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Royal Mail profits fall as Amazon competition heats up

Royal Mail has announced a 21 per cent drop in profits for the first-half of the year and warned that increasing competition from Amazon is likely to exacerbate the issue.

The web giant’s delivery service is expected to hit the UK parcel industry particularly hard.

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Royal Mail estimates that Amazon’s service will reduce the annual growth rate in the UK parcel market to between one and two per cent – just half of the four per cent growth originally predicted.

Amazon also recently launched a same-day delivery service in partnership with retail firm Smiths News, enabling customers to collect packages from local shops.

Royal Mail’s chief executive Moya Green claims that, despite the difficulties of the parcel market, other areas of the business such as letters are performing well, with UK revenues rising one per cent to £2.2 billion.

“The UK parcels market remains challenging,” she said. “As the pre-eminent UK parcels delivery company, we are targeting a number of new, growing areas, and delivered 2% volume growth in a competitive market. We had a better than expected performance in UK letters.”

However, Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, believes the company is struggling following its privatisation last October.

“Having completed its first full year as a listed company, Royal Mail is now facing the harsh realities with the initial share price euphoria having waned,” he added. “The quiet emergence of Amazon in the parcels space, already a fiercely competitive arena, could become a medium-term threat.”

Royal Mail followed the release of its financial figures with a request to the government asking for its universal service obligation to be reworked.

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Currently, Royal Mail must deliver to all 29 million addresses in the UK from Monday to Saturday for a fixed price. The delivery firm argues that its competitors have a “structural cost advantage” by not having to adhere to this restriction.

Image Credit: Clive Darra