Throughout the economy, legacy business models are under threat from digital disruption. Record companies and television stations have to compete against streaming services; newspapers compete against online classifieds and news portals; bricks and mortar stores are competing against online retailers from around the world.
Smartphones and tablets have transformed the way we live. More than 12 million Australian adults have access to a smartphone and expect to be able to access services like Internet banking almost anywhere and at any time of the day.
People no longer use the postal service as they did a decade or so ago. Australians are sending one billion fewer letters a year than they did in 2008. In fact, we are now sending the same number of letters a year as we were in 1995, despite Australia’s population growing by more than six million since then.
But while revenues decrease, Australia Post’s letters cost base is fixed by onerous regulated performance standards. More than 80 cents of every dollar lost in letter revenues goes straight to the bottom line. Regardless of the rate of letters volume decline, regulations compel Post to provide a five day a week delivery service to 98 per cent of all addresses – that’s 11.4 million homes and businesses.
So not only are people sending a billion fewer letters a year than they were seven year ago, delivery points are growing by 150,000 premises a year.
Letters are now declining by more than eight per cent per annum, with the Boston Consulting Group forecasting average annual declines of up to 11 per cent.
The decline of Australia Post’s letters business threatens the financial viability of its entire business.
Australia Post yesterday announced that its first half profits are down 56 per cent, with letters losses doubling to more than $150 million. This is on top of a second half loss last financial year of $106 million – the first loss in any six month period in Post’s corporate history.
Without reform, the viability of local post offices throughout the country will be strained and taxpayers will be called on subsidise Post’s losses. The Boston Consulting Group last year forecasted that, with no change to its business model, Post would lose $6.6 billion over 10 years.
And Australia Post will lose market share in the lucrative parts of its operations – the parcels business. Competition in the parcels market is heating up, with Japan Post and a subsidiary of Singapore Post both recently acquiring Australian logistics companies. Post’s margins on parcels will come under significant pressure as competition continues to intensify.
Australia Post cannot be expected to compete for business with multinational logistics companies – Japan Post being the fifth largest in the world – with one hand tied behind its back, as it loses hundreds of millions of dollars in its letters business..
The government is working closely with Australia Post to develop an important reform package, to not only ensure that the letters business of Australia Post can cover its costs, but to also provide additional financial support to licensed post offices as well as ensuring that concession card holders continue to have access to stamps at discounted prices.