Another year, another major UK company going bust. City Link is a company I have crossed paths with in the past as they used to be the preferred courier for the vendors I used, which is why it going bust caught my attention. However City Link biting the dust in itself hardly surprised me.
Yes the timing is rotten, but this timing is the boundary between the end of a traditionally profitable season, and the falling due of new-year costs such as premises rent. Of course the unions’ anger of the timing is quite natural, but they are in for a big shock if they seriously expect a 1970’s style bailout. The company was offloaded for £1 earlier in the year, which is normally a sure-fire sign of a company that is dead man walking. It then burned through a £40m injection in just under 8 months.
Most delivery companies have their fair share of horror stories, but I have this vague recollection of City Link going downhill mid-2000’s. Not sure which paper I read it in (either the FT or the WSJ), but it seems one root cause was the way the company used outsourcing, and contracting out of core business functions to me is recipe for disaster. It was clear that the company had the type of structural problems that piecemeal changes rarely fix, but in such situations piecemeal changes are all that ever get done.
The way the free market deals with dead wood is to replace it wholesale, which is exactly what happened to City Link.