Government | Regulation

Australia Post will start to lose money soon: State of the Nation 2014

According to a government commissioned Boston Consulting Group (BCG) report, Australia Post may start to lose money as soon as next financial year, Federal Communications Minister, the Hon. Malcolm Turnbull has told CEDA’s State of the Nation 2014 conference at Parliament House in Canberra.

"BCG predicts that letter volumes will decline by an average of eight to 11 per cent per annum to FY2019-20, with no floor in the rate of decline - meaning that volumes will continue to decline until there are few letters passing through the network," he said.

Discussing possible ways to reduce Australia Post's costs, Mr Turnbull said a three-day letter delivery system rather than five could help as an option.

"Over 80 cents of every dollar lost in letter revenues goes straight to the bottom line but the postie has gone up and down your street every day whether his bag of letters is full or nearly empty," he said.

"Without reform, letter losses will soon overwhelm parcel profits, with overall losses for Australia Post as early as (financial year) 2014-15," he said.

Digital disruption has effected Australia Post's business model and changes must be made to ensure its future, he said.

"Australia Post is facing up to a technology tsunami which threatens its fundamental business model," he said

Also speaking at CEDA's State of the Nation conference Australia Post CEO Ahmed Fahour said the organisation must avoid becoming "the next Kodak" by providing services similar to its digital mailbox service.

"Without reform, we will need to fund the losses in our letters service through state asset sales."

Despite expected losses of $300million in 2014 in its letter business, Australia Post's parcel volumes have had an eight to 10 per cent growth due to online shopping.

"Our profit in the non-regulated parcels business has doubled over the past three years. We have invested $600 million to expand the capacity of our parcel service so we can deliver more efficiently for Australian businesses," he said.

IBM Australia and New Zealand Managing Director, Andrew Stevens also spoke during CEDA's State of the Nation conference, saying Australia must react to digital disruption.

"There's been a view in this country at a C level and at board level that in decision making in this area, that the risk of inaction has seen to be lower than the risk of action, I think that's quite incorrect," he said.

"If you applied that logic to Australia Post, you'd see very clearly what the implications are."

Internationally, other countries including South Korea and the USA have already adopted digital technologies and embraced tradability of services.

"The USA has moved very very strongly since the financial crisis in terms of their own digitisation," he said.

"The connected world has made all of our services trade exposed and that's an opportunity and I believe it's the greatest opportunity we have as a nation."