Australia Post is economising. With communications faster and a fraction of the cost of what they were when the postal service began, and with costs rising as mail volumes fall because of technology, Australia Post is now looking at tiered mail pricing. And it has been raising its business charge astronomically.
Most mail is for commercial purposes, such as bills and bank statements, and the businesses that send them are often the biggest beneficiaries of a low-cost service. For printers, it is, or has been, a substantial source of business.
But Australia Post is finding that costly. Boston Consulting Group analysis commissioned by the Communications Minister Malcolm Turnbull has found that even though letter volumes have fallen by about 1.1 billion since 2006-07, Australia Post’s fixed costs continue to rise. This is inevitable given that the number of residential and business addresses it delivers to is rising by about 150,000 new delivery points a year. The bottom line: Australia Post is delivering more than a billion fewer letters but to an extra million delivery points and as a result, its costs are rising.
Rather than covering costs by increasing the price of stamps, Australia Post has been hitting businesses hard with higher charges. In July 2011, the average price for a bulk mail delivery was 48 cents an item. By July 2014, it was 62 cents. How many businesses have increased their costs for clients by 29 per cent in three years?
All of this is having an impact on printers. Facing increased costs, companies are now ordering fewer brochures, flyers and newsletters. That means less business coming in for printers.
Australia Post also wants to scale back the frequency of its services and to create a tiered pricing structure under which customers would pay a premium for faster services. And that will further reduce the amount of business for printers.
Both Australia Post’s chairman, John Stanhope, and chief executive, Ahmed Fahour, have warned publicly that the service will be losing $1bn a year within the next few years and that the losses will overwhelm the profits from the organisation’s parcels business unless there is significant change to its community service obligations.
According to the Boston Consulting Group, the cumulative losses in the letters business will reach about $12.1bn over the next decade – and result in Australia Post as a whole losing $6.6bn in that period. And printers will suffer the loss of business.
Bill Healey, the chief executive of the Printing Industries Association of Australia, says his group is now talking to Australia Post about solutions.
Healey called for the restoration of Australia Post’s obligation to refer price increases for bulk mail services to the Australian Competition and Consumer Commission (ACCC) for approval, this has now been recommended by Parliament.
“One of the principals behind government monopolies is third party oversight,’’ Healey says.
“By taking ACCC oversight away you are giving Australia Post a blank cheque to put the price up whenever they want. We believe there should be some disciplines there. Even government agencies have to have productivity dividends every year and find savings within their operating budgets.”
Significantly, ACCC chairman Rod Sims, told the Australian Financial Review earlier this year that if Australia is to become a more productive economy, government ownership of some key assets such as Australia Post, Medibank Private and state-owned energy companies must cease.
Healey says 80 per cent of the mail going out now is business mail and 60 per cent of that is transactional. At the same time, he claims there is an increasing recognition that email communication is not so effective anymore as many people are ignoring emails or a lot of emails are ending up in spam folders.
More might recognise that electronic mail has its limitations. This is partly reflected in the fact that digital upstart, Digital Post Australia, a competitor to Australia Post, closed down in July. Computershare, one of three backers of Digital Post, blamed a lack of customers for the decision to axe the online mail platform.
What is needed, Healey says, is for the industry to work with Australia Post to find some way of managing the problem. He says, “There are two ways to address it. One is to put the price up, the other is to increase volume and sell more. I am not suggesting it is the resurrection of print but certainly the decline that has been anticipated of print could be addressed as can the overall cost structures.
“Do you just accept that this is an inevitability or do you try to rectify it? In the discussions I have had with Australia Post, they say let’s have a look at our supply chain and identify ways in which we can improve efficiency. Is there a future for mail that no one has thought about?”
He says the PIAA is bringing other stakeholders like the unions and Australia Post licensees in on the discussion. As far as he is concerned, it is a case of watch this space.
A number of major mail services, like Pitney Bowes, refused to talk, but Australia Post issued a statement to ProPrint saying it 'is committed to maintaining a sustainable letters business in the face of rapidly declining mail volumes'.
"On June 2 we introduced a two-speed service for business and government, which provides senders the choice of two delivery timetables across a broader range of our business letter products," the spokeswoman says.
"The ‘Priority’ service is delivered according to the existing timetable standards of next-day delivery in the same city and two days between capital cities. The delivery standards for the new ‘Regular’ service are one to two days longer than the Priority service, and offered at a cheaper price.
"Under our two speed delivery model, our posties will still do their rounds every day – it is the sender who has the choice of a price point and speed that suits their needs. As long as the community demand for a priority five day service is there, we will provide it."
But Lindsay May, managing director at The Mailing House, says the price increases over the last three years have impacted on business budgets and that means printers are now getting fewer orders.
“Mail users have seen significant price increases over the past three years that have impacted their budgets and now we are finding that people come to us and say, I have this budget and that is all I am spending,’’ May says.
“We deal with the end users. They are using printers to print collateral, envelopes, brochures, and they come to us to have those letters addressed, folders inserted and mailed with Australia Post.
“They have got to a situation where they are not increasing their budget anymore. They were previously mailing a particular quantity and now it is costing them 10 or 12 per cent more, so the budget has not gone up.”
He says this has affected printers.
May is critical of the way Australia Post has handled it.
“If you go to the end, which is Australia Post, I cannot understand why they talk the business down. They keep talking about reduced volumes,’’ he says.
“It is one of those circular arguments. You put the price up, and your volumes go down and Australia Post is in this amazing situation where they say we will resolve this, we will put the price up. And the sad thing is that they keep belting businesses who are the largest generators of mail when they should have years ago put the price of the postage stamp up. Politically that is unpalatable. The sad thing is nobody has the political temerity to increase the postage rate.
“It leaves printers in a difficult space. Not only do they have this, mail is probably a small part of their total business capacity but then you have digital which will have a huge impact on traditional printers and so many of them do not comprehend what is available in digital printing.”
But Buzz Borsitzky, managing director of Integrated Mailing Services, says printers have to get realistic and adjust to the change. He says the only way they will survive this is if they embrace digital.
“I do not see printers or mail houses going out of business,’’ Borsitzky says. “You have to be realistic. There has been a big push over the last 10 years with printers to get involved with digital and there are a lot who have no idea about data. They are ultimately the ones that will pay the price. The big boys in print are well and truly in that space and have their own internal mailhouse.”
He says a number of printers are adjusting to this by setting up their own mailing houses.
“Printers will never go out of business and neither will mail houses, there will always be mail,’’ he says.
“Having said that, you need to value add and if you are not doing that, you will disappear. It is one of those situations where you have to move with the times. You cannot just sit back as an old timer in the print industry or the mail industry and not move with the times.”
Rod Podbury, sales director at NeoPost, says many printers are starting to adjust to the changes although he acknowledges there are some big imponderables ahead.
“We are seeing a big uptake of sales of folding and sorting machines to smaller printers. There is a real opportunity there for printers,’’ Podbury says.
“But no one knows if direct mail will continue to grow or whether there will be alternatives to direct mail that will cause the industry pain.”
He says his company advises customers to use different marketing strategies, and not just rely on mail. He sees big opportunities for smaller printers.
“It is going to continue to be tough for the big mail house printers but the smaller more versatile printers will have a brighter future.”
Paula Lewis, marketing manager at Senses Direct, says printers should be looking at a variety of marketing strategies that will support mail. “So if you send something out by mail, you back it up with an SMS campaign and make sure your money is working for you.”
More to the point, printers should tackle the Australia Post issue by working more closely with mail houses to develop strategies. She says printers have a lot of knowledge and expertise to offer.
“It is about understanding clients’ needs instead of just taking an order,’’ she says. “You can either be a source of information or a source of paper.”
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