Two-tier mail system to become a reality as government fights to save Australia Post

The federal government is expected to reveal a plan to stem the losses at Australia Post within weeks, although a decision is yet to be made about how much Australians will have to pay to send a letter.

According to Fairfax, the proposed plan would allow the mail carrier to introduce its two-speed and tiered-pricing delivery service for its letter business, charging up to $1.50 for stamps for priority letters and $1 for regular delivery. Next-day letter delivery for metropolitan areas could be extended to up to three days under the plan.

But a spokesperson for Australia Post told SmartCompany this morning “no decision has been made on future stamp prices”.

“Australia Post supports a regulatory model that will enable us to offer more choice on product speed and recover most of our costs,” the spokesperson says.

“As to what that model is, that is a matter for the federal government.”

Any price increase would also need to be signed off on by the Australian Competition and Consumer Commission and be subject to public consultation.

Releasing Australia Post’s mid-year financial results on Monday, chief executive Ahmed Fahour called for “urgent” regulatory reform of Australia Post’s letter service, saying the “immediate challenge for our business is clear”.

“We have been carefully managing the real decline in our letter volumes for the past seven years,” Fahour said, after Australia Post reported a 56% decline in profits for the first-half of the financial year.

“But we have reached a tipping point where we can no longer manage that decline, while also maintaining our nationwide networks, service reliability and profitability.”

Overall, Australia Post recorded tax profit of $98 million for the six-month period, down 56% compared to the first half of the 2013-14 financial year.

Losses in the Australia Post letter delivery business totalled $151 million for the period, a drop of 57% from the previous corresponding period. Letter volumes dropped by 8.2%, which Australia Post said is the largest decline recorded since letter volumes began to decline in 2008.

The losses are set to continue, with Australia Post projecting its first company-wide full year loss for the first time since 1982.

Stamps are currently priced at 70 cents but the cost of delivering a letter in Australia is around $1. Concession-card holders can purchase stamps for 60 cents and this price has been frozen until 2017.

Australia Post has already introduced a two-speed mail delivery service for businesses, modelled on the first and second class stamp systems used in New Zealand, the UK and the US. While Australian businesses still have the option of their mail being delivered five days a week, there is an option to choose to pay for a cheaper, less-frequent service.

One small business owner told SmartCompany this morning the growing pressure on Australia Post ultimately disadvantages Australian businesses that send and receive mail.

While Jon Page’s Sydney bookshop, Pages & Pages Booksellers, deals mainly with parcels and has access to cheaper mail rates through the Australian Booksellers Association, he says it is “disappointing to see Australia Post, one of the most profitable mail carriers in the world, now in this position”.

Aside from the costs of delivering letters, Page says Australia Post faces “a lot of pressure from international freight arrangements” and the “imbalance” in the universal post agreements that mandate the carrier deliver post from international carriers in exchange for payments that do not cover the cost of delivering mail in Australia.

The universal agreements were due to be renegotiated last year but Page says discussions “failed to get any traction”. It is unlikely negotiations will begin again within the next two years.

Page says Australia Post has little choice but to pass on its increasing costs to businesses and consumers. And this disadvantages small businesses like his that sell products online.

“Postage is quite high [compared to other costs] but from an online business perspective, it’s the real competitive part of online,” Page says.

“There are a lot of expectations and pressure from customers for freight to be for free and so businesses give it away. If costs of freight go up, they are giving away more.”

“It makes it tough to compete. We offer a flat rate and when we deliver across the country, that means a bit of a loss. We do run freight-free promotions, which increase our business, but you have to weigh up the costs.”

Page says the Australian Booksellers Association has lobbied the government on the issue and last year spoke with advisers to Communications Minister Malcolm Turnbull. He says the government is “trying to unilaterally look at ways to improve the situation”.

But he says it is a complex, slow and arduous process.

“In the meantime, Australia Post and its employees are suffering and the costs are being passed on,” he says.

Leesa Lambert, co-owner of The Little Bookroom in Melbourne told SmartCompany she believes Australia Post and the federal government are not “sharing the whole story” when it comes to the financial state of Australia Post.  

“The reason that Australian Post is ‘struggling’ is not simply that Australians are sending less letters, it is that we don’t have a first class mail rate and we need one,” Lambert says.

“As a consequence, Australians are subsidising the cost of parcels under 400 grams best send from the UK for the price of a postage stamp. I would like to see how this affects the bottom line.”

At the end of the day, Lambert says, the real losers are Australian consumers.

“And if it is bad for my customers, it is bad for me,” she says.

“Domestic rates are already so high as to dissaude people from buying online domestically. Seven dollars postage to send a $15 novel to your niece on the other side of the city? It’s not viable.”

“But if it cost as much as a stamp, even one at $1.50, this equation would be different. Our overseas competitors are given a huge financial advantage.”