Royal Mail - the saga continues

It's safe to say that the privatisation of Royal Mail has been a bumpy ride for all involved.

Since its shares were priced at 330p for the stock market flotation, those who bought some would have been over the moon at the way the price has rocketed. After reaching 455p at the end of the first day of trading, shares hit a princely peak of 615p in January 2014, ensuring a healthy return for all early investors. One unhappy party would have been taxpayers, who may have lost out on around £1bn due to the company's undervaluing, reports bbc.co.uk.

However, price changes and competition from rival couriers has sent the share price back down to 450 pence at the end of July 2014 - below the level they hit on the first day of trading.

So, just what is happening with Royal Mail and what does this mean for the future of the company?

Parcel delivery woes

It appears the honeymoon period for Royal Mail's privatisation is officially over. As other couriers muscle in on Royal Mail's market share, the company revealed its parcels arm is suffering as a direct result. While the company expects its letters business - as well as "cost control" - to offset its lower parcels revenue, one expert believes this could be a concern.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, stated: "The weakness in the parcels performance is a concern, and may prompt questions as to whether this is transient or whether the change is structural."

One way Royal Mail's parcels performance is being impacted is by competition from other couriers. Cheaper prices and the competition's links to retail firms like Amazon, which has an extended delivery network, have hit the firm's revenues. Meanwhile, its parcel export business has been damaged by a "strong pound".

Universal service obligation

Furthermore, Royal Mail's legal obligation to deliver letters to the whole of the UK - the 'universal service obligation' - means competitors can simply pick "easy to serve" high density urban areas instead of remote rural location for their delivery business, leaving Royal Mail to pick up the monumental strain of rural delivery.

However, competitors to Royal Mail are creating jobs for the market and offering the firm some sorely needed competition - something about which current shareholders might be worried. In order to combat the universal service obligation without breaking it fully, Royal Mail plans to cut late collection times for between 45,000-50,000 post boxes by half; a move said to "improve the efficiency of its collection arrangements". Whether customers will agree with that notion is something yet to be seen.

Shareholders, however, will be happy to see news of improved efficiency as it raises hopes of cost savings, but will Royal Mail continue to serve shareholders over customers for "efficiency" purposes? Only time - and its future share price - will tell.

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