Job losses from the collapse of City Link could rise to more than 4,000 after it emerged that the parcel delivery firm partly relied on a 1,000-strong army of self-employed van drivers and agency workers.
The Coventry-based company – which counted John Lewis and Mothercare among its customers – told its 2,727 staff to brace themselves for “substantial redundancies” in the coming days after calling restructuring experts Ernst & Young (EY) on Christmas Eve.
But that figure does not include the 1,000 self-employed drivers and third-party workers EY said would be “unsecured creditors” of City Link and therefore not entitled to any redundancy payments.
The RMT union said the true jobs figure was about 5,000 once workers in the supply chain were taken into account.
With many staff learning of their employer’s financial problems on Christmas Day, the RMT’s general secretary, Mick Cash, called for an official investigation into both the timing of the appointment of administrators and allegations that City Link may have been restructured prior to its collapse, moving “valuable property assets out into a separate company”. The union says the holiday period could hinder a rescue plan.
EY is expected to start letting staff go in the coming days because City Link’s owners – private equity firm Better Capital, led by veteran venture capitalist Jon Moulton – have failed to find a buyer as a going concern.
Moulton dismissed the RMT’s claims, telling the Guardian: “If this is an asset strip, it is an extremely poor one because we will have lost a lot of money.” Better Capital has already written down its £40m investment in City Link to £20m.
The business secretary, Vince Cable, said: “This is a bitter blow to the workforce, many of whom have served the company loyally and now face huge uncertainty over Christmas. I have asked to be kept abreast of any developments in this case and I will happily meet the unions in the new year.”
City Link’s collapse has had a knock-on effect on the online operations of some of Britain’s biggest retailers, with John Lewis and Mothercare forced to switch to alternative carriers during one of the most important sales weeks of the year.
John Lewis said it had provided “significant support” to City Link with the company’s failure a “matter of deep regret”. The retailer said it used external carriers as well as its own in-house green van fleet, adding: “We have since transferred all our business with City Link to alternative carriers.”
A Mothercare spokesperson said it had transferred all business with City Link to other carriers and planned to deliver orders according to the original schedule.
Amazon is also thought to have used the carrier but could not be reached for comment.
City Link’s collapse comes despite an apparent boom for parcel carriers on the back of the growth in online shopping. In the runup to Christmas, Yodel, the UK’s biggest delivery company after Royal Mail, admitted it had been forced to suspend collections from retailers as it struggled to clear a backlog after frantic spending on Black Friday at the end of November.
Last month there was little sign of City Link’s mounting financial problems, with its website saying it had “got all its plans in place to deliver an even more successful peak to last year’s winning performance”. Liam Tucker, its operations director, who joined in September, said: “City Link had one of its most successful peak periods in 2013 and we are looking forward to an even busier and more successful one in 2014.”
Better Capital bought the troubled courier group for just £1 in April 2013 from previous owner, the pest control firm Rentokil. But it failed to stem losses despite putting workers on fresh contracts, which paid staff on a per-parcel basis and required drivers to pay for their own vans, uniforms and petrol.
Better Capital promised to invest £40m turning around the business but industry experts said City Link had never recovered from the ill-fated takeover of rival Target Express in 2008 and was dogged by inferior IT systems at a time when rivals were investing heavily.
“City Link has incurred substantial losses over several years. The strain of these losses became too great and all but used up Better Capital’s £40m investment, which was made in 2013. Despite the best efforts to save City Link, including marketing the company for sale, it could not continue to operate as a going concern,” ,” said EY partner Hunter Kelly, who highlighted intense competition in the sector and a struggle to reduce its overheads.
City Link is thought to have been loss-making for the best part of a decade. Although the growth of online shopping has led to an increase in the volume of parcels, that increase has not meant bigger profits for carriers as intense competition has pushed prices down. Like Royal Mail, City Link is also thought to have been affected by Amazon’s decision to build its own delivery service as well as the rise of click and collect services offered by retailers.
The administrators said they were still evaluating the number of parcels in City Link’s hands. Its three transport hubs and 53 depots are shut until Monday, when they will reopen to enable customers and recipients to collect parcels. The online tracking system and helplines will be available from Saturday.
“Clearly something does not add up when we consider the phenomenal growth of ecommerce and the demand on UK supply chain, yet an established distributor has gone out of business,” said Patrick Gallagher, chief executive of rival carrier CitySprint. “Inevitably, this will raise the question of whether retailers and consumers are going to have to pay more for deliveries to make it worth companies investing in their services to ensure provision is met.”
The future looked bright for City Link in the summer as the parcel carrier launched a “striking” new green and yellow staff uniform, replacing the old black livery. But the uniforms were not company issue - hundreds of drivers on City Link’s books had to pay for the kit themselves, as they are self-employed.
Today the stricken company is still advertising positions for so-called “owner drivers” who can either lease a van from the company or use their own vehicle to make deliveries on its website.
But as City Link’s existing freelancers have discovered, they will not be entitled to any redundancy payments made by the administrators and some could even lose deposits put down on leased vehicles.
guardian.co.uk © Guardian News and Media Limited 2010