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Postal strikes hit Royal Mail hard

Royal Mail is this evening reported to have lost a £25 million contract with online retailer Amazon, the company's second largest customer, as unions gear up for a winter of discontent. There has been significant friction between Royal Mail directors and the unions over the last few months which have culminated in the announcement of significant strike action over the Christmas period. Will there be any long-term impact on Royal Mail?

There is no doubt that increased competition in the postal sector has cut the margins of companies such as Royal Mail and opened up the market to other companies. These new entrants to the market have modern technology, lower cost bases and are not carrying the same baggage from years ago as Royal Mail. There is a feeling that slowly but surely Royal Mail is losing its domination of the UK postal market at a time when the company has a massive pension fund deficit and a cost base which is out of control.

Only a few months ago the UK government attempted to sell off part of the Royal Mail operation to an overseas company but this was put on hold due to a significant backlash from MPs. Whether the government has missed an opportunity to raise significant funding from a Royal Mail share sale remains to be seen, but there is no doubt that union intervention over the Christmas period will weaken the company's long-term standing in the UK market.

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