Disruption will cost Royal Mail up to £100m and damage customer loyalty

The postal strike is likely to cost Royal Mail £50m to £100m, although the price paid in the longer term may be far higher because customers could vote with their feet and find other ways of having letters delivered.

A Royal Mail spokesman said the exact costs of the two-week stoppage were still being assessed. But he pointed out each of last month's official one-day strikes in London had cost the organisation £10m.

Direct costs include the huge volumes of mail that were not posted during the dispute. The Royal Mail handles 82 million items a day of which 16 million pass through London - the centre of the unofficial action.

On top of those are the less easily quantified costs of the business Royal Mail is likely to lose in the future, particularly from direct mail advertisers who account for a sixth of total post volumes.

"You have to recognise customer confidence has been dented as a result of the strike," said the spokesman yesterday. "Companies who plan their mailings months ahead will inevitably start thinking whether they should get their message and their material out in another way."

Until the dispute, Royal Mail had been making steady inroads into its losses. They had been cut from £1.1m a day in 2001 to £750,000 in 2002 and figures for the first six months of this year, to be published later this month, are expected to show a further improvement.

The organisation is aiming to reduce costs by £1.4bn and cut 30,000 jobs by the end of next year to offset the introduction of competition which will see its monopoly abolished altogether by April 2007.

On the plus side, the ending of the dispute will accelerate the introduction of single postal deliveries across the country - the biggest element in the cost-saving plan. The second delivery accounts for just 4 per cent of letter volumes but 20 per cent of Royal Mail's costs.

Despite the agreement to end the unofficial dispute, it will leave a legacy of bitterness in an organisation where employee relations have been among the worst in the country. There is no guarantee that the settlement will actually "settle" anything.

The Royal Mail's 165,000 postal workers have the reputation as Britain's most militant workforce and the organisation's junior and middle managers are known to be adept at provoking them.

The somewhat authoritarian sub-culture among the lower reaches of management is thought to have its roots in the immediate aftermath of the Second World War when the Post Office recruited non-commissioned officers at supervisory grades. The organisation also gets more than its fair share of militant activists who are attracted by the high degree of unionisation of the employees.

Over the past decade or so, industrial action by Post Office employees has made up a substantial proportion of the working days lost through strikes in the British economy.

It would be a mistake to think that reluctant postal workers were being bullied into industrial action by the union's national leadership. In the financial year to 2000-2001, more than 62,000 working days were lost through walkouts and only 5 per cent were sanctioned by the Communication Workers Union.

In the latest dispute, the leadership of the union clearly sympathised with the strikers and their issues, but control was even more clearly in the hands of local activists.

Three years ago, the Royal Mail enlisted the expertise of Lord Sawyer, a former general secretary of the Labour Party and ex-union official, in an attempt to bring an end to the industrial anarchy.

Lord Sawyer, who chaired a three-man inquiry team, found that the attitude of union activists was characterised by "old fashioned class war" and that management's approach was often "high-handed or insensitive". Relations between the organisation and its employees were "dire", Lord Sawyer concluded.

Following the study, there was a lull in hostilities as both sides agreed to address the fundamental problems that afflicted their organisation. Last year, a mere 6,000 days were lost through walkouts.

That period of calm between union and management came to an abrupt end a fortnight ago when employees in the capital staged an official 24-hour strike, originally over disputes in London allowances.

The Royal Mail has even sought the guidance of an American management guru who specialised in "spiritual guidance" in an attempt to sort things out. Richard Barrett, a self-styled "World-Renowned Visionary", attempted to transform the business through the deployment of "values-based Corporate Transformation Tools". It appears Mr Barrett may well have been casting pearls before swine.