Royal Mail says labor shortage takes shine off parcel surge

Royal Mail Plc is struggling to hire workers at its European parcel operations and signaled rising energy costs in Britain are also set to limit earnings growth.

Despite the squeeze, the U.K. postal service is seeing signs that package demand will remain significantly above pre-pandemic levels as online shopping becomes a permanent habit, it said Thursday in a statement.

Strong parcel volumes will offset some of the impact of rising expenses, with profit at its main domestic unit expected to increase in the second half from the first. Cost pressures in Britain could increase as gas prices jump and the firm begins hiring temporary staff for the festive season, when letter and package deliveries peak.

The shares were down 0.8% as of 1:03 p.m. in London, after rising as much as 3.4%.

Royal Mail also maintained the margin outlook at the European GLS arm, which is grappling with surging expenses in several nations amid a tighter labor supply and general inflationary pressures.

Labor shortages

The group is struggling to hire after the pandemic roiled employment markets, with countries including France and Denmark reporting labor shortages. That trend has been exacerbated by Brexit in the U.K., after many European Union nationals returned home, while energy and transport costs are also spiraling.

Royal Mail package deliveries in August remained one-third higher than in 2019 in the U.K. and up 30% at GLS.

Liberum analyst Gerald Khoo said in a note that the trading update is “broadly supportive of current consensus,” with parcel trends appearing to be stabilizing “at structurally higher levels.”