Boston Consulting Group report

In late June, the Boston Consulting Group (BCG) released its report into the Australia Post letters business. The Government commissioned BCG to assess the letters business.The report sets out a number of options for postal reform in response to declining letter volumes.While the options put forward by BCG are not binding on the Government, they provide an insight into what the future may hold for the letters business and what changes will be considered by Australia Post and the Government.The BCG report noted that that escalating letters losses will soon overwhelm parcel profits, resulting in Australia Post reporting a loss as early as the 2014/15 financial year. Recently, Australia Post MD/CEO Ahmed Fahour announced that for the first six months of 2014 losses in letters exceeded the profits from parcels.With regard to the parcels business, BCG questioned the merit of relying on profits from the fast-growing, fully competitive parcels business (or other income streams in competitive markets) to fund the declining letters monopoly.BCG argued that immediate reform is necessary, otherwise Australia Post will soon begin to accrue significant losses, which will need to be borne by the Australian Government and ultimately Australian taxpayers.Most of the reforms discussed in the report impact principally upon Australia Post’s corporate operations such as mail processing. For example, mail processing could be centralised, and mail sorting in mail and delivery centres could be further automated.Other options put forward include variable pricing and changes to delivery speed. Some options would require changes to Australia Post’s Performance Standards, which are set out in the Australian Postal Corporation (Performance Standards) Regulations 1998.POAAL has repeatedly stated that it is in Licensees’ best interests for Australia Post to be in sound financial health. If Australia Post starts to record losses, this could diminish its ability to invest in new technology and in infrastructure to remain competitive in markets such as parcels, banking, trusted services and bill payments.While the post office network may have been founded on letter delivery, its future lies in having diversified income sources with potential for growth.Any decisions Australia Post may make concerning the letters service must take into account the long-term needs of LPOs and their customers, in particular those in rural and remote areas.