Company in the news: Royal Mail

Phil Oakley explains what the dramatic collapse of competitor City Link means for Royal Mail.

The collapse of delivery company City Link over Christmas has starkly shown the woes facing Britain's parcel businesses. Royal Mail (LSE: RMG), UK Mail and TNT have all said in recent months how hard life has become for them. Royal Mail's revenue from parcels in 2014 will probably have stagnated, or even fallen.

Despite the boom in internet shopping, many parcel companies seem to be making less rather than more money. That's because there are too many delivery vans out there chasing the business.

Some retailers offering free delivery seem content to have several couriers fighting each other and cutting prices to take their parcels. City Link had been loss-making for years, and was unable to adapt and survive in this cut-throat marketplace.

So what does the collapse of City Link mean for Royal Mail? Less competition is usually good news it begs the question as to how long other couriers can survive.

Parts of the parcel delivery market have been commoditised, and are based on owner-drivers working long hours at rock-bottom rates. They don't tend to offer timed delivery slots, tracing or returns as Royal Mail does.

As I said back in October, Royal Mail shares do not look overly expensive given the improvements it is making to services and cost efficiency. Yes, it faces challenges but it is better placed than many of its peers to be a long-term winner in the parcels market.

Verdict: still a buy

Recommended

The top funds to invest in
Funds

The top funds to invest in

Investors continued to the passive preference throughout May, while high-yields were also sought. We look at the top funds, stocks and trusts that inv…
5 Jun 2023
Look beyond the blue chips for the best bargains in British income stocks
Share tips

Look beyond the blue chips for the best bargains in British income stocks

A professional investor tells us where he’d put his money. This week: Chris McVeyof the FP Octopus UK Multi Cap Income Fund highlights three favourite…
23 May 2023
It’s fallen hard – but is now the time to buy Scottish Mortgage Investment Trust?
Investment trusts

It’s fallen hard – but is now the time to buy Scottish Mortgage Investment Trust?

Shares in the Scottish Mortgage Investment Trust have plunged 45% since the beginning of 2022. We take a look at the trust's performance and discuss w…
22 May 2023
Three British stocks offering all-weather income
Share tips

Three British stocks offering all-weather income

A professional investor tells us where he’d put his money. This week: Brendan Gulston, co-manager of the LF Gresham House UK Multi Cap Income Fund.
17 May 2023

Most Popular

Best savings accounts – June 2023
Savings

Best savings accounts – June 2023

Interest rates have been creeping up - we look at the best savings accounts on the market right now.
6 Jun 2023
Nationwide to give £100 cash boost to customers
Personal finance

Nationwide to give £100 cash boost to customers

Nationwide Building Society is giving customers £100 as it reinvests profits. Dubbed the Nationwide Fairer Share scheme, we look at who is eligible.
22 May 2023
Holiday rip-off: Millions of travellers hit with hidden costs by using debit card abroad
Personal finance

Holiday rip-off: Millions of travellers hit with hidden costs by using debit card abroad

A family of four on a week-long trip to France could pay an extra £212 in fees by using their everyday bank card compared to the lowest-cost option, a…
23 May 2023