Call to cut NZ mail service to contain rising costs

MAIL deliveries may be cut to five days a week as a beleaguered New
Zealand Post tries to contain rising costs. The state-owned enterprise has been warned that its letters market –
responsible for about half the company's revenue – faces serious
threat because of electronic mail and major businesses bypassing its
network. The dire outlook is contained in confidential briefing papers
obtained by the Sunday Star-Times which reveal much of NZ Post's
commercially-sensitive business plan. The documents were prepared by
the Crown Company Monitoring Advisory Unit (CCMAU) for government
consideration. They say NZ Post's letters market appears "increasingly vulnerable".
The SOE had recently cut costs by consolidating some mail centres,
the papers said, but it needed to focus on protecting its market
position and watching costs. "It also has some other longer-term
options (eg, moving from six-day to five-day delivery) that we
consider it should explore." According to the documents, about 60% of mail volume is at risk.
Twenty per cent of that is because of email. Neither NZ Post chairman Ross Armstrong nor State-Owned Enterprises
Minister Mark Burton would comment yesterday but NZ Post chief
executive Elmar Toime played down the papers. Consumers' Institute head David Russell said any cutback in
deliveries would be a disappointment for consumers but warned it
could open the gate for competitors. The documents, which analyse the 2001-2002 business plan, also show
officials urged the government to intervene in NZ Post's boardroom
row over its international operations. Board members were threatened
with the sack this month after a crisis meeting indicated they had
lost confidence in Armstrong. Although NZ Post has previously projected a downturn in its letters
market with the introduction of email, it has not given an
indication of the scale of that threat. The documents, however,
state clearly that NZ Post's share of the market is likely to
contract. "While deterioration in the market has been expected for
some time, particularly in the letters business, it is occurring
more rapidly than had previously been expected." In addition to the losses to email, the reason is put down partly to
the emergence of competitors attacking NZ Post's share in the
national market. The papers say despite the failure of National Mail, this is a real
threat. Pete's Post, CD Marketing and NZ Couriers are cited as
examples of businesses looking to rain on NZ Post's parade. NZ Post's domestic courier services are also cause for CCMAU
concern. Noting "apparent poor performance of the domestic courier
business", the report's authors say it is essential NZ Post be asked
to supply segmented information, "so that this situation can be
properly assessed". The papers say there is a risk of the network being bypassed by some
key customers moving their central operations to Australia. Three
major banks – ANZ, BNZ and WestpacTrust – are all Australian owned
and collectively generate about 78 million mail items a year, the
documents say. "These, and a number of other customers, are expected to centralise
their printing and mailing of material in Australia." This raised
the risk that significant volume could either bypass the NZ Post
network or enter it under a bilateral arrangement providing much
lower margins. "As much as 8% of NZPL's letter volume may be under
threat in this area." NZ Post has further been warned in the CCMAU papers that the
imminent establishment of its cut-price People's Bank will mean low
forecast profits and dividends. Ministers responsible for NZ Post
have been urged to "stress the necessity of (NZ Post) paying close
attention to the establishment of the bank and the management of the
risks around it". The papers were released by Act MP Rodney Hide, a known opponent of
the People's Bank. Hide has pointed the finger at Armstrong and
Burton. "NZ Post is in big trouble and it looks like we'll be losing
mail services rather than gaining bank services. It's quite possible
that NZ Post will face severe financial difficulties and will be
looking for more money from the government," Hide said. He held Armstrong and Burton responsible for overseeing "an
extraordinary destruction in the value of this business" and said
they were refusing to be held accountable for their decisions. "It's clear the finance and expenditure select committee is going to
have to take the unprecedented step of calling in NZ Post's chair
and chief executive for an explanation of what's happening to the
services of NZ Post and the loss of value of the business." Toime – who said he had not seen the papers – dismissed the
suggestion of cutting back on the number of mail delivery days a
week. There was "absolutely, categorically no change in service
whatsoever" planned, he said. "No degradation to the on-time
delivery of mail and no change to the number of days." The papers contained "signalling comments we've made in a
theoretical sense about the possible futures we may see", he added. Toime noted a number of other countries only had a five-day service.
Burton said he did not believe it was appropriate for him to comment
on a document he had yet to respond to formally. Last September NZ Post recorded a worse-than-expected $3.8m tax-paid
loss in the three months to June 30 and predicted a difficult year.
The company at that time changed its balance date from March 31 to
June 30.
Copyright 2001 Independent Newspapers Limited.
Source: World Reporter (Trade Mark).SUNDAY STAR TIMES, 29th July 2001