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New Zealand Post floats plan for three-day-a-week delivery

Tuesday, January 29th, 2013

New Zealand Post has asked ministers to allow a reduction in its mail delivery frequency to as little as three days per week, as it warned its postal business is “rapidly heading into loss-making territory”.

The Post has submitted a proposal to the New Zealand Government asking for the first changes to its Deed – detailing its legally-mandated service requirements – in 14 years.

Failing to make the changes would mean the postal service making “significant losses”, it said.

Group chief executive Brian Roche (pictured right) said the proposal was not a business plan, but a framework through which the company could respond to unprecedented declines in letter volumes. He insisted it did not mean there would be an immediate cut to the current six-day-per-week service for the standard letter.

“We are not about to reduce letter mail delivery frequency immediately. It is, however, inevitable at some point in the future that there will be a reduction in the standard letter mail delivery frequency,” said Roche.

“Getting flexibility now will ensure we can plan clearly, and inform consumers, the business sector and other key stakeholders well in advance of any changes.”

The proposed postal service changes are now subject to a six-week public consultation through the Ministry of Business, Innovation and Employment. Public consultation responses are due 12th March, 2013.

New Zealand Post said the three-day-a-week request was only a guaranteed minimum frequency, which it could move to “in years to come and when volumes decline”, with no definitive timeframe set for changes to happen.

Addresses currently provided with two or three-day delivery each week would not have service levels reduced, but the most remote homes in New Zealand, currently receiving delivery one to four days per week would see deliveries once a week.

New Zealand Post also wants to double the number of community mail boxes to improve service efficiency, from 1.5% of delivery points to 3%.

The postal service also wants to amend the rules to free up the use of more self-service kiosks at retail outlets. The 1998 Deed currently requires postal services to be provided over a counter in a shop, but New Zealand Post wants to alter the definition of the minimum 880 outlets required in its retail network to include kiosks.

New Zealand communications minister Amy Adams said today that any changes would require government approval.

“In deciding whether to accept or reject the proposal or seek to negotiate a compromise, I will look to balance the interests of postal users with the need to ensure a financially-viable postal service,” said the minister.

Volume decline

“We cannot stand still and simply hope the problems will go away”

New Zealand Post said it needed to make the changes to restructure a network designed to process 1.2m pieces of mail each year, which is currently handling just 835m items.

Mail volumes have dropped 24% since 2002, and are currently falling at about 6.9% a year, with company predictions suggesting that volume declines “may well accelerate”, sinking to 627m items a year by 2016/17 – around half the volumes seen in 2002.

Anticipated growth in parcel volumes, in part thanks to Internet shopping, won’t cover the loss from the declining letter business, the company said. The Post is also facing an increase in the number of addresses to which it delivers mail – up to 1.91m from 1.46m stipulated in the 1998 Deed.

Without requested service changes, New Zealand Post would need NZ $30m-a-year government subsidies for its postal business, a figure that would increase each year.

Maintaining the status quo would also end dividend payments to the government, which have totaled NZ $720m since 1987.

Roche said the Deed with the government was in need of an urgent revamp to ensure a viable postal service continues.

“Every postal system around the world is facing similar challenges and they are beginning to act. We cannot stand still and simply hope the problems will go away,” said Roche.

“Not gaining flexibility will leave us with some challenging and unsustainable options – asking for taxpayer funded subsidies to prop up the letters business; operating the postal business at a loss which will degrade the business over time; or cross-subsidising from other parts of New Zealand Post, denying the business the opportunity to grow and invest.”

Roche said the Post has already engaged with key stakeholders, including customer groups, about the future of postal services, and will continue to do so.

The public consultation will further inform the process, he added.

New Zealand Post said along with the service changes, it was also in the process of exploring other options, including mail production and processing changes, to help cope with the decline in letter mail.

The company, which is required by the government to make a profit, rather than simply break even, insisted that its postal business had to “stand on its own merits”, rather than being subsidised by profitable parts of the Group like financial services unit Kiwibank.

The Post said subsidising postal business with Kiwibank profits would mean a drop in the banking division’s credit rating, making it more expensive to provide financial services, and thereby hitting Kiwibank profits so that “a vicious circle would be created whereby both businesses would suffer”.

The changes to the Deed would only affect standard letter services, and would not affect any courier services, such as Pace and CourierPost same and next-day services, which have never been covered by the Deed.

Source: Post&Parcel/New Zealand Post/New Zealand Government

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