Strong growth of rivals puts Royal Mail under pressure

With Hermes, Yodel and DPD snapping at its heels, national postal operator Royal Mail could be under pressure in the coming year as its rivals compete for business.

Though in the FTSE 100 of top trading UK businesses and still controlling one third of the parcels market in the UK, the deregulated parcels market is open to all comers. Even though the collapse of City Link in 2014 warned its rivals of the risks associated with slim margins and massive expansion, the three players Hermes, DPD and Yodel are investing heavily in capacity this year.

Where Royal Mail turned over close to £4bn last year, French owned rivals DPD are still a force to be reckoned with, with turnover of £945 million in 2015. This had doubled over five years from £417 million and reflects in the massive growth of e-commerce in the same period. Where Royal Mail has other interests such as its mail operation and other companies such as a parcel company in France, DPD at a quarter of its size in terms of turnover is still a serious threat. DPD has announced that it is now looking to build a fifth sorting hub in the Midlands. DPD’s CEO Dwain McDonald said to the FT, “We are aiming to buy the land this year and go live in 2019. We want to be the largest player in next-day delivery and plan that through organic growth rather than acquisitions.”

Hermes is known to be spending close to £100 million in infrastructure in the coming years and this could lead to overcapacity in the market should there be a downturn in the e-commerce economy. Royal Mail however needs to watch its back, as it is no longer the only lumbering giant in the business.