Australia Post’s weekday letter-delivery obligations are “no longer financially sustainable” and need to be reviewed, according to a new consultation paper released as part of a federal government review of the postal service.
- Australia Post is expected to run at a loss this year for the first time since 2015
- The government has flagged changes to the rules it operates under to keep it financially sustainable
- At the moment it is obliged to deliver letters to 98 per cent of Australian homes every weekday
The government has launched a sweeping review of Australia Post’s business model with an eye to scaling back its deeply unprofitable letter delivery service to prioritise its fast-growing parcel service instead.
Australia Post is entirely government-owned but also entirely self-funded, and works under strict obligations to provide near-universal letter deliveries to Australian homes five days a week and operate post offices close to homes.
It also aims to turn a profit and deliver those returns to the government.
That will not be the case this year, with Australia Post expected to run at a loss for the first time since 2015 — and those losses are expected to grow in the years ahead.
In a new consultation paper released today, the federal government is flagging that the requirements placed on Australia Post will likely need to change for the business to remain viable.
“The existing Community Service Obligations are no longer financially sustainable and are not well targeted at the needs of Australians due to changes brought about by the digitisation of the economy,” it reads.
Communications Minister Michelle Rowland said the government wanted broad feedback before it started considering various options.
“The consultation announced today will ensure Australia Post maintains the long-term financial stability it needs to continue supporting small businesses and providing essential community services — particularly in our rural, regional and remote communities,” she said.
‘Unstoppable decline’ of letters business
The rules currently governing Australia Post were largely set up in the 1980s and 1990s and have not significantly evolved since.
It is obliged to deliver letters to 98 per cent of Australian homes (or “delivery points”) every weekday and 99.7 per cent at least twice a week.
Only the most remote locations fall outside of those two standards.
The cost of letters is also regulated, able to be sent anywhere nationwide at a single uniform rate.
Currently, a small letter or postcard can be sent anywhere within Australia for $1.20, which is the cost of a single stamp.
But the volume of letters being sent has been in rapid decline for more than a decade.
The sending of letters peaked in 2007-08, with the average household receiving 8.5 letters a week.
Volume has fallen 66 per cent since then, a decline of more than 3 billion letters each year.
Households now receive, on average, 2.4 letters a week, and that is forecast to halve again in the next five years.
Australia Post CEO Paul Graham argues the government’s review is needed given the clear trends.
“A discussion on modernising postal services and Australia Post is the conversation the Australian community needs to have,” he said.
“Australia Post’s letters business has been in an unstoppable decline since 2008, and the 214-year-old postal service faces an uncertain future as fewer people send letters and consumers increasingly embrace digital services.”
The company’s financial woes can largely be attributed to letters, with that side of the business delivering a record $190 million loss in the first half of this financial year.
Options for change have been floated in the recent past.
Australia Post temporarily shifted to alternate-day deliveries in metro areas during parts of 2020 and 2021 due to the pandemic.
Permanent changes were also recommended by a controversial Boston Consulting Group review of Australia Post, delivered to the former Morrison government in 2020, but the recommendations have not been acted upon.
It suggested options like a shift to a three-day-a-week service in metro areas or even a shift to a nationwide alternate-day delivery model.
Options for change
The government wants to consult on how the rules governing Australia Post might be changed to help the business survive and return to profitability.
It has set out some clear parameters — including that any privatisation of the business is off the table.
The Boston Consulting report delivered to the former government suggested looking at privatising some or all of the profitable parcels business, but also warned there were long-term risks in doing so.
Another principle guiding the consultation is that Australia Post continues to provide “a universal and equitable service”.
The review could look at rules governing the network of post offices around the country.
Under the current rules, Australia Post is required to have a post office within 2.5 kilometres of 90 per cent of homes in metro areas and 7.5 kilometres of 85 per cent of homes in regional areas.
Revenue from sales within post offices has been declining, with transactions down 39 per cent since 2013-14 and forecast to keep falling.
The consultation paper leaves open the possibility of change but suggests Australia Post should continue with “appropriate coverage of the Post Office network, particularly in regional and rural areas”.
The primary focus appears, however, targeted at changes to letters.
The document argues change needs to “support Australia Post to remain financially sustainable so that it can invest in services to benefit consumers and support businesses, rather than subsidising loss-making services that are no longer widely utilised”.
Ms Rowland said the government wanted ideas from the public on how necessary change is best managed.
“I encourage all Australians to have their say, especially small businesses,” she said.
“Your opinion will help us as we consider options to shape postal services and sustain Australia Post now and into the future.”
Growing parcel boom
As letters have declined, parcels have boomed.
Half a billion parcels were delivered by Australia Post across the country in 2021-22, and volume has grown significantly over time.
Eight new parcel processing centres are opening around the country this year, and recent growth was aided by a surge in demand for deliveries during the pandemic.
Unlike letters, Australia Post is not under any obligations as to how it runs its parcels business, and unlike letters, it faces significant competition from private companies.
Mr Graham said that competition is starting to build, and unless Australia Post is allowed to adapt, it will start to struggle.
“The growth in our parcels business is now levelling off as multinational competitors expand into the Australian eCommerce market – and if we don’t address our letter losses, it will begin to materially impact Australia Post’s ability to service the community,” he said.