the end of daily letter deliveries is in sight

Australia Post is seeing red. A lot of it.

After posting a razor-thin profit of $23.6 million in the last six months of 2022, it anticipates a loss for the full 2022-23 financial year – only the second time since being corporatised in 1989.

The last loss was in 2014-15, following a $190 million investment in “transformational reform” of Australia Post’s letters business. At the time, it expressed confidence those efficiency improvements would allow it “to maintain a five-day-a-week delivery”. Now it is pessimistic. With the ongoing collapse in demand for letter delivery, it sees only more losses ahead.

That’s a huge problem, because Australia Post has two main obligations, enshrined in federal legislation. It is required to operate on commercial principles – that is, the federal government wants it to deliver a dividend – while also meeting strict community service obligations.

Those obligations – established in 1989 and last reviewed in 2019 – require delivering letters to 98% of all Australian addresses five days a week, and in more remote areas to 99.7% of addresses at least twice a week, generally within two days of posting.

The Morrison government temporarily relaxed those obligations between May 2020 and June 2021 so Australia Post could divert resources to its parcel delivery services as online shopping boomed during the pandemic. Now the organisation wants those community service obligations reduced permanently.

Read more: COVID hands Australia Post opportunity to end daily delivery

Cost of service obligations

Meeting the obligations cost $348.5 million in 2021-22, says a federal government discussion paper on “postal services modernisation” published this month. It says they “are no longer financially sustainable and are not well targeted at the needs of Australians due to changes brought about by the digitisation of the economy”.

It’s hard to disagree. The numbers are incontrovertible. The hundreds of millions of dollars a year being lost on letter delivery will only get bigger. People just don’t need a daily postal service like they used to.

In the red, and dying

In the 2021-22 financial year, Australia Post made a slim profit of $55 million on revenues of $8.97 billion. That’s a 0.6% profit margin, far below the 8.5% average within the transport services sector.

The surplus was due only to its parcel-delivery business, which grew about 12% in 2021-22 after four years of growing at more than 20%. Letters now account for less than 20% of Australia Post’s revenue.

The discussion paper notes letter volumes in Australia is now less than half what they were in 2008. This is not as severe as countries such as New Zealand or Denmark, but worse than Germany, Japan, the United States and the United Kingdom.

Declines in postal organisation letter volumes