Mail trains reach the end of the line

Just over a year later, the ground seems to have shifted somewhat.

The company on Friday said it planned to stop using trains in an effort to save cash, bringing the rail mail's 173-year-old history to an ignominious close.

From March 2004, the Royal Mail will deliver its daily postbag of 82 million letters exclusively by road and air, in a move that is likely to increase the volume of traffic on the UK's congested road system.

Royal Mail shrugged off a chorus of dismay from transport workers, environmentalists, and train enthusiasts, saying its rail freight contractor EWS was simply asking for too much money.

"We had hoped to move more second-class deliveries by rail, but the price just wasn't right," a spokeswoman said.

"We wouldn't rule out further negotiations (with EWS), but for now, we are planning to proceed to a mail delivery service without rail."

Policy dilemma

The patchy reliability of the UK's rail system is also likely to have played a part in the Royal Mail's decision.

Under the postal service's regulatory regime, the company - which has already announced plans to stop using trains for first-class mail - runs the risk of hefty fines if late deliveries rise above a certain threshold.

Royal Mail denied that the switch to road and air will require more lorries, saying it would increase average loads in order to improve efficiency.

Still, the decision has ruffled a few feathers.

Unions claim 500 jobs could be at risk, and the move is also likely to anger the government - the Royal Mail's owner - which has pledged to increase rail freight by 80% this decade.

A spokesman for EWS said the company would be asking Transport Secretary Alistair Darling and Trade Secretary Patricia Hewitt to give their views on the Royal Mail's decision.

"This is a fundamental transport matter," he said. "There is a very robust business case for delivering mail via the railway."

Every little helps

However, for Royal Mail, battling to stem losses which 18 months ago were running at �1.5m a day, cutting costs is the overriding consideration.

Royal Mail's contract with EWS had been due to run until September 2006. It declined to say how much the contract was worth, but forecast that the switch to road and rail would save it about �90m a year.

That should help it achieve its goal, set out under its three-year turnaround plan, of taking out �1.4bn in costs by 2005.

The restructuring strategy was drawn up last year in order to put the Royal Mail, battered by growing private sector competition, the rise of e-mail, and a series of bitter industrial disputes, back on a firm financial footing.

The company said on Friday it was "absolutely confident" that it would hit its targets - which include shedding 30,000 jobs - and start making money again on schedule.

Whopping loss

The company is currently locked in a dispute with regulators over the maximum price it can charge for distributing mail on behalf of private sector competitors.

It is also pushing for the right to scrap the second daily mail delivery, a move which it claims would save millions more.

Last week, Royal Mail demonstrated that its strategy had started to yield results, announcing full-year pre-tax losses of �611m, down sharply from a whopping �1.1bn one year earlier.