail and GLS, dipped over one per cent on Monday morning.
The FTSE 250 stock has recoiled in the past week as investors await interim results on Thursday. But it is up around a quarter from its lowest point this year.
Royal Mail reported an operating loss of over £1bn in the year to March 2023. It is expected to remain unprofitable this year.
Analysts at Peel Hunt have rated IDS a ‘hold’ today.
“We expect that these fines will continue,” said Peel Hunt analyst Alexander Paterson. “To start to address these performance issues, some working practice changes, significant for productivity improvements, have been suspended for 2H24 at least.
“We remain concerned that productivity will not improve sufficiently and that Royal Mail will not be able to deliver sustainable profitability.”
Strikes have plagued the mail service with posties up in arms about poor working conditions and the threat of automation. IDS said industrial action made last year “uniquely challenging” for Royal Mail.
In summer, members of the Communication Workers Union (CWU) voted in favour of a three-year pay deal including a 10 per cent salary raise.
Last week the Post Office announced it will start allowing customers to send parcels using DPD and Evri services in addition to Royal Mail.