International Distribution Services Q3 Update: Parcel Growth Offsets Letter Decline

IDS Q3 2025/26: Parcels up, letters down, and Christmas delivered

International Distribution Services delivered a solid third quarter to December 2025. The headline: parcel growth at both Royal Mail and GLS more than offset the ongoing decline in letters, and the group executed smoothly over peak. Cost pressures are building into 2026, though, which keeps the outlook balanced rather than exuberant.

Management called out a strong Christmas for both businesses, record volumes through expanding locker and shop networks, and a continued push into out of home delivery. The less rosy side is rising UK costs – including around £120 million of National Insurance for 2025/26 – delayed Universal Service changes, and multi-year pay deals weighing on Royal Mail.

Key Q3 numbers at a glance

The three months to December 2025 show steady top-line progress and clear divergence between parcels and letters.

Metric (Q3)	2025	2024	% change
Group revenue	£3,765m	£3,619m	+4.0%
Royal Mail parcels – volume	424m	395m	+8%
Royal Mail parcels – revenue	£1,303m	£1,250m	+4.2%
Addressed letters (ex. elections) – volume	1,505m	1,659m	-9%
Royal Mail letters – revenue	£1,068m	£1,085m	-1.5%
GLS parcels – volume	270m	247m	+9%
GLS revenue	£1,396m	£1,284m	+8.7%

Across nine months, group revenue grew 2.4% to £10,212 million. Royal Mail revenue was up 1.5% to £6,351 million, while GLS was up 4.3% to £3,874 million. Profitability is not disclosed in this update.

Royal Mail: peak season performance and a bigger out of home footprint

Operationally, Royal Mail delivered Christmas cleanly. Over 99% of items posted by the recommended dates arrived on time for the third year running. That matters – reliability is a competitive differentiator in a crowded parcel market.

The shift in delivery preferences is clear. Royal Mail had its biggest ever Christmas for out of home volumes, with almost 8 million more parcels flowing through parcel points than last year’s peak. The network is scaling fast: about 3,000 parcel lockers and almost 8,000 Royal Mail Shops are now in place, an 80% increase in lockers and shops versus December 2024, underpinning a multi-channel footprint of over 25,000 parcel points.

On reform, discussions with the CWU on deploying Universal Service changes have moved into the Achieving National Agreement Procedure. In simple terms, this is a formal framework to focus talks and, hopefully, accelerate an agreement. Universal Service reform – reworking the statutory mail service obligations – is central to modernising the letters side and improving economics.

GLS: record peak, international growth, and regulatory friction

GLS had its biggest ever peak season. Total volumes rose more than 10% year-on-year, with particularly strong growth in the Czech Republic, Romania and Spain. International volumes increased 12%, helped by Spain and Hungary and a solid performance in Germany, GLS’s largest export market.

Like Royal Mail, GLS is leaning into out of home. Peak out of home volumes grew 43% to almost 32 million parcels, and nearly 30% of all B2C parcels were delivered or collected out of home. The network expanded 25% year-on-year to 130,000 parcel points, including partner locations.

It is not all plain sailing. Management flagged a challenging macroeconomic and regulatory environment in Italy, with new regulatory changes in Germany and Belgium adding operational complexity. That is a watch-out for margin friction in some markets.

Cost pressures and mitigation – what it means for margins

The cost backdrop is getting tougher, especially for Royal Mail. The group cites rising National Insurance contributions of around £120 million for 2025/26, delay costs from rolling out Universal Service changes, and the impact of three-year pay deals with the CWU and Unite CMA.

On the other side of the ledger, IDS is pushing cost mitigation. The focus is on productivity gains through automation and tighter discretionary spend. Those levers should help, but the direction of travel is clear: without reform and mix shift, letters will drag margins while costs rise.

Parcels vs letters: the mix is doing the heavy lifting

The narrative in the numbers is consistent. In Q3, Royal Mail parcel volumes rose 8% and revenue 4.2%. Letters volumes fell 9%, but revenue only dipped 1.5%, indicating price actions largely offset the volume slide. Across nine months, the same pattern holds – parcels up, letters down, group nudging forward.

One nuance: parcel revenue growth lagged volume growth at Royal Mail in Q3, hinting at mix or pricing pressure during peak. That is common when large-volume clients and promotional periods skew the basket, but it reinforces the need for efficiency and value-add services to defend yield.

Management moves: interim Group CFO appointed

Paul Ablin was appointed Interim Group Chief Financial Officer from 1 January 2026, in addition to his role as CFO of Royal Mail. Continuity in finance through peak and into a cost-reform year is sensible; any permanent appointment timeline is not disclosed.

Why this update matters for investors

• Execution credibility: Three consecutive on-time Christmases and record out of home volumes strengthen the operational story.
• Structural shift: Growth in parcels and out of home is the right direction of travel as letters continue their historic decline.
• Cost headwinds: The circa £120 million National Insurance step-up, delayed reforms and pay deals mean 2026 will test margin resilience.
• GLS resilience with caveats: Broad-based growth and cross-border strength are positives, offset by regulatory and macro noise in Italy, Germany and Belgium.
• Reform is pivotal: Progress on Universal Service reform is the swing factor for Royal Mail’s medium-term profitability.

What to watch next in 2026

• Universal Service reform deployment: Signs of agreement progress in the Achieving National Agreement Procedure and tangible timelines.
• Yield vs volume in parcels: Whether parcel revenue growth keeps pace with volumes post-peak as promotional mix normalises.
• Cost mitigation delivery: Evidence of productivity gains from automation and lower discretionary spend flowing through.
• GLS regulatory environment: Any further updates on Italy, Germany and Belgium and the impact on growth and margin.
• Management continuity: Clarity on the Group CFO role beyond the interim arrangement.

My take: steady progress, reform remains the catalyst

This is a competent update. IDS is doing the right things – scaling out of home, investing in automation, and keeping peak running smoothly. GLS is delivering growth across multiple countries and in cross-border, which diversifies the group.

The rub is costs. With National Insurance, pay deals and reform delays, Royal Mail needs Universal Service change and continued parcel mix gains to keep margin traction. The building blocks are there, but 2026 will be a year for disciplined execution rather than grand promises.

Bottom line: parcel momentum and operational delivery are positives; cost inflation and regulatory complexity are the counterweights. Keep an eye on reform milestones and post-peak parcel yields to judge how much of Q3’s strength is sustainable.