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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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
-
Private school fees soar and VAT threat looms – what does it mean for you?Rising private school fees could see more than one in five parents pull their children out of their current school. Before you remortgage, move house or look to grandparents for help, here’s what you need to know.
-
Best and worst UK banks for online banking revealedWhen it comes to keeping your money safe, not all banks are equal. We reveal the best and worst banks for online banking when it comes to protecting your money from scams
-
Royal Mail’s 7.2% dividend yield is now under threatTips Royal Mail's dividend yield is coming under pressure as costs rise and delivery volumes fall. Profits are under threat, and investors can't take anything for granted, says Rupert Hargreaves.
-
Share tips of the weekFeatures MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
-
How the FTSE reshuffle worksTutorials Royal Mail has been demoted from the FTSE 100 in the latest quarterly review. John Stepek explains how the decision is made.
-
If you’d invested in: Wizz Air and Royal MailFeatures Wizz Air is the largest low-cost airline in central and eastern Europe – and it is flying high.
-
Shares in focus: Can Royal Mail deliver profits?Features Pessimism surrounds the mail service’s prospects. Is it overblown, and should you buy the shares? Phil Oakley investigates.
-
Company in the news: Royal Mail Group
Features Shares in Royal Mail were a steal at their flotation price, but have now fallen back as the company has run into a few problems. Phil Oakley asks if it's time to buy.
-
Company in the news: Royal Mail Group
Features Royal Mail shares looked tempting before the float. But, now the shares have risen in price, is it too late to buy? Phil Oakley reports.
-
Was the Royal Mail sold off too cheaply?
Features Was the British public betrayed by an overzealous government in the Royal Mail sell-off? Emily Hohler reports.
