With all the troubles that Royal Mail faces with its labor dispute, the company announced earlier this month it was raising prices on select postal services.
Royal Mail has looked at these changes carefully as letter volumes have dropped 25% since the pandemic, costs have gone up, and inflation has been the highest in a generation.
The company says that its First Class stamp prices remain competitive compared to other major European postal operators.
The median price for the equivalent of a First Class letter service (0-100g) is £1.25, according to a study by Royal Mail calculating postage rates from 29 countries in January.
Royal Mail is still committed to the Universal Service and provides a one-price-goes-anywhere service to about 31 million addresses in the UK. Although this week, it backed away slightly by saying it might have to consider a government-handled administration if it cannot agree with its union on a new deal.
But even before this thread, Royal Mail said that customer behaviors have changed. As the number of UK addresses continues to grow, the costs of delivering the Universal Service are increasing.
For example, letter volumes have decreased from more than 20 billion letters a year in 2004/2005, to approximately eight billion letters per year now. Meanwhile, the number of addresses has risen by four million in the same period.
In light of this problem, Royal Mail is currently expected to report an adjusted operating loss of £350 million to £450 million for the full year.
Considering this change in consumer behavior and the company’s materially loss-making position, last year, Royal Mail requested that the Government amends the Universal Service Obligation from six days a week to five for letters.
It claims that Ofcom’s research indicates that a five-day letter service (Monday to Friday) would meet the needs of 97% of consumers and SMEs in the country.
“We appreciate that many businesses and households are facing a challenging economic environment and we are committed to keeping our prices affordable,” said Nick Landon, Chief Commercial Officer at Royal Mail.
“Letters have declined by 25% compared to pre-pandemic. We have to carefully balance our pricing against a continued decline in letter volumes and the increasing costs of delivering letters six days a week to an ever-growing number of addresses across the country.
“We are seeing a fundamental change in consumer needs with a greater shift in demand from letters to parcels. It is vital that the Universal Service adapts and stays both relevant and sustainable.
“We need to make these price changes to ensure we can continue to maintain and invest in the one-price-goes-anywhere Universal Service for years to come.”
Royal Mail Changes Starting on April 3
With this explanation, here is what is changing on Monday:
- The price of a First Class stamp will increase by 15p to £1.10p, making it the first time the stamp price has gone over £1.
- Second Class stamp prices are rising by 7p, from 68p to 75p.
The 16% increase is well above the current level of inflation of 10.4% (as of February 2023) and follows a similar rise of 10% last year for First Class stamps. Second Class stamps only went up by 2p last year.
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