Of Course We Should Sell Royal Mail To A Bouncing Czech

No other bugger wants it after all

I’m pretty sure that I know someone who knows this Czech billionaire but leave that aside - other than perhaps knowing someone who does I’ve no other involvement. Well, other than someone with possibly more gumption than the British press.

For Royal Mail faces a specific and difficult problem. One that really doesn’t have any good solution. And the only perhaps not good solutions really need to be carried out by private equity. Whether that’s Czech private equity is another matter but as a state and or public company the solution’s just not going to be applied.

Which makes this pretty feeble to be honest:

Britain has a thoroughly rotten history of selling its crown jewels to foreign raiders out to make a quick buck. The well-trodden path shames successive governments, City fund managers, and a seemingly never-ending line of senior business figures who put their own personal financial gain and egos above the interests of the companies they lead, and that of Britain.

Few countries, if any, have proven so willing to allow swathes of vital infrastructure and commerce to fall under the control of absentee overseas investors or ruthless private equity houses without so much as a thought for the long-term consequences for investment, jobs, and the tax base.

It’s an act of grave self-harm that cannot be masked by disingenuous claims about the desire to be a beacon of foreign investment. It is perfectly possible to welcome legitimate overseas investment with open arms, without unquestioningly permitting the best of UK plc to be given up to the highest bidder like a dusty dinnerware set at a car boot sale.

Many of the companies we allow to vanish into private hands quickly become nothing more than a vessel for their new owners to enrich themselves – to the acute detriment of the businesses themselves.

Think Debenhams department stores, Saga holidays, Southern Cross care homes or more recently Thames Water – all major British companies that have been imperilled by reckless ownership and management. There are many more.

One day Royal Mail may be added to this hall of shame, after the short-sighted decision to let this critical UK institution fall to a heavily-debt fuelled £3.6bn takeover led by empire-building Czech billionaire Daniel Kretinsky.

Have we noticed that all the department stores - not just Debenhams - have been going bust? It’s the style of the business, the thing that is being done, that is past its sell by date. Therefore it’s not Phil.

Royal Mail suffers this problem. In detail:

As Royal Mail never tires of pointing out these days, letter volumes have collapsed over the last decade. From a peak of 20bn a year, this country now sends just 6.7bn annually – the equivalent of only four letters per week per household.

There might well be no solution to this. If there is it’s one that would never be imposed under state ownership and would be horrendously hard to do as a public company. Private company capitalism is the only chance - and there we are.

Now this financial analysis is a little extreme but not much. The marginal cost to RM of an extra letter going through the system is zero. The revenue is £1.15 or whatever it is now. The extra letter is pure operating profit.

But the fixed costs of having the network which can deliver to any address in the Kingdom 6 days a week are vast. But, note, they’re *fixed* costs of the network. Oh, yes, some are wages, petrol for the vans and all that, what we think of as operating costs. But those don’t change with one extra letter in the system.

The same is also true of one less letter in the system. Revenue is down by £1.15 and costs haven’t budged by a penny.

And this is happening less 13 billion times a year.

Royal Mail is fucked.

It’s our behaviour that has changed. The thing being done is just no longer required in the way it used to be. There is no changing that.

So, fucked.

In order for there to be anything left there it’s necessary to change those fixed costs of the network itself. Postal unions are famously obdurate - I think it’s still true that the union officials decide who does what shift, not management for example. Give the union convenor the occasional blowjob and pick your working schedule and overtime as you wish.

There’s also that possibility of changing what the network has to do. No Saturday mail for example. Or three days a week mail. Or, you know, something. Do like the Americans, you’re too far into rural then you’ve got to come into town to pick up the stuff from the PO. Shrug, something?

That obviously cannot be done by government. And no, investment isn’t going to change this either. Investment in what is going to make us send more letters? A publicly quoted company finds it very, very, difficult to deal with a shrinking business. Just the way stock markets work. So, private equity it is. They might have enough power to be able to crush the union, get an agreement to change the required network frequencies and so on.

But it’s also true that if the network just isn’t economic at all - which at its current size it isn’t - then it shouldn’t exist. And private equity does work at sweating an organisation down to not existing any more. Which might be what is necessary here. Sure, a pity, but 500 years is a pretty good run for an economic organisation.

Shrug.

And this is the bit that so annoys me over all the chat about Royal Mail. Our habits out here have changed, we send fewer letters. There is nothing anyone can or will do which will change this. Therefore, Royal Mail, in its current form, should not exist. For Royal Mail is fucked by vast fixed costs and falling revenue. And that’s it. Any conversation about the problem that doesn’t start from this point is therefore not reflective of reality. And, as we like to say around here, reality’s a real good starting point for plans.