Bleak numbers indicate uncertain future for ‘liability’ Australia Post

The future of Australia Post is shaping up as one of the most difficult challenges facing Communications Minister Michelle Rowland, as the massive government-owned enterprise again lurches from being a cash cow to a liability.

In the bleakest set of numbers for many years, Post has again sounded the warning bell on its letters arm that will drag the logistics business into the red as input costs rose far ahead of returns. Wages are up, petrol is up; in fact, everything is up except paper mail volumes, which fell another 5.7%.

“Group profit before tax of $23.6 million was considerably lower than the prior corresponding period, largely the result of a record first-half letters loss of $189.7 million, compared to $69.9 million in 1H22.”

In context: that period covers an election and a swag of interest rate rises compelling banks to use snail mail to deliver the bad news (Ahmed Fahour, take a bow).

Post’s management is not sugar-coating the problem; the truth is that at a business level, it has wanted to be rid of letters, or at least severely prune the loss-making operation, for years. But there are complications and complexities, and they are big ones.

Transformation troubles

The first and biggest complication is Post’s universal service obligation (USO), which dates back to the old Postmaster General (PMG). For many years the PMG also controlled lucrative telephony and telegraphy services before separation and eventual privatisation.

Telstra also has a USO, and has complained often and loudly about how that adds cost to the business. This is true, especially in regional areas.

Post’s problem is that, over many years, it has essentially franchised out its core retail network through Licensed Post Offices — essentially a sort of sub-branch arrangement that allows small businesses to resell Post’s services.

A major issue here is that these make very little money as well, and include over-the-counter (OTC) banking and bill-payment services. In many towns, these are combined with the local newsagent or pharmacy, general store, petrol station or whatever retail infrastructure is left when the banks quit.

The letters business is attached to this network of post offices, where delivery is also often contracted out.

The issue Rowland has to face is that pruning the letters business will necessarily hit the retail footprint, which will increase mum-and-dad small businesses’ ‘just getting by’ status but which also are treasured by communities as a central meeting point that gives people a reason to come to town.

Come election time, that has huge political implications because it can make or break a small town’s viability, including whether there remains enough business for a medical general practice to be sustainable.

Make no mistake, Post’s wailing ‘Letters decline weighs heavily on Australia Post profitability’ announcement is pre-budget conditioning and a warning that it needs attention.

Industrial strength

The other issue for Rowland, indeed the whole Albanese government, is that chopping the letters business means chopping unionised jobs that underpin a bastion of strength at the Communications, Electrical and Plumbing Union, still a major factional force within Labor.

Those factional influences still make or break political careers, making reform or cuts doubly difficult when they directly dissipate a key industrial membership base.

Postal workers negotiated a comparatively decent deal on their last Enterprise Bargaining round, as Post’s numbers detail.

“Operational costs during the half increased 1.2% from the same period last year to $4.64 billion, due in part to severe weather events, rail network disruptions and a 6.1% wage increase granted to EBA team members, effective this half.”

That means wage costs will stay elevated and the chance of sourcing cheaper labour is essentially non-existent.

The question for Rowland and Post’s board — and there’s a wider review of government board appointments in the wings — is that it needs to find a new money-making or cross-subsidisation schtick.

A tie-up with state service centres, like Service NSW, not to mention Medicare, has never looked so appealing. With initiatives like Post’s once-celebrated digital identity service left waiting at the altar as banks move to commoditise such transactions, it could be a scenario of too little, too late, as occurred with Post’s online payments play that was forfeited to BPAY. Watch that space.

This article was first published by The Mandarin.