Jason Shankey’s online haircare business will not be ruffled by striking postmen. The Belfast-born king of male grooming sent the Royal Mail packing two years ago in favour of DHL, the delivery service owned by Germany’s Deutsche Post, to ship 700 orders a week.

“There have been so many strikes it’s not funny,” said Shankey, 38. Yet he’s still laughing because using DHL has saved him £2 a parcel on next-day delivery.

But after weeks of wildcat action, the threat of Royal Mail walkouts across the country in the run-up to Christmas is striking fear into the hearts of Britain’s 4.5m small and medium-sized enterprises.

Some believe that customers will be put off shopping online. “We’re using a fleet of couriers,” said Christian Robinson, managing director of Firebox, a gift and gadget website. “Our worry is that consumers will abandon mail order or online, so we need to get the message out that we can still deliver.”

And the big internet retailers — Tesco, Amazon, Argos and Play.com — are gearing up to beat any disruption in the wake of last week’s ballot of 120,000 Royal Mail workers in favour of a walkout.

Across London and the southeast, mail mountains are already piling up — there is an estimated backlog of 5m items. But that figure could soon become 200m should the strike over jobs and pay spread across the country.

It may deliver a fatal blow to Royal Mail, which has seen volumes decline by between 8% and 10% year-on-year — and each percentage point fall costs the service £70m.

“Once a company leaves Royal Mail, they never come back,” warned Jonathan DeCarteret, the founder of Post-Switch, a broker of discount postal services.

Even though each one of the Royal Mail’s four divisions — letters and packages, the Post Office, Parcelforce and General Logistics Systems — went into the black for the first time in two decades in the financial year to March 31, 2009, it is not enough.

The service, which made a group-wide operating profit of £321m, up from £162m a year ago, is weighed down by a £3.4 billion pension deficit. In the 1990s, when Royal Mail managed to clock up a £2.5 billion surplus, the money was delivered to the Treasury rather than invested in new systems. Similarly, the government’s 13-year holiday from contributing to the pension fund was to prove distastrous.

Last year, Royal Mail had to pay £786m into the pension plan before payments related to redundancy — £543m in regular pension contributions and £243m to fund the deficit.

Added to that, Britain was one of the first countries to implement an EU directive seeking to end national postal monopolies.

Yet even Royal Mail’s competitors do not want to see its demise. “While the strikes have increased our volumes, we’re keen to see a healthy Royal Mail,” said John Coghlan, chief executive of DX Services, a rival delivery firm owned by Candover, the private equity house. “With mail volumes on the decline, it’s in the whole industry’s best interest for Royal Mail to be fully operational.”

Blame for the Royal Mail’s parlous state has been laid at the door of successive governments that have failed to privatise the service, unions that have refused to accept flexible working, poor management and a draconian regulatory regime.

Lord Mandelson, the business secretary, abandoned an attempt to sell a 30% stake in Royal Mail in July after the biggest revolt by backbenchers since New Labour came to power. Insiders concede there is no chance of a sale before the next election.

Workplace relations have been terrible — according to the 2008 Hooper report, the postal unions accounted for about half of all days lost to industrial action in Britain — and management has been on a drive to transform Royal Mail’s operational efficiency. The group currently employs 176,000 people of whom 121,000 are frontline postmen and women.

Adam Crozier, Britain’s highest-paid civil servant, is overseeing a five-year, £2 billion programme of change. He says that pushing through the programme is the company’s only hope.

Seven years ago, when the business was losing £1m a day, the government provided a £1.2 billion loan to fund the investment but rows over the job cuts, the abolition of the final salary pension scheme and changes to working conditions stymied its implementation.

With £900m spent, 138 large mail processing machines have been upgraded and 21 “flat” sorting machines for larger items have been installed. Some 27,000 hand-held devices that electronically record signatures for tracked items on the doorstep have been issued. Nevertheless, Royal Mail uses automated sorting for only 50% of its items, compared with 63% for La Poste France and 89% for Deutsche Post.

Ian Senior, an independent postal analyst at Triangle Management Services, lays the blame for Royal Mail’s woes on Postcomm, the regulator set up in 2001. “Postcomm should be wound up,” Senior said. “It has micro-managed Royal Mail and driven it into the ground. The government should have allowed it to be fattened up ahead of deregulation and then sold off.”

He pointed to Germany, where the regulator allowed Bundespost to make huge profits before it was privatised.

Royal Mail says 91% of its revenue from letters is subject to price controls. This has left the business uncompetitive against foreign rivals keen to grab a slice of Britain’s £11 billion postal market.

Since 2006, the entire UK postal market has been opened up for competition but, in practice, rivals have concentrated on collecting, sorting and delivering mail to local offices, leaving Royal Mail to deliver post the final mile to homes and businesses, an operation which makes up 60% of its costs.

Competitors have cherry-picked the lucrative packets and parcels market where Royal Mail faces competition from 3,000 firms for its 50% market share.

The executive committee of the Communication Workers Union will meet at its Wimbledon headquarters on Monday to discuss pushing ahead with strike action. To the union, this is a battle about staff being asked to do more work for the same pay and the loss of pension rights. But it is hard to avoid the conclusion that they remain pawns in a game being played out well above their heads.

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