The postal strike that was delivered too late

Twenty years ago, the postal workers' strike cast a long shadow. The prospect of letters sitting in sorting offices across the land was seen in some quarters as nothing less than a national emergency. In Thatcher's Britain, postmen locked up their bicycles at what they saw as the looming privatisation of the Royal Mail.

Two decades on, and the 140,000 staff who ensure that mail is delivered are striking again. This time they have been motivated by "modernisation" of the Post Office, a pay offer that the Communication Workers Union sees as inadequate and the prospect of less generous pensions in the future.

Wednesday saw the start of a fortnight of industrial action that promises to disrupt mail deliveries. But this is not 1987; today it doesn't look like anybody cares nearly as much.

The CWU has rejected the Royal Mail's offer of a 2.5 per cent pay rise and warned that modernisation plans will lead to 40,000 job losses. It claims that management has refused to enter into negotiations and that its proposals will lead to customers receiving poorer service.

For its part, Royal Mail claims it simply cannot afford to offer its workers more money, and points out that staff at the company's commercial rivals are paid about 25 per cent less. Royal Mail is in receipt of a £4bn loan from the Government, provided at a commercial rate, to be used for the modernisation programme and to shore up its pension fund (which currently has an estimated deficit of £6bn), to which the company already contributes £800m a year.

Royal Mail's financial results for last year, due out shortly, will show that it barely made an operating profit for 2007. The company is in negotiations with the CWU over its pension proposals. The issue made headlines last week after a report appeared in a tabloid newspaper claiming Royal Mail staff would have to work for five more years before collecting their retirement pay. Royal Mail has denied the allegation, saying that leaked documents used as the basis of the story were outdated.

But Allan Leighton, the company's chairman, has repeatedly highlighted the need for modernisation in the face of growing competition from rivals such as TNT, UK Mail, DX Group and SMS.

The UK postal market has been fully deregulated for the past 18 months. In most cases, Royal Mail is paid by its commercial rivals to deliver their mail over "the final mile" between the sorting office and the front door at the rate of 13p per item. Insiders claim that because of its high cost base, the company loses "a couple of pence or so" on each item it delivers to the doormat for other companies. This is disputed by its rivals, who want Postcomm, the postal regulator, to reduce the last-mile cost.

These rival companies are interested only in the business market and, unlike Royal Mail, are not burdened by the universal service obligation.

Among the biggest challenges Royal Mail faces is the urgent need to update its antiquated infrastructure. One former executive says: "Go to any large sorting office and you'll see dozens of workers sorting mail by hand. Cross the road to a similar facility owned by one of Royal Mail's rivals, and you'll see shining machines doing the same job with hardly a human being in sight."

But funds for new machinery are in short supply, as the organisation struggles to rein in its overheads. James Greenbury, chief executive of DX, says: "By my calculations, Royal Mail's costs are £1bn a year too high. I wouldn't be able to sleep at night if I ran a business with that level of cost."

It is the commercial market that is most affected by the CWU strike. According to Royal Mail insiders, the company's 100 largest corporate customers account for 40 per cent of its business. In total, over 90 per cent of the items it carries are business related. The longer the strike goes on, the more businesses will look to switch suppliers.

Mr Greenbury says: "In the last month, we have won £10m in new business – an amount we might have expected to win over the course of a whole year." But, he added, the CWU strike had damaged confidence in the whole industry.

That sentiment is echoed by the Federation of Small Businesses. A spokesman for the trade body says: "About 94 per cent of our members use Royal Mail exclusively, as they are not big enough to be seen as attractive customers by other postal suppliers. If the strike carries on over the summer, more of our members will run into [cashflow] problems as 69 per cent still send invoices by mail."

The trend for small and medium-sized businesses to use email to carry out transactions will be accelerated – further damaging Royal Mail's revenues, he says.

A spokesman for Postwatch, the independent postal services watchdog, says: "This industrial action is bad news for the customer in the short term and bad news for the industry in the long term. Postal companies are not just competing with each other, they are also competing against other mediums such as email. This strike will only accelerate the decline of postal services and is happening at the worst possible time. The industry needs to be working together. Instead they are killing themselves."

The image of the neighbourhood postman trudging to the front door in all manner of appalling weather is one that the CWU conjures up whenever it perceives a threat to its members. Indeed, only last week, a postman in Evesham, Worcestershire, used his own four-wheel drive car and braved rising flood waters to deliver copies of the new Harry Potter book.

But while this type of dedicated service still exists, sadly for most consumers, especially those living in a city, the service delivered by the Post Office is typically very poor. Huge queues at post office counters, unhelpful staff at sorting offices and a first post delivered at all times of the day have broken the emotional link between the customer and the postman.

And in a world where email and text messages have led to instant communication, the plight of the Royal Mail just doesn't seem that important any more. If industrial action carries on into the autumn, we may turn our backs on what used to be one of the most respected institutions in Britain.

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