Mail menopause

It is as easy as checking your own letterbox to see that mail volumes are not what they used to be. The letter delivery business is trailing off, and Australia Post is feeling the pinch.

Last March, Australia Post announced that it would try to lift the Basic Postage Rate (BPR) from $0.70 to $1 for a new regular letters service, and $1.50 for a priority service, for consumer mail. Australia Post submitted this regime of price rises to the Australian Competition and Consumer Commission (ACCC) in late August, suggesting that the BPR increase to $1 would ‘better reflect the cost of the regulated letters service.’

While that was unfolding in consumer mail, large price rises are being wheeled out on business post; the result, according to businesses contacted by ProPrint, is mail volumes being cut back to accommodate client budgets.

An Australia Post spokesperson provided a statement to ProPrint saying, “Australia Post has confirmed price increases to business mail, effective 5 October, of between 1.5 per cent and 5.1 per cent for major products using the Regular timetable.

“Business mail prices will also rise in January 2016, as previously communicated to our customers. For products using the Regular timetable (75 per cent of all business volume), the weighted average increase is between 9.5 per cent and 41.8 per cent. This is in line with, or lower than, the BPR increase to consumers. Business customers will continue to receive volume incentives at the same level they do now, relative to the full rate.

“Australia Post has been very clear that for the first time in over 30 years, this year we will report a company-wide loss. The losses in letters business now overwhelm the profits in the competitive parcels and retail businesses. We have a clear plan in place to address this – which includes reforming our letters service so we can continue to support the way businesses and consumers use Australia Post.

“We have now lodged a draft notification with the ACCC seeking to increase the basic postage rate (price of a stamp) from 70 cents to $1. This is designed to recover more of the cost of providing the letters service. The price of the Priority service will be announced after the BPR is established. Pending approval, these changes will be effective from January next year.

“Australia Post will maintain the Concession stamp at 60 cents for 5.7 million concession card holders, and freeze the Christmas stamp at 65 cents for all Australians.

“These changes will help keep post offices open — including Australia Post’s vital regional and rural network — keep posties delivering mail five days a week, and ensure Australians everywhere can continue to access a world-class letters service.”


Reaction from industry

This plan to drive a turnaround in postal revenues has sparked outrage in the mail, fulfilment and related industries. It is a sure sign of crisis when Printing Industries and the unions can find enough common ground to come together as one in condemnation of these moves by Australia Post.

Participants regard the proposals, which have been accepted by the federal government, as a serious blow to the viability of a significant number of businesses in the sector, and have the potential to force employment levels in the sector to plummet as businesses go under or restructure to fend off the impact of the price rises.

Following a meeting of interested businesses in Melbourne and Sydney in mid-September, Printing Industries launched a campaign to highlight the impact of Australia Post’s reform plans on the print and mailing industries.

Printing Industries’ CEO, Jason Allen, told ProPrint the association had commissioned economic research consultancy ACIL Allen to analyse the scope and importance of the industry to the Australian economy in a detailed response to the ACCC Discussion Paper. This research has been sent to politicians for their edification as part of the campaign.

“We will be illustrating the impact of Post’s proposals on the complete value chain covering the mailing industry and its many clients who use mail because of its effectiveness, but face being priced out by a 42 per cent increase in mailing costs,” says Allen. “We will be highlighting the impact on a $14.1bn industry employing some 131,000 people and the flow-on repercussions to the economy and to the community.

“The price increase issues are a major concern and they are the tip of an iceberg threatening the future viability of the entire mailing industry and all the associated sectors whose economic livelihoods are under threat by Post’s blindsiding tactics,” Allen continued. “Post has consistently failed to consult and to make an economic and social business case substantiating its actions. It has failed to highlight any improvements and benefits that businesses would be expected to provide their clients accompanying any price increase.”

That is not to say that change is not required, he says. The mailing and printing industries accept that structural change is necessary. But it is the means and repercussions of Australia Post’s ambitious staff and service cuts, along with price rises, that have riled the industry.

ProPrint spoke to numerous participants in the industry, and has been contacted by many more, nearly all of whom share a concern for their own business’s future viability. While large price rises will have an immediate impact on mail businesses and their clients, these are just a symptom of a greater underlying malaise afflicting the monopoly, according to some commentators. The price rises will only add to the cancer already afflicting Australia Post.


What went wrong

The revenue losses by Australia Post did not happen overnight. Many suggest that much of the problem is poor management, or just plain stupidity, in not tackling the problem when it first became obvious.

That problem could be seen years ago, said one long-serving identity in the mailing industry, who wished to remain anonymous. The problem lies in the lack of foresight from Australia Post in aligning its operations to the forecast changes in mail over time.

“When the CEO of Australia Post condemns post and puts letters down as a non-entity it makes it very hard for customers to use that service,” he says. “The problem goes back about seven years, when transactional mail was starting to die, and nobody inside Australia Post took any action to reduce their staffing levels or change their methodology. Consequently, when it has come to a head, sacking 1,800 people is not going to make any difference to the system. It is too little, too late.”

Worldwide Printing’s client relations manager, Kirsten Williams, told ProPrint, “My concern here is that Australia Post is a monopoly, and government owned. It is a service which has to stay viable, and yet with this kind of [CEO] salary, major job losses, suggested hikes in mail services, and still the asset posted a loss recently, postage in Australia is looking unsustainable.”


No easy solutions

“There are no easy solutions but I think the impact on volumes will be 10 to 15 per cent by the end of the financial year, or certainly by the end of the calendar year 2016,” said David Docherty, director at D&D Mailing.

“For a lot of publishers we deal with, the impact is likely to be a 12-15 per cent drop in volume. Print Post, the publications service, has had nine increases in the past ten years, and while mailing houses have been programmed to factor that in each year, in the next 12 months they’ll be hit with three increases — about three per cent back in March, another four to five per cent in October, and then another nine per cent in January — so you’re talking another 14 per cent on what they already pay. So they are looking at about a 14 per cent decrease in volume, because they are tied together.

“Direct mail will go south. It used to be the affordable medium, but now it is not. We realised years ago that we had to adapt. That is why we went into fulfilment, but to be frank there’s not a bright future,” he says.

Our anonymous source agreed with David Docherty that rising costs will continue to eat away the volume of mail, making the problem worse.

“Our customers are saying to us that they have a certain dollar to spend, and therefore if their mailing costs go up they’ll have to look at their database and chop it back to only those customers that have bought off them in the past 12 months.

“I try to find alternative distribution methods that can assist customers to get their goods out. That could include couriers, which can be more cost competitive than Australia Post. Courier companies are willing to talk,” he says.

Worldwide’s Kirsten Maxwell agrees saying that, “It will mean losses for a lot of businesses – those who rely on mail-outs for their sales, printers, mail houses, and ultimately more Australia Post staff. If the government cannot see this as a business is about to implode, then it’s seriously lacking in foresight. As for the CEO’s exorbitant salary – it goes beyond reason or decency.

“The country is being held to ransom by Australia Post, while Ahmed Fahour reduced the staff employed by Australia Post in 2014 by 900, and boosts his salary to well over $4m per year.

“With whispers about postage charges about to rise again and service to decline, what can be done about this? At what point can and should our government step in, and how can we put this strongly on the agenda? It will definitely impact the printing industry.”


A wider problem

Pre Press Pro owner Anthony Maxwell, based in northern New South Wales, sees trouble ahead not just for his business, but for other businesses around him. “I operate a small-medium mailhouse/print business in a regional area, and I know for a fact that a 45 per cent increase in postage costs would more than likely drive my major client to look elsewhere for his operations. This would in turn likely make my business unviable. This would affect the local post office, the regional distribution centre, my employees, local and other major printers, and envelope makers to name a few. I doubt very much if this bloke [Fahour] has any idea about the mail market and the knock-on effects it has on the general economy.”

Ray Gorman, former president of the Communications Workers Union, pointed to ‘millions of dollars wasted on redundancies and golden handshakes where people have been replaced by bankers and such who know nothing about running a postal service.

And he questions the $400m paid to buy Startrack out. It is alleged they are losing money hand over fist. “The CEO of Aussie Post should be jailed for deliberately trying to destroy an Australian icon,” he told ProPrint.

“Now he wants to reduce the service and raise the price, which will push people away from using post. Millions wasted on machinery that doesn’t work. Labour hire agencies being paid a premium for hundreds of workers, and the list goes on and on. There should be a Royal Commission into the running of Australia Post and the CEO, Ahmed Fahour.”

ProPrint online commenter Markle wrote, “I actually thought they would support the direct mail industry by leaving business mail prices alone for a while now that a regular postage stamp costs $1. Maybe better directed mail will be received instead. All this uncertainty just supports my now long-held belief not to invest in any new equipment or employ staff.”

Regular ProPrint Online commenter Inky Mcfee pointed at Printing Industries to highlight that it now faces a real test of its effectiveness when he wrote, “Considering the PIAA was very loudly crowing how a change of government two years ago would be good for our industry, this will be a real test to see what weight (if any) they carry in Canberra.”

ProPrint columnist Baden Kirgan, owner of Jeffries Printing, has made it clear that despite having a successful mailing operation in his business he will not be investing in any new equipment, as he believes the mailing business under AusPost’s strategy is ‘dead, dead, dead.’

And then there’s the other side. Naresh Gulati, chief executive of OCA group, takes a quite different view of the situation.

“I do not understand what all the noise is about Australia Post. Australia Post is a business in itself, and it needs to protect its interests. With the industry making a noise about it I’m not sure how it helps,” he told ProPrint.

“Take a bigger picture. At the end of the day, if they’ve agreed to the price it is pushed on to the end consumer, who is a business. Have labour costs not increased? Have paper costs not increased? Costs have increased everywhere. Has the dollar not changed? How is Australia Post an exception?

“It’s beyond my comprehension. Why would you make a noise about it? I think we should be mature enough to take ownership of where we are wrong, instead of blaming Australia Post. They have their own interests to take care of. We are in no position to tell them how to run their business.”

ProPrint online commenter Fitzy72 steered the online conversation from a whinge to a call to arms, writing, “When reports like this start to come out, it is the thin end of the wedge, and generally a means to start placing the idea in the public’s mind so that they are used to the idea before it happens.

“Yes, this will devastate direct mail as we know it (mail delivery to households). However, if this is inevitable (along with the increased use of digital channels for marketing), then the print industry needs to stop wailing about it and react to these potential changes.

“There is a huge opportunity here for unaddressed letterbox distribution to take up some of the slack, in particular through demographic targeting. The industry can try to delay the inevitable for a few years, but we should also be putting efforts into using independent networks to distribute our client’s material, that we print.”

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