Australia Post’s red ink primed to stain Budget


Looking for friends in high places in Canberra - the Post box at Telstra tower.
Post is looking for friends in high places in Canberra.

Australia Post chief executive Ahmed Fahour has pressed the alarm button in Canberra over the need for urgent policy reform after the government-owned mail monopoly chalked up a whopping $151 million half-year loss on its moribund letters business.

In a stark wake-up call to the Abbott government and the wider community, Post has warned that as an enterprise it’s now officially in the red as an enterprise on its full year accounts.

The prospect of huge bills instead of dividends arriving by mail presents a Budget nightmare for the Abbott government because taxpayers will ultimately have to take the hit for keeping postal services in their current form — a scenario that logically means that cuts will have to be applied elsewhere.

And it’s a big hit too.

“We urgently need reform of the regulations that apply to our letters service. A government-commissioned external report last year predicted that – without reform – Australia Post will incur $12.1 billion cumulative losses in letters, and $6.6 billion for the enterprise over the next 10 years,” Mr Fahour said.

The price of politicians doing too little, too late in terms of reform at Australia Post was last week dramatically underscored by Japan Post’s $6.5 billion swoop on Toll Holdings to build that corporatised state enterprise’s market share.

Japan Post’s bid for Toll comes as other national postal services, in various states of government, public and private ownership, aggressively ramp up their presence in the parcel freight and logistics markets.

The core message that Australia Post’s management is now delivering to its owners is that the financial breaking point where parcels cannot offset mail has arrived.

Post and Mr Fahour have been lobbying for around two years to get legislation changed to allow a shake-up of the letters business that is stuck with legally mandated service obligations – like daily mail delivery – and heavily regulated pricing.

Specifically Post has been heavily pushing for reforms that will allow it to split its letters into a “regular letters service for non-urgent consumer mail delivered two days slower than the current schedule” and a more expensive “priority” mail service – which would be the service that stands now.

Customers wanting to use the existing timetable will pay more for a Priority service. Australia Post also wants the ability to adjust prices to better reflect the real cost of running the letter service, so it can reduce the losses and sustain the mail service for all Australians.

However acute sensitivity remains among many Coalition members over the prospect of raising stamp and delivery prices while at the same time cutting back services, especially in electorates that contain an older demographic that are viewed as preferring letters over electronic transactions and communications.

Just how bad Post’s letters business is going is hard to understate.

The $151 million is 57 per cent worse than the loss recorded by the letters business in corresponding half of last financial year and the volume decline in letters accelerated to “8.2 per cent, year-on-year, which is the largest decline recorded since Australia Post’s letter volumes started falling in 2008,” Post’s financial statement said.

Somewhat ironically, what remains of mail volume largely rests in the government’s own hands because Commonwealth agencies and a dwindling number of state and local governments still use paper mail to communicate.

Communications Minister Malcolm Turnbull has already warned that that last source of government letters will soon dry up as he actively pursues digitised delivery of Commonwealth communications and transactions to the community through the MyGov digital identity and online access platform – which crucially will also be made available to state and local governments.

The Commonwealth’s overt preference for its own in-house MyGov platform threatens to largely hobble Post’s own frustrated Digital Mailbox solution because people undertaking government business will not need a third party aggregator.

A further problem for Post’s Digital Mailbox is that to make money it fundamentally relies upon the electronic bill and document presentation market which clips the ticket on payments or other transactions by eliminating paper and over the counter costs.

However to capture market share, Post needs to try and wrestle business away from incumbent leader BPAY, which puts a government enterprise in direct competition with the bank-owned low-cost utility service provider.
For its part Australia Post has launched a major public engagement exercise through what it calls ‘Listening Posts’ where the organisation is trying to gauge and document community expectations as well as frankly spell out the situation it’s facing.

Whether federal Cabinet prepared to listen and act on the dire financial outlook and Mr Fahour’s plea for reform remains to be seen.

One thing is certain. The longer it takes to make a decision, the closer the next election will be.

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