Royal Mail sees costs rise but confident in parcel boost despite summer lull

By Holly Williams, PA Deputy City Editor

Royal Mail has cautioned over rising costs and insisted higher demand for parcels is here to stay despite a drop in deliveries over the summer.

The group reported a 9% fall in total parcel deliveries by volume across July and August, while parcel revenues fell 4.6% to £773 million.

But the group said the parcels arm was expected to see “month-on-month fluctuations” in parcel deliveries following the surge in demand in the early days of the pandemic.

It said it was “increasingly confident” that the trend for higher UK parcel deliveries was permanent after the shift towards online shopping amid the pandemic.

The latest figures showed a more robust performance from domestic parcels, with volumes down by 3% and revenues edging 0.6% higher to £645 million.

Against pre-Covid levels in 2019, UK parcels by number jumped 32% higher in July and August.

Letter deliveries bounced back by 2%, with revenues up 7.7% against a lockdown-hit previous year, but remained 20% lower by volume on a two-year comparison.

Overall group revenues for the first five months lifted 8.2% to £5.1 billion.

Royal Mail said group underlying earnings of £395 million to £400 million are expected for the six months to the end of September, with at least £230 million from Royal Mail.

It cautioned over “significant short-term uncertainty as we unwind from the impacts of the pandemic” and said it was facing increasing cost pressures across its Royal Mail and European and US parcel business GLS.

Despite this, it said underlying earnings are still expected to be higher in the second half.

Keith Williams, chairman of Royal Mail, said: “In Royal Mail, we are increasingly confident that domestic parcels are re-basing at a significantly higher level than pre-Covid and believe we are maintaining our share of the market.”

He added: “Whilst we continue to expect further normalisation of parcel performance as we unwind from the pandemic and anticipate some upward pressure on costs, both adjusted operating profit and margin are expected to be higher in the second half compared to the first half.”