Chapter 3
Changes in the postal environment
Introduction
3.1
Postal services in Australia have been built on the delivery of letters.
Government, business and personal communications have, until recently, been transacted
through hardcopy post.
3.2
However, the growth of other means of communications has been felt by
Australia Post, and indeed, postal services across developed economies. E‑substitution,
such as SMS, e-mail and the Internet, has seen significant shifts away from
letters, for example the use of email or the Internet for banking services.
3.3
At the same time, the negative effect of developments in information
technologies has not been felt by parcel mail. On the contrary, demand in
Australia Post's parcel services have increased as more and more purchases are
made over the Internet.
Australia Post's letters business
3.4
Generally, 'letter' refers to the traditional or reserved services, that
is, the domestic carriage of letters within Australia that (subject some
exceptions) weigh less than 250 grams. However, the terms letter, mail and
posted article are used interchangeably in some submissions. The committee has
used the same terminology as used in source documents in the following discussion.
In some instances it is unclear if the information drawn from various sources is
precisely comparable. The committee has indicated where this has occurred.
Types of letters
3.5
Letters can be categorised by purpose, product type and sender. There
are three main purpose categories of mail handled by Australia Post:
-
transactional, which involves transactions between businesses and
their customers, for example, bills, invoices, accounts and statements;
-
promotional, such as targeted offers, requests, brochures, and
other marketing communications; and
-
social, including greeting cards, postcards and personal letters.
3.6
Letters can also be split into the product types of PreSort (that is,
bulk letter mailings), Ordinary (other letters) and Print Post (newspapers,
catalogues and magazines).
3.7
The Boston Consulting Group (BCG) provided the following breakdown of
addressed letters as part of its assessment of an internal review conducted by
Australia Post.
Figure 3.1: Australia
Post addressed letters categories, 2012–13
Source: The Boston Consulting Group, Australian and
International Postal Services Overview Background Report, June 2014, p. 8.
The trend in letter volumes
3.8
Australia Post indicated that up to 2007–08, overall letter volumes in
Australia exhibited an increase. For example, between 2006–07 and 2007–08 the
volume of letters increased by 2 per cent.[1]
However, since 2008–09, letter volumes have experienced a significant decline.
Australia Post commented in its 2008–09 Annual Report, that letter volumes had
fallen during the year due to the challenging economic climate and ongoing
electronic substitution as well as the lack of federal election mailings, which
had boosted volumes to record levels in the previous period.[2]
3.9
Since 2008–09, the rate of decline in mail volumes has continued with
Australia Post commenting that 'the year-on-year decline in Australian domestic
letter volumes has been gradually accelerating'.[3]
In its November 2013 submission, Australia Post stated, in relation to
predicted trends in 2013–14 letter volumes, that:
This year's volume trends indicate that the Australian
community is now shifting away from using letters at a faster pace. In the
April–June 2013 quarter, the fall in Australia's domestic letter volumes was
dramatically faster (10.3% down on the same period in the previous year). This
is the first time in Australia Post's history that we have recorded
double-digit decline in our core letters product.[4]
3.10
At the May 2014 Budget Estimates, Mr Fahour commented further on the
predicted trend for 2013–14 letter volumes and stated that there had been a
decline of 6.2 per cent in the year to May 2014.[5]
Australia Post announced in September 2014, that letter volumes declined by
five per cent over the year, 'excluding the impact of the federal election'.[6]
3.11
The following table provides the change in letter volumes for 2007–08 to
2012–13. The table below shows that domestic addressed letter volumes have
declined, while the volumes of unaddressed mail have remained relatively
steady.
Table 3.1: Australia Post's domestic addressed and
unaddressed letters
|
Financial year
|
Domestic addressed
|
Unaddressed letters
|
Total letters
|
|
Volume
|
Year-on-year decline
|
Volume
|
Volume
|
Year-on-year decline
|
|
2007–08
|
4.6 billion
|
–
|
575 million
|
5.2 billion
|
–
|
|
2008–09
|
4.4 billion
|
(4.0%)
|
511 million
|
4.9 billion
|
(4.9%)
|
|
2009–10
|
4.2 billion
|
(5.6%)
|
546 million
|
4.7 billion
|
(4.2%)
|
|
2010–11
|
4.0 billion
|
(3.7%)
|
612 million
|
4.6 billion
|
(1.9%)
|
|
2011–12
|
3.8 billion
|
(5.2%)
|
606 million
|
4.4 billion
|
(4.4%)
|
|
2012–13
|
3.6 billion
|
(6.0%)
|
582 million
|
4.2 billion
|
(5.9%)
|
|
|
|
|
|
|
|
Source: Australia Post,
Submission 8, pp 12–13; Australia
Post, Answer to question on notice, No. 32.
3.12
In addition, information was provided by the Department of Finance of
the trends in letter volumes by originating sector between 2008–09 and 2012–13.
The Department of Finance noted that the majority of letter volumes originate
from government or business. The decline in letter volumes for these two
sectors during the period was 22 per cent and 18.5 per cent respectively.[7]
3.13
As a consequence of the decline in letter volumes, the average number of
mail items being delivered to each delivery point in the postal network has
declined. In 2000, 2.2 items were delivered to each point, by 2012 this fell to
1.7 items per delivery point.[8]
Australia Post forecast in its 2011–12 Annual Report that the number of mail
items per delivery point per day would fall to 1.3 by 2016.[9]
At the November 2013 Supplementary Budget Estimates, Mr Fahour commented that:
By 2020, there will only be 0.5 letters per letter box
each day. What that essentially means is two and a half letters per week.[10]
Increase in delivery points
3.14
A further factor influencing the efficiency of the postal network is the
number of delivery points. While letter volumes have declined, it was noted
that the number of delivery points in the postal network was increasing, on
average, by 200,000 new delivery points each year.[11]
Australia Post now delivers to 11.2 million delivery points.
Table 3.2: Trends in number of delivery points and number of
articles delivered, 2006–07 to 2012–13
|
|
2006–07
('000)
|
2007–08
('000)
|
2008–09
('000)
|
2009–10
('000)
|
2010–11
('000)
|
2011–12
('000)
|
2012–13
('000)
|
|
Delivery points trends
|
10,266.6
|
10,458.9
|
10,588.9
|
10,709.0
|
10,879.9
|
11,000*
|
11,200*
|
|
Change
|
–
|
1.84%
|
1.23%
|
1.21%
|
2.54%
|
–
|
|
|
Daily articles per
delivery point
|
2.142
|
2.137
|
2.02
|
1.923
|
1.848
|
1.7*
|
–#
|
* Rounded figures; # Not
provided in 2013 Annual Report
Sources: Budget Estimates
2012–13, Australia Post, Answer to question on notice, No. 252; Australia Post,
Annual Report 2012, pp 30, 131;
Australia Post, Annual Report 2013, p.131.
Factors influencing Australia Post's letters business
3.15
There are a range of factors contributing to the decline in letter
volumes including:
-
increased internet usage and adaption of online platforms, and
the rise of smart phone and tablet computers;
-
softer economic growth as a result of the global financial
crisis;
-
cost-cutting measures instituted by major senders, accelerated by
the global financial crisis, including increased emphasis on e-substitution,
rationalisation (less frequent provision of account statements) and
consolidation;[12]
and
-
consumer demand for more efficient and timely interactions with
business and government.
3.16
In relation to the use of letters for social purposes, Mr Fahour noted
that 'the last generation of people who used mail is now down to five per cent
of our volume'.[13]
While the majority of mail is sent by business customers, this is also
changing. Mr Fahour explained:
The really big driver of this volume decline is obviously the
growing trend to online statements and payments as well as direct debits via
BPAY. BPAY and electronic payments today control 80 per cent of these payments
that are occurring. Ten years ago, the majority of these payments were either
by cheque in the mail or in a post office.[14]
3.17
Both the Departments of Finance and Communications pointed to changes in
technology and business and consumer behaviour as contributing to the decline
in letter volumes. The Department of Communications noted that continuing
efforts by business to reduce costs has led to an 'inevitable shift' to digital
substitution. It saw this as being 'on the whole' desirable: 'it is reducing
the cost of doing business and increasing opportunities for citizens and
businesses to participate in a global economy, regardless of their location'.[15]
In addition, the growing availability of affordable high-speed broadband is
expected to further accelerate the decline in mail volumes sent by both
business and government.[16]
3.18
However, while the Departments of Communications and Finance noted the
importance of reducing costs for business, Mr Fahour did not consider that the
increased in the basic postage rate (BPR) in March 2014 would contribute overly
to the decline in mail volumes. Mr Fahour stated:
The conclusion that we have come to is that the demand
elasticity associated with price increases in the letters business today is
fairly non-existent. In other words, the substitution from physical to digital
is occurring at a maximum pace and is not really driven by the price movements
that are occurring.[17]
Forecasts of changes to letter volumes
3.19
The decline in letter volumes and how to manage the Australia Post mail
business in the face of that decline is one of the most significant issues
facing Australia Post. The committee received a range of views on the rate of
decline.
3.20
Mr Fahour stated at the November 2013 Supplementary Estimates that the
rate of decline in letter volumes was accelerating and this trend was expected
to continue:
A volume decline of four to five per cent over the past four
years has accelerated in the past six months to eight to 10 per cent. When we
look into 2020, unfortunately for us, the community's use of our letter service
looks like it is going to continue to fall.[18]
3.21
At the May 2014 Budget Estimates, Mr Fahour stated that 'under current
momentum' letter volumes are expected to decline by eight to 11 per cent
through to 2020.[19]
Mr Fahour went on to state:
We estimate, just using that trajectory, that by the next
decade this notion of people sending and receiving letters and mail will be
quite a small niche business. It will be transactional mail. The reality is
that it will be an adjunct service to the thing that people will be getting,
which is an increasing number of parcels. It is just a big letter in a box,
hopefully, that we are delivering.[20]
3.22
The committee examined other sources of information on the projected
decline in letter volumes. As part of the Australian Competition and Consumer
Commission's (ACCC) process for examining the 2014 increase in the BPR,
Australia Post provided a forecast for the Reserved Service letter volumes for 2013–14
and 2014–15.
Table 3.3: Forecasts of changes in Australia Post's Reserved
Service letter volumes
|
Financial year
|
PreSort letters (business mail)
|
'Other' (including 'ordinary') letters
|
Total Reserved Services
|
|
2013–14
|
(3.9%)
|
(10.4%)
|
(6.6%)
|
|
2014–15
|
(6.3%)
|
(7.9%)
|
(6.9%)
|
|
Average annual change
|
(5.1%)
|
(9.1%)
|
(6.7%)
|
Source: Australian
Competition and Consumer Commission, Australia Post price notification for its
'ordinary' letter service February 2014, ACCC Decision, 20 February 2014, p.
24.
3.23
BCG, in its Australian and international postal services overview, assessed
Australia Post's internal review of its letters business. The BCG report
examined Australia Post's forecasts of the decline in letters. BCG noted that
changes in letter volumes are difficult to forecast and that Australia Post had
consistently underestimated letter volume declines over the period of its
corporate plan. BCG did, however, report that the rate of letter decline to date
(June 2014) for 2013–14 was lower than forecast.[21]
3.24
BCG reported that Australia Post forecast an average decline in domestic
addressed letters of 11.4 per cent per annum to 2019–20. BCG noted that this
forecast comprised an average decline of 10.4 per cent per annum through to
2016–17, after which major letter categories are rolled forward at 2016–17
rates, resulting in an aggregate decline of 12.8 per cent per annum to 2019–20.[22]
Figure 3.2: Australia Post forecast of annual domestic
addressed letters to 2019–20
Source: The Boston Consulting
Group, Australian and International Postal Services Overview Background Report,
June 2014, p. 12.
3.25
The Australia Post forecast includes a small decline in print post and a
very large decline in PreSort letter volumes. BCG noted the PreSort forecast
was 'linked to the expected takeup of the MyPost Digital Mailbox and other
similar products'. BCG went on to state that it believed that the Australia
Post forecast overstates the likely scale and speed of the impact of digital mailboxes.
While there had been a successful take-up of this product in Denmark, BCG
stated that this was an isolated case driven by specific circumstances and
'this is unlikely to be replicable now in Australia'.[23]
3.26
The committee also notes that, in recent months, a number of digital
mailbox providers in the United States have cancelled their services. In
official statements to their customers, both Manilla and Zumbox cited that the
service was not financially viable. Zumbox's Australian partner, Digital Post
Australia, will continue to operate.[24]
3.27
BCG reported that its assessment was that letter volumes will decline by
eight to 11 per cent per annum to 2019–20 and stated that 'although Australia
Post's forecasts are slightly outside this range, BCG considers them to be
reasonable for planning purposes'.[25]
3.28
The Communication Workers Union Australia (CWU) commissioned a review of
the BCG report from The Australia Institute.[26]
The Australia Institute noted that, while there was a trend decline in the
volume of letters, 'estimates of the rate of decline vary significantly and
assertions that the trend decline will continue for a decade or more are based
on no empirical evidence'.[27]
3.29
The Australia Institute went on to conclude that 'the Boston Consulting
Group's range of forecast annual decline in letter volumes of 8–11% is much too
pessimistic'.[28]
In addition, The Australia Institute commented that:
A forecast of the postal services & telecommunications
industry out to 2023 is quite a novelty. The macroeconomic assumptions are
provided by Euromonitor and many of the operational assumptions are
taken from past averages or seemingly were invented from scratch.[29]
Other views on the decline in letter
volumes
3.30
During the ACCC's assessment of the 2014 Australia Post price
notification for letters, views were sought from interested parties. While
Mailing House accepted Australia Post's volume forecasts, the Printing
Industries Association of Australia (PIAA) put another view. The ACCC reported
PIAA had submitted that print post 'will remain a key component of the emerging
multi-channel communication'.
3.31
PIAA also referred to Australia Post consumer surveys undertaken
in 2012 which found a consumer preference for bills and statements to be sent
by mail. As a consequence, PIAA argued that transactional and direct mail will
continue to have a significant role into the foreseeable future. PIAA also argued
that 'there is evidence that advertising agencies are starting to question the
effectiveness of digital media and are returning to traditional areas of
advertising'.[30]
3.32
The ACCC went on to note:
Similarly, Mailing House notes there are threats to
electronic communications caused by, for example, electronic eavesdropping,
data and identity theft and privacy issues posed by social media that could
result a significant flow back to physical mail.[31]
3.33
The dire outlook for mail volumes was not shared by all submitters to
the committee's inquiry. For example, the CWU Australia stated that Australia
Post's outlook was more pessimistic than that of international experts. It
stated that 'mail is not dead. This is not a business that is going to go away
anytime soon'. CWU Australia added:
Our members are delivering fewer letters but small parcels
and packets have replaced the declining volume of traditional letters.[32]
3.34
The committee also received evidence from individual LPOs which pointed
to increased mail volumes at least for their particular LPO. For example, one
licensee with 18 years' experience stated:
I have been sorting the same incoming mail for the same
delivery points on a daily basis for over eighteen years. Over this time I
believe quantity of mail increased steadily and peaked three or four years ago
and has only eased fractionally since then. I do not have written records of
this, but that does not make my observation any less truthful. What I have
noticed is the steep decline in mail with postage stamps attached. I am curious
to know if Mr Fahour's steady decline of letters is calculated on the sale of
postage stamps ignoring all the bulk lodged and unaddressed advertising mail we
still deliver.[33]
3.35
Another licensee similarly commented that while personal addressed
letters may have declined, print post has increased:
As LPO owners working on the coal face day in day out, we
know if there is substantially less mail being sent to our PO Boxes. Sure the
personal stamped letters may be in decline but the increase in Print Post
advertising and promotional mail has largely offset this.[34]
3.36
This view was supported by the LPO Group. Mr Andrew Hirst, LPO Group,
commented that while addressed letter volumes had decreased across the network
'there has also been a vast increase in what is called unaddressed mail, which
is the junk mail you get in your letterbox'. He went on to comment that since
2001, the delivery of junk mail had increased from once a week to upwards of
six a day now. He concluded 'for all that the volume of official mail with a
stamp on it has dropped, when you take into account all the unaddressed mail
that has tagged along, the decrease is not as big as Australia Post say from
our perspective'.[35]
3.37
The committee also notes that Australia Post's Annual Report 2012–13
stated that larger customers were increasing their use of mail:
While overall volumes declined, many of our larger customers
increased their use of mail. This year more than 40 per cent of our bulk mail
customers increased their use of mail, demonstrating the role physical mail
continues to play in business communication.[36]
3.38
Australia Post's consumer surveys support the ongoing role of physical
mail. The August 2013 survey found that 'consumer preference for receiving
bills & statements by mail has risen over the last 12 months'. The
preference for receiving rates, water, gas, mobile phone and insurance bills
and bank statements increased by three per cent over the preceding 12 months.
It was noted that 'despite online channels being used more by senders,
consumers' preference for mail continues to grow'.[37]
3.39
When it comes to receiving communications from government, consumers
prefer mail. Fifty-two per cent of the January 2013 survey participants
indicating that mail is the preferred channel for receiving policy/legislative
changes from government organisations.[38]
In addition, the May 2013 survey found that young people (18 to 24 year
olds) still prefer to receive mail across six out of ten communication types,
including magazines and important or sensitive information.[39]
Committee comment
3.40
The committee notes that Australia Post's business was built on the
traditional letter service. Currently, that service is changing with a significant
decline in letter volumes. The change is principally the result of the
emergence of new technologies which have led to the substitution of various
forms of digital communications, such as email, SMS and the Internet, for
letters.
3.41
The committee notes that there is a reduction in the number of Australians
who now use letters for personal communications while government and business
are moving to digital communications to lower costs and improve access for
customers. At the same time, parcel deliveries have expanded as consumers take
advantage of online shopping to access the goods they wish to purchase.
3.42
While the decline in letter volumes was generally undisputed, the
committee notes that there were differences of opinion in relation to the rate
of the decline and the forecast of future trends.
3.43
The committee notes the difficulty in predicting the rate of decline.
The committee further notes the recently announced partnership between the
Department of Human Services and Australia Post to trial digital mail delivery.[40]
Government customers will be able to opt to have their government digital mail
automatically forwarded to their Australia Post MyPost Digital Mailbox.[41]
As government communications comprise a large proportion of letter volumes, a
successful move to digital mailboxes by the Commonwealth Government will have
an impact on the rate of decline of Australia Post's letters business.
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