Modernising and energising the Royal Mail is challenge facing the newly privatised Royal Mail.

In this FT video some of the obstacles to keeping the Royal Mail profitable are discussed.

Market demand for letters is falling and the contestability of the parcel industry becomes more intense with each passing year. There is strong pressure to keep costs down and justify future capital investment designed to extend capacity and efficiency in the business. When a firm is operating with spare capacity, the average fixed costs are higher which ultimately hits the bottom line.

Royal Mail is now facing competition in direct delivery across a number of UK cities from companies such as TNT Post. The Royal Mail is under obligation to maintain a universal postal service but their emerging competitors are not.

FT video