Australian government backs two-tier mail delivery service proposal

Australia Post will be allowed to introduce a new two-tier letters delivery system in order to counter the financial impact of the ongoing decline in volumes, the Australian government said last week. The changes could be introduced as early as this September.

The reforms were announced after last month’s prediction from the state-owned national postal service that its loss-making letters business would pull the entire company into the red later this year for the first time since 1982.

Australia Post is facing an 8.2% year-on-year decline in addressed letters volume at the moment. Up to this point, its booming parcels business has been providing the growth to offset the decline in the letters business, to keep the Group profitable. However, this year the letters losses are set to “overwhelm” growth seen in parcels driven by the success of e-commerce.

The Post has proposed introducing a slower “regular” letters delivery service, which would add about two days to transit times but cut operating costs by reducing dependence on air travel. The current delivery standards would then apply to a new premium-priced “priority” service, over which Australia Post would have stronger pricing powers.

Australia Post said last week that the changes would help keep post offices open, and keep delivery staff making five-day-a-week deliveries.

The company will also look to raise the basic stamp price from 70c to $1.

Price increases are needed to better recover the cost of the letters service, and avoid the need for parcels to subsidize letter services, according to Australia Post chief executive Ahmed Fahour.

“Australia currently has the lowest basic stamp price in the developed world. Unfortunately we must raise that price to ensure we can maintain the service, including five-day-a-week delivery and over 4,000 post offices,” said Fahour.

“In fact, up to 97 per cent of mail is sent by business and government. Taxpayers, through Australia Post, can no longer afford to keep subsidising corporate Australia by running a below-cost letters service predominantly for this sector.

“Even if the regular stamp price reflected the current total cost of $1 it would remain among the cheapest in the OECD and significantly below comparable countries like Canada, UK and Germany. The reformed letters service will remain among the cheapest in the developed world while maintaining one of the highest service standards.”

The Australia Post CEO said affordability would be maintained by freezing the price of concession stamps – stamps available for 5.7m Australians on low-income – at 60c. Christmas stamp prices will also be frozen at 65c.

Australia Post as promised a national consultation programme to discuss the proposed reforms with stakeholders and local communities.

Union

Unions support the need for postal reforms in the light of declining mail volumes, but have said that the proposals currently on the table need to be carefully assessed to guard against job losses.

The Communications Electrical Plumbing Union said the move to a two-tier delivery service brought risks, and that a “cautious approach grounded in detailed stakeholder consultation” was needed.

Jim Metcher, the NSW Secretary, said cutting jobs and reducing services could lead to a “terminal crisis” if customers are deterred from using the mail.

“We acknowledge the effect that the downturn in letter volumes is having on Australia Post revenue but we stress the need to exercise caution against any over reach in changes to the reserved letter services,” he said.

“It is vital that any reform to the postal system is aimed at improving sustainability and doesn’t unwittingly accelerate mail decline and create an unintended communications crisis within the community.”

“Treading water”

The Post Office Agents Association Ltd, which represents the operators of licensed post offices across Australia, said moving to a two-tier delivery service and raising postal rates was just “treading water”.

It said reform was not enough on its own to cope with mail volume declines, Australia Post needed to find new revenue streams.

The group said business mail was already restructured in 2014 and that 70% of business letter were already using the slower, cheaper service — but no information has been given on how the slower delivery affected declining letter volumes.

POAAL demanded more details on how the proposed price increases would hit stamp sales, mail volumes and workloads at post offices.

Bob Chizzoniti, the POAAL director, said: “A real plan for the future is needed, that takes into account the future needs of the post office and its customers in the 21st Century. Putting up the price won’t arrest the flow of customers migrating away from letters towards electronic communications.”