Australia Post’s decision to go ahead with planned postal price increases in late June marks a disappointing end for many across the printing industry, following months of heated debate. Printers decried the increases as yet another squeeze on their profits and claimed it would affect productivity of markets such as direct mail, but Australia Post continued regardless, with hikes kicking in on 28 June.

Australia Post claims delivery is expected to grow to 13 million by 2019. It says this is like having “another Queensland” or nearly four Adelaides being added to its postal network over the next 10 years.

“It is important to remember that even after the price rise, the domestic reserved letters will not make a profit,” said Scott McIntyre, Australia Post’s state communications manager for NSW and ACT.

“This reflects what we believe is a reasonable increase in current circumstances to ensure sufficient revenue is generated from the domestic reserved letters business,” he added.

The price increases only came to pass after serious opposition and some false starts. Australia Post had originally proposed an increase to take effect in 1 January, but was shot down by the Australia Competition and Consumer Commission (ACCC) at the end of 2009.

At the time, the Printing Industries Association of Australia called it a “victory for commonsense”. Pat O’Sullivan, then general manager of marketing at communications giant Salmat Business Force, said another hike would have been “unbelievable”.

“If Australia Post wants to accelerate the decline of printed mail, they’re going about it in the right way,” he told ProPrint at the time. He added that direct mail volumes had dropped of significantly after the 2008 price increases.

“It just increases people’s move to other forms of delivery,” said O’Sullivan.

But in the end, it turned out the ACCC was just prolonging the inevitable. Australia Post received clearance from the Australia Competition and Consumer Commission (ACCC) after a month of
consultation with the print industry. The conclusion? Basic postage prices have gone up to 60c per item.

During the consultation period, Printing Industries undertook an online survey of its members to get their thoughts on the postal price increases. The results show that 77% thought the proposed mail price increases would drive their clients toward alternative marketing channels.

Some 82% said that price increases were likely to impact on their company’s profitability. Of those who responded, 27.3% said their business viability would be put at risk if they increases were pushed through. And 93% didn’t think that Australia Post had fully exhausted its cost-based resources.

Pass it on
The true impact of the postal price rises on printers will depend on whether they are able to transfer these additional costs onto their customers.

The survey found that 6.5% of respondents would fully absorb the hikes themselves, compared with 37% that would only absorb some of the increases. The majority, 72% said they would probably look at other distribution channels.

Hagop Tchamkertenian, Printing Industries national manager for policy and government affairs, said that one major theme from the survey was that printers felt Australia Post hadn’t “exhausted all the opportunities for cost savings that the industry believes are still available.

“We felt that given the projected rate of inflation, some of the increases that have now been approved are excessive,” he said.

“Australia Post has a duty to markets, customers and clients to at least pursue the difficult options first as it is a statutory monopoly,” added Tchamkertenian.

“If they faced competition then their price arguments would be fair in the sense that it is what the market dictates.”

Historically, Australia Post has been much more willing to increase prices than it is today. In the ’70s, there were six price increases and in the ’80s, it raised prices nine times.

Things have slowed down, according to Australia Post. “In the past two decades, there have been just four due to the achievement of significant productivity improvements as Australia Post transformed from a largely manual mail system to a technologically sophisticated operation,” said McIntyre.

One reason for the critical reception to Australia Post’s original proposal – to raise prices by 5c increase on 1 January – was because it came hot on the heels of last September’s 10% hike from 50c to 55c.

At that time, the ACCC had recommended Australia Post look at its cost base, saying that maintaining its existing structure could not be propped up via price increases.

Australia Post released a statement expressing its “disappointment” with the ACCC decision. At the time, Australia Post claimed its cost-reduction program had already removed more than $110m in costs from the business.

Australia Post spokesperson Alex Twomey told ProPrint at the time: “The basic postage rate has not even kept pace with inflation over the last two decades. If it had, the price of the 55c stamp would actually now be 70c.”

Global problem
However, our homegrown postal service is not alone in addressing its bottom line. Postal providers around the world have been faced with similar financial constraints. New Zealand Post revealed in June that it was evaluating proposals, such as restricting deliveries to every second day, in light of falling global mail volumes.

Over in the UK, attempts to cut costs, potentially by cutting wages or jobs, ended up going the way of workers. Following a bitter dispute that ran for months, Royal Mail staff managed to get a 6.9% pay increase out of an agreement between the postal operator and the Communication Workers Union (CWU) over the modernisation of the business.

Under the Business Transformation 2010 and Beyond agreement, basic pay rates will improve by nearly 7% over three years from 1 April, while the working week has been cut by one hour.

Future proofing
Australia Post has undergone its own business review. This went live on 1 July with three-year business renewal scheme The Future Ready program. The program is designed to position the company for future growth opportunities and will restructure the company into four strategic business units: Postal Services, Retail Services, Distribution and Express Services and e-Services – each has individual profit and loss accountability. In the meantime, printers must adapt to the new postal prices.

Direct mail is one area expected to be hit hard by the price rises, especially if customers switch over to online options. “In an increasingly competitive market, all this will do is hasten the switch to other media channels,” said Australian Direct Marketing Association chief executive Rob Edwards. “The industry should have had more time to adjust to these changes.”

Mark Mina, Geon Group’s business development manager for mail, agrees with Edwards that the increase would impact on direct mail users’ budgets and reduce the amount users send out. I think direct mail will become a premium product. Rather than use the norm, people will perhaps spend a bit more.”

It’s not just about costs specific to print and mail jobs. Russell Marsh, managing director of Planet Press Group, said his company had already looked at ways to reduce its own internal postage costs by consolidating what it sends. Hard copy invoices are now sent every four days opposed to every day so invoices for the same client can be sent in one lot. For those that prefer, email invoices are sent.

There are ways to soften the blow. Australia Post has a series of discounts in place for companies that mail out substantial volumes. The Bulk Mail Partner program (BMP) is a scheme devised Australia Post in conjunction with the Major Mail Users of Australia.

Pitney Bowes director for marketing and business development Michelle Sheehan believes discounts provide an invaluable money-saving tool for printers and mailing houses (see box).

“Our key message to printers is about expanding your reach into your customers’ mailstream,” she said.

“If you can offer more services to your existing customers you are seen as a business partner, not just a print provider – this will lead to more loyal customers, and result in higher average order values and increased revenues. If they can educate their customers with it then they can be considered a partner.”

Admittedly, such discounts were not very highly regarded by the respondents of Printing Industries’ survey. It found that of the 29% of respondents that identified themselves as BMPs, 81% indicated they do not get much benefit from it.

Australia Post has been reluctant to comment on the prospect of further price increases. “We wouldn’t want to speculate beyond this especially with the current global economic environment. We have however shown over time we only request price rises when necessary,” said McIntyre.

The more pressing issue at hand is what printers will do to deal with the most recent price increases. Tchamkertenian warns printers against absorbing the cost of price increases – doing so can cut directly into your bottom line.

“Printers are providers of business solutions. They have to be offering their clients all mediums that are available,” he said.

“I would still argue that despite the emergence of other communication mediums, mail, in terms of retaining messages in the minds of clients, remains the most effective way of communicating,” added Tchamkertenian.

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