NATIONAL AFFAIRS by Jeffry Babb News Weekly
Can Australia Post be saved?
, April 11, 2015
Like any plant or animal, all businesses have a life cycle. Australia Post is a business, no less so for being wholly owned by the Commonwealth government.
In order to survive, any trading entity must produce a surplus. You can call it a transfer to reserves, a profit or any other term that takes your fancy. When an organisation does not produce a surplus, it can no longer cope with reverses in the economic environment, invest for future growth or pay for unanticipated outgoings, such as a surge in inflation or wages.
Examples of the business life-cycle abound. One good example is the video rental industry. In the early 1980s, one had to join a video library. Video-tapes were much in demand. These morphed into DVDs, which extended the product range. Now, 30 years later, most people get their movies for free over the World Wide Web. Video rental stores have virtually ceased to exist. The video rental cycle has gone from birth, to maturity and to death in not much more than 30 years.
The computer hardware industry is similar. In the mid-1980s, computers were almost exclusively assembled by small shops from parts imported from Taiwan. These parts were technically-pirated versions of parts for personal computers made by International Business Machines (IBM).
Apple Macintosh computers were favoured by designers and academics; but most non-specialist users typically bought personal computers (PCs), often because they were considerably cheaper than Apple Macs.
These days, computers are a mass-manufactured product. You buy them off the shelf as you would buy a refrigerator. If a firm is smart, as Macintosh is, it will innovate and thereby expand its business. Macintosh’s market value is now worth three quarters of a trillion U.S. dollars.
Innovation is very hard for old-established companies. Governments are very sensitive about innovations that will adversely affect voters. To give Australia Post its due, its record is far better than many other similar organisations.
William Dockwra launched the Penny Post in 1680 to provide postal services in London. It was the first regular, organised postal service in the world. That model, now over 500 years old, is still, more or less, the same model in use today.
But technology is gaining the advantage over the postage stamp. All over the world, mail volumes are falling as the Internet replaces hard-copy bank statements, bills and personal communications. Email is more efficient than hard-copy letters, and it is far, far cheaper than hard-copy communications. These savings are passed onto shareholders and eventually customers. For example, if my mother sends me a cheque, it will cost the bank about $7 to process it. If she were to do it over the Net, it would cost the bank about 15 cents.
Some postal services, such as the United States Post Office, are lumbering dinosaurs, which cost taxpayers billions of dollars in subsidies to provide numerous services, including distributing pension funds. The U.S. Post Office, even though it enjoys a monopoly on deliveries where post boxes are marked “U.S. Mail”, faces stiff competition in parcel deliveries from Universal Parcel Service and FedEx.
One would have to say that the old model is broken; but it is very demanding on political willpower to let an enterprise employing hundreds of thousands of people go to the wall. The U.S. Post Office is the third largest civilian employer in the United States after the U.S. government and Walmart, the world’s biggest retailer.
Compared to the U.S. Post Office, Australia Post is doing quite well. To survive as an organisation, it must innovate. Australia Post has a monopoly on letter deliveries, but it is a monopoly it doesn’t really want.
Australia Post management is now proposing a $1 stamp fee for rapid mail-delivery and a reduced fee for slower second-class mail. The problem with this is it will give mail-users an increasing incentive to turn to other forms of communication in order to maintain contact with their correspondents.
A related problem is that, under this proposed scheme, Australia Post’s fixed costs would be spread over fewer and fewer letters. This would fairly quickly make mailing a letter become exorbitantly costly.
Australia Post has almost cornered the market in parcel deliveries. This profitable activity currently cross-subsidises, and sustains, its loss-making letter-delivery business. Managers, however, will no doubt have learned from their MBA courses that modern business practice does not tolerate cross-subsidisation.
Australia Post is doubtless looking anxiously at future competition from big fish such as Japan Post.
Australia Post’s extensive branch network seems to be curiously under-utilised. Maintaining one of the country’s largest and most accessible retail-branch networks is something that surely cries out for more effective use.
A financial network aiming to cater for “battlers”, who are not the favoured market for the Big Four banks, seems to be an obvious opportunity for innovation.
Jeffry Babb is a Melbourne-based writer.