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

Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
17 Jan 2020
Share tips: eight stocks that should deliver robust returns
Share tips

Share tips: eight stocks that should deliver robust returns

Ryan Ermey of US publication Kiplinger’s Personal Finance chooses his favourite stocks for the next decade, which should be able to grow for years.
28 Dec 2019
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
20 Dec 2019
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
13 Dec 2019

Most Popular

Negative interest rates and the end of free bank accounts
Bank accounts

Negative interest rates and the end of free bank accounts

Negative interest rates are likely to mean the introduction of fees for current accounts and other banking products. But that might make the UK bankin…
19 Oct 2020
How will we repay our vast debt pile? Do we even need to?
Sponsored

How will we repay our vast debt pile? Do we even need to?

In his recent articles looking at different aspects of the fixed-income investing world, David Stevenson looked at inflation. Today he looks at a clos…
19 Oct 2020
Buying bitcoin could be the best way to play the remote working boom
Bitcoin

Buying bitcoin could be the best way to play the remote working boom

The coronavirus pandemic has accelerated the move to home working, flexible employment practices and the rise of the “digital nomad”. One of the best …
21 Oct 2020