Royal Mail could cut deliveries to three per week - Ofcom

The regulator said on Wednesday that the service as it currently stood risked becoming "unsustainable", as people sent fewer letters and parcels but the Royal Mail’s obligations remain unchanged.

Under its universal service obligation, the Royal Mail - part of International Distribution Services - must deliver letters six days a week to any address in the UK, and parcels Monday to Friday.

It also has to offer two delivery speeds, next-day via first class and second class.

However, since 2011 - when its obligations were last amended - letter volumes have halved while parcel deliveries have become more important, Ofcom noted.

It is therefore launching a consultation on how best to redesign the postal service, including letters taking up to three days to be delivered and reducing letter delivery days to just five or three per week.

Ofcom said the Royal Mail could save between £400m and £650m net if delivery days were reduced to three per week, or between £100m and £200m if they were cut by one day.

Any reduction of delivery days would require the backing of Parliament, however, and would likely prove unpopular with many politicians and unions.

Melanie Dawes, Ofcom chief executive, said: "Postal workers are part of the fabric of our society and are critical to communities up and down the country.

"We’ve set out options for reform so there can be a national discussion about the future of universal post."

Victoria Scholar, head of investment at Interactive Investor, said: "Royal Mail has long had its calls to scrap the USO rejected. Now it looks like the tide could potentially be turning.

"However, there is still considerable opposition, including from the Communication Workers Union, which argues that a three-day service would destroy the company, and postal affairs minister Kevin Hollinrake, who said the government is committed to a six-day service."

In November, IDS posted interim pre-tax losses of £194m after Royal Mail saw its operating losses widen 46% year-on-year to £319m.

As well as falling demand and a surge in competition, following the loss of its 360-year old monopoly on delivery parcels from Post Office branches, the once state-owned business has also been hit by industrial dispute.

Interested parties have until 3 April to respond to the consultation.