New mail models impact Australia Post
A postmodern conundrum has gripped Australia Post, our oldest public institution, if one includes the antecedent mail services that date back some 205 years.
Australia Post management argues that traditional mail is falling off a cliff and that its parcels business – which has boomed thanks to online shopping – can no longer sop up the red ink spreading over the letters business.
It sounds logical. But there are gaps in the narrative being told by Australia Post chief executive Ahmed Fahour and his team.
Mail volumes peaked in 2008 when “digital substitution” took hold, and have been declining about 5 per cent a year since. In 2013-14, some 1.2 billion fewer mail items were sent than at the peak – a drop of about one-quarter in six years – despite the network getting about 130,000 new delivery points each year.
So who are these Luddites still sending letters? Australia Post says 97 per cent of today’s mail comes from business and government. About 74 per cent is “transactional mail”, such as bills and bank statements, 24 per cent is promotional, and just 3 per cent is old-style “social mail”.
Australia Post argues its costs are mostly fixed by its legislated Community Service Obligations (CSOs). These include having more than 10,000 street posting boxes and 4000 retail outlets (including 2500 in rural and remote areas). It has to deliver 94 per cent of letters on time, with 98 per cent of delivery points getting deliveries five days a week.
But what is on-time delivery? Within the same state, deliveries within the metro areas are supposed to be made the next business day, metro-to-country is the second business day and between country areas is also the second business day. For interstate mail, metro-to-metro deliveries are the second business day, between metro to country is the third business day and between country areas is fourth business day.
Australia Post says 95 per cent of non-bulk letters are delivered on time, but this does not tally with the anecdotal experience of many users. Call it the “Aunty Test”, after those relatives who track letters, cards and parcels better than any barcode.
A report commissioned by the Abbott government from the Boston Consulting Group (BCG) said current service levels exceed the demands of most customers. “Surveys suggest only one-third of receivers use their mail directly on the day they receive it, half would accept three-day delivery and very few would be willing to pay to maintain five-day delivery, with little variation across customer segments.”
BCG agrees that escalating letter losses will overwhelm parcel profits, bringing overall losses for Australia Post as early as 2014-15. This includes a total deficit of $12.1 billion for the letters business and $6.6 billion for Australia Post overall over 10 years from 2013-14.
Decline due to digital
But not everybody buys this analysis. The Communication Workers Union commissioned a report from the Australia Institute, which argues that the BCG report is far too pessimistic on mail volumes. This counterargument also picks up on the changed workload of posties, who now deliver about one-quarter of parcels (some 2000 Australia Post workers have switched from letters to parcels in the past year).
The Australia Institutes argues that the delivery network for letters is also the foundation for the profitable small parcel delivery business. “The way that Australia Post is presenting its financial accounts conceals the relationship between the ‘losses’ made delivering letters and the ‘profits’ made delivering small parcels.”
But there’s more. Australia Post insists that the parcel business is competitive, with other big players such as Toll Holdings and niche couriers. Yet the Supply Chain & Logistics Association of Australia told the Productivity Commission in May this year Australia Post had been “irresponsible” by lifting parcel and satchel rates by about 55 per cent since 2009, “leading up prices with their private sector competitors”.
Meanwhile, Australia Post is positioning itself as an online gateway. The government has established the myGov inbox, which can receive mail from Centrelink, Medicare and Child Support, among others. The Department of Human Services is allowing myGov users to have their government digital mail automatically forwarded to their Australia Post MyPost digital mailbox. Australia Post will tender for Medicare’s massive payments system, an outsourcing opposed by public sector unions fearing big job cuts and by welfare groups.
One reason cited for a steep fall in mail volumes is the expected uptake of the MyPost digital mailbox and other similar products. Australia Post management has argued Australia’s online interaction with government was very low at about 38 per cent, but could grow to the 80 per cent found in countries such as Denmark in three years. But the Boston Consulting report said the Nordic experience is “unlikely to be replicable now in Australia”.
Furthermore, mail receivers are mail consumers. An Australia Post customer survey in November 2013 found fewer bills and statements were being mailed, but the consumer preference for receiving them that way had risen. It found consumers wanted choice and that half of the migration to online billing was “due to actions from the biller [not the customer’s choice]”.
Winning approval to deliver new “trusted” services such as passports and financial services is part of the Australia Post strategy. Visits to the 4400-plus retail outlets have slumped since 2008, and new revenue streams are needed to offset the decline in letters. About two-thirds of these outlets are Licensed Post Offices, which have the most face-to-face dealings with customers. A senate inquiry is due to report on LPO gripes about Australia Post later this month.
Licensees ‘not paid enough’
The chairperson of the LPO Group, Angela Cramp, who owns two post offices in Wollongong and another in Lightning Ridge, says one major problem is that licensees are not paid enough for handling parcels. She says the earnings of LPOs are mostly linked to the basic postage rate, which is regulated and has risen three times in the past 20 years and lagged well behind inflation. As for Fahour, Cramp says: “He’s a banker … he’s not running a service industry, he’s running a bank.”
Australia Post admits that LPOs are “obviously feeling the pressure” with over-the-counter bill payments down, along with banking transactions. But it says payments to LPOs have increased by $40 million this year, which includes $25 million from stamp price rises from 60 cents to 70 cents.
The LPO Group is part of the Post Alliance, which includes printers, mail houses and unions. “While we all recognise the challenges facing the mail industry, a decline of 5 per cent is not the crisis that the CEO would like the Australian community to believe it is,” says spokesman Bill Healey.
Communications Minister Malcolm Turnbull is in the middle as a keen advocate of e-government, who also has oversight of Australia Post. Turnbull says the government wants to ensure Australia Post has a sustainable mail service that is accessible to all. “For the first time, letters losses are now equal to parcel profits,” he told The Saturday Paper. “Without reform, 2013-14 will be the last year Australia Post records a profit. We are working closely with Australia Post and considering their options for reform to ensure the company does not become a burden on the budget.”
For his part, Fahour says that Australia Post wants to offer a priority stamp and a regular stamp. He says it will keep delivering five days a week, but some mail will take longer if you don’t want to pay the higher rate. A concession card was introduced this year that froze the stamp price for about 5.5 million concession card holders at 60 cents until 2017.
Fahour insists that Australia Post wants to recover the full delivery cost of both priority and regular mail. As his chief operating officer, Ewen Stafford, put it: “The reality is we have little freedom to set prices and clearly the current stamp price of 70 cents does not cover our cost.”
“A number of years ago, I made a commitment that we were not going to become victims of the digital economy,” Fahour said last week. “We will not be the next Kodak.”
But Australia Post is coy on price increases, as it focuses on winning regulatory change first. A spokeswoman says: “In line with the current process, Australia Post would consult with the government before requesting an increase to the BPR [basic postage rate]. The ACCC has to approve any BPR increases and there are no current applications outstanding.”
Sounds like a price rise is in the works. Even if it’s not in the mail, yet.
This article was first published in the print edition of The Saturday Paper on Sep 13, 2014 as "Tipping the mail models". Subscribe here.