2,000 jobs at risk as Whistl halts 'end-to-end' delivery service

The main competitor to Royal Mail has sent home 2,000 staff and suspended its household deliveries, highlighting the difficulty of making money in a postal market dominated by the former state-owned operator.

Whistl said on Monday it was reviewing the future of its lossmaking "final mile" delivery service, reversing ambitious plans to expand beyond its network in west London, Manchester and Liverpool.

The decision followed last week's announcement that LDC, the private equity arm of Lloyds Banking Group, had withdrawn from talks to take a 60 per cent stake in Whistl to fund growth. LDC blamed "ongoing changes in postal market dynamics and the complexity of the regulatory landscape," said Whistl.

Whistl, owned by Dutch operator PostNL and formerly known as TNT, said: "We have now commenced an extensive review of the viability and potential for the rollout of an E2E [end-to-end] postal delivery service in the UK.

"To stem the losses from the operations, we have taken the difficult decision to suspend the current E2E service during the review process."

It said it would be "identifying and exploring viable proposals to secure the continuation of this service".

But many analysts believed it would pull out of delivering letters - where it does not yet have national scale - and concentrate on the more lucrative parcel and direct mail business. It collects and handles 26 per cent of UK letters but delivers to only 1.2m addresses, handing most to Royal Mail.

Royal Mail has argued to Ofcom, the regulator, that because it has to deliver to remote areas of the country six days a week under the universal service obligation it deserves protection from competitors like Whistl.

Daniel Brewer, analyst at Royal Bank of Canada, said: "We struggle to see how PostNL could reverse this decision (with either no or a demoralised workforce and likely less than satisfied customers). We think it implies PostNL made significant losses in the UK and that to the door mail delivery is likely the natural preserve of the incumbent mail operator."

Whistl made a pre-tax loss of £8.1m in the year to December 2013, the latest accounts available, on £575m revenue. That included £2.1m investment in E2E and compared with a £5.7m profit the year before with £1.9m investment.

Whistl's black and orange clad posties on bikes had become a familiar sight in their areas of operation. Last year the company said half were on zero hour contracts, only working when volumes demanded it, but it has begun moving them on to fixed hours. The company said on Monday it remained unclear whether the depot workers that had been sent home would be paid.

Community, the recognised trade union at Whistl, said its members were "extremely worried for their futures" but that it was a "suspension, not termination" of business.

The tough conditions in the postal delivery industry were highlighted at Christmas when courier company CityLink collapsed, costing thousands of workers their jobs and leaving taxpayers to pick up the redundancy bill. Many were self-employed van drivers.

"The traditional door-to-door letter service is a labour intensive low-margin market in which it's hard to make money," said David Jinks, ParcelHero spokesman.

Whistl's suspension of household deliveries "highlights the problems underlying the entire door-to-door postal services industry in the era of emails and the internet. Very low margins and an increasingly creaky infrastructure mean that the traditional postal market faces an uncertain future", he said.

The postal market is changing rapidly, with falling volumes of letters partly offset by an increase in parcel volumes triggered by the growth of online shopping. According to regulator Ofcom, letter volumes fell 6.3 per cent a year from 2008-13 at the same time as the parcels market grew about 3.7 per cent a year.

Royal Mail, which is expected to report full-year results next week, is overhauling its business after last year's privatisation and shedding several thousand jobs - mostly through voluntary redundancies - from its UK workforce of 148,000.

Its shares had risen 4.4 per cent by Monday afternoon as investors saw the threat of competition recede. Royal Mail said it would deliver Whistl's mail with "our usual high standard of service".

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