Can this man save Aus­tralia Post?

Aus­tralia Post faces a tricky fu­ture. John Durie has some thoughts on how it can be saved

The Australian - The Deal - - Front Page - By John Durie

AHMED Fa­hour has just a cou­ple of years to start im­ple­ment­ing the changes he plans for Aus­tralia Post. The 49-year-old has been chief for five years and says 10 years is long enough for any­one to run an or­gan­i­sa­tion. It has been a tough few years for the for­mer bank­ing ex­ec­u­tive who in March re­ported a 56 per cent drop in first-half profit to $ 98 mil­lion from $ 222m a year ago. Al­ways keen to present the right im­age, Fa­hour let it be known he and other ex­ec­u­tives would forgo bonuses this year amid the ra­tio­nal­i­sa­tion, and at a per­sonal cost to Fa­hour of about $ 2.5m. With its tra­di­tional mail de­liv­ery busi­ness dis­rupted by the in­ter­net’s ca­pac­ity to pro­vide al­ter­na­tive com­mu­ni­ca­tion, Aus­tralia Post must move fast to rein­vent it­self. Fa­hour says the or­gan­i­sa­tion's big­gest as­sets are its ca­pac­ity to be­come the de­liv­ery van for the in­ter­net, and its im­age as a trusted provider of ser­vices. Aus­tralia Post has been thrown a life­line with the fed­eral gov­ern­ment’s de­ci­sion to dereg­u­late the price of stamps – pro­vid­ing a boost to cash re­turns. Its boom­ing parcels di­vi­sion is a plus. But it will need a more rad­i­cal over­haul in the next few years.

Pri­vati­sa­tion: a step too far?

Aus­tralia Post had an his­toric vic­tory in March when the fed­eral gov­ern­ment ap­proved a two-speed mail de­liv­ery – with dif­fer­ent stamp charges. Pend­ing ACCC ap­proval, later this year it could cost you $1 for reg­u­lar de­liv­ery but $1.50 if you want a let­ter de­liv­ered in 24 hours. The price dereg­u­la­tion is the first step in try­ing to man­age a con­sis­tent de­cline in let­ter vol­umes – a 35 per cent drop since 2008. We now spend be­tween $8 and $19 a year on stamps com­pared to $1750 a year on tele­phones and $404 on the in­ter­net. Un­der its com­mu­nity ser­vice obli­ga­tions, Aus­tralia Post must pro­vide an “ac­ces­si­ble, af­ford­able and re­li­able let­ter ser­vice for all Aus­tralians wher­ever they re­side” but it is clear the economies of scale are no longer work­ing.

The case for price dereg­u­la­tion was well made by Aus­tralia Post and Fa­hour. But now they need to press Can­berra to pri­va­tise the post of­fice. It’s a big call: pri­vati­sa­tion in the short­term would be po­lit­i­cally dif­fi­cult but the sooner Com­mu­ni­ca­tions Min­is­ter Mal­colm Turnbull sells it, the bet­ter. He should be look­ing at a five-year time frame. Pri­vati­sa­tion would al­low the post of­fice to flour­ish in a dig­i­tal world and ex­er­cise the cor­po­rate flex­i­bil­ity that is im­pos­si­ble un­der gov­ern­ment own­er­ship. Both Turnbull and Fa­hour talk down the chances of pri­vati­sa­tion this term and it’s true that pres­sure from unions as well as other is­sues make pri­vati­sa­tion too dif­fi­cult.

Fa­hour de­flects the is­sue, say­ing: “What can I do as a pri­vate com­pany that I can’t do now?” Well, he could copy Ja­pan Post, for ex­am­ple: the soon-to-be-pri­va­tised Ja­panese or­gan­i­sa­tion is chas­ing Asian ex­pan­sion through a takeover of Toll, the Aus­tralian lo­gis­tics com­pany. Then there’s the de­ci­sion last year by the Chi­nese e-com­merce gi­ant Alibaba to buy a 10 per cent stake in SingPost, the Sin­ga­pore post of­fice. These are the kind of deals that Aus­tralia Post needs to ex­tend its reach as a re­gional player. And while public re­sis­tance will need to be han­dled care­fully, once Aus­tralians see how dereg­u­la­tion of charges works, a pri­va­tised post of­fice might not look so fright­en­ing.

Be­come the de­liv­ery van for the in­ter­net

If Fa­hour is low-key on pri­vati­sa­tion, he is en­thu­si­as­tic about the fu­ture of par­cel de­liv­ery – the growth area thanks to e-com­merce. Aus­tralia Post’s hopes of be­com­ing the de­liv­ery van for online re­tail out­lets is in the hands of Bob Black, a 30-year lo­gis­tics vet­eran. Black, who is well versed in the busi­ness-to-busi­ness mar­ket as well as the busi­ness-to-con­sumer mar­ket, joined Aus­tralia Post shortly af­ter

fin­ish­ing a stint run­ning the Dutch-owned TNT. Fa­hour is keen to tell you that most peo­ple see Aus­tralia Post now as more a par­cel com­pany and less as a let­ter com­pany: a re­cent sur­vey found 54 per cent of con­sumers see it as a par­cel com­pany; 28 per cent as a let­ter com­pany; while 17 per cent as­so­ci­ated it with the brick­sand-mor­tar post of­fices. For busi­ness clients, the rank­ing was slightly dif­fer­ent with 22 per cent as­so­ci­at­ing it with the post of­fice, 25 per cent with letters and 52 per cent with parcels. Aus­tralia Post will need to build its parcels side to meet con­sumer de­mand. The fu­ture will be­long to those who make it easy for con­sumers to buy from the in­ter­net, ir­re­spec­tive of where they live. Aus­tralia Post al­ready pro­vides a postal ser­vice in the US to al­low Aus­tralian con­sumers to use a US mail ad­dress to fill in­ter­net or­ders. Alibaba also has a com­mer­cial re­la­tion­ship with Aus­tralia Post, which Fa­hour says “of­fers gen­uine com­mer­cial op­por­tu­ni­ties for both sides”. And he wants to grow along­side the net. A re­cent NAB sur­vey showed real growth is at home with 72 per cent of online pur­chases made from do­mes­tic sites.

Build on the China model

The de­liv­ery-van dream means Aus­tralia Post will need to build its lo­gis­tics busi­ness in the re­gion. It al­ready owns 49 per cent of Sai Cheng Lo­gis­tics In­ter­na­tional, a Chi­nese ex­port agency and ser­vices com­pany. The other 51 per cent is held by China Post. Af­ter five years, the joint ven­ture has a pos­i­tive cash flow and there is plenty of po­ten­tial up­side. The ven­ture – which op­er­ates like FedEx – was ini­tially based on de­liv­er­ies be­tween China and Aus­tralia but now about one third of the rev­enue comes from de­liv­er­ies to other coun­tries. It is in­creas­ingly used by brick­sand-mor­tar re­tail­ers in Aus­tralia which source prod­uct in China. The joint ven­ture has five ware­houses in China that serve as the de­liv­ery points. Much of the busi­ness is based on han­dling of clothes and other items that ar­rive at the de­pots and are split into man­age­able parcels for dif­fer­ent Aus­tralian cus­tomers. Fa­hour sees huge up­side in the op­er­a­tion which he says can be used as a base to grow busi­ness-to-busi­ness de­liv­er­ies through­out Asia.

Ex­pand the lo­gis­tics busi­ness at home

The busi­ness-to-busi­ness oper­a­tions need to be fi­nessed back home. In 2010, Aus­tralia Post bought 50 per cent of Star Track Ex­press from its joint ven­ture part­ner Qan­tas for $408 mil­lion, giv­ing it 100 per cent of the busi­ness. Fa­hour is now us­ing the Star Track name in busi­ness-to-busi­ness ac­counts. Aus­tralia Post is al­ready a big busi­ness-to-con­sumer lo­gis­tics op­er­a­tor in Aus­tralia, but it needs to work with com­pa­nies to meet their full de­liv­ery needs. For ex­am­ple, Du­lux uses trans­port com­pany Lin­Fox for de­liv­ery of paint prod­ucts, Sel­leys sealants and ad­he­sives, and other prod­ucts, with Lin­fox own­ing and run­ning the dis­tri­bu­tion cen­tres for Du­lux prod­ucts and han­dling all de­liv­er­ies to re­tail­ers. That’s the kind of work Aus­tralia Post needs – tak­ing de­liv­ery di­rect to re­tail­ers to be­come a fullser­vice busi­ness-to-busi­ness op­er­a­tor.

Man­age the col­lapse of letters

It was the rai­son d’etre but no longer. It’s not just that so few of us write letters any longer, it is that most of the pa­per that comes through your let­ter box is no longer de­liv­ered by Aus­tralia Post. About 90 per cent of the fliers and other junk mail in your let­ter­box is de­liv­ered by Sal­mat and PNP. And while Aus­tralia

Post has a mo­nop­oly on letters up to 250 grams – any other busi­ness that de­liv­ers them must charge four times the ba­sic postage rate – it has to com­pete with other providers in all other cases. Our post of­fice has long been one of the cheap­est postal ser­vices in the world: even at $1 it stumps up well against Den­mark, which charges $2.46 for a reg­u­lar stamp and France at around $1.60. These days most letters are sent by busi­ness and gov­ern­ment. BCG said in a study last year that with­out the re­cent changes made by gov­ern­ment to al­low two-tier stamp prices, the letters busi­ness would lose $12 bil­lion and Aus­tralia Post over­all $6.6bn over the next decade. The BCG sur­vey was also im­por­tant in mak­ing the case for dereg­u­la­tion be­cause it found that about a third of con­sumers don’t deal with the mail they re­ceive on the day of de­liv­ery – sug­gest­ing it is not ur­gent. Half of all re­spon­dents said they would ac­cept a three-day de­lay. The in­creased cash from the costlier stamps will help. Says Fa­hour: “This will help us see through the next few years but longer term we need to de­velop new earn­ings driv­ers”. One side busi­ness is Aus­tralia Post’s Dig­i­tal Mail­Box – a free app that op­er­ates as a mail por­tal to set re­minders and pay bills as well as stor­ing doc­u­ments, such as tax records.

Less than a bank, more than a post of­fice

When Fa­hour joined Aus­tralia Post in De­cem­ber 2009, there was spec­u­la­tion that the for­mer banker would push the post of­fice fur­ther down the bank­ing track. But the re­al­ity is that it doesn’t need to go in that di­rec­tion: as the CEO points out, it is al­ready a trusted ser­vice provider, selling “travel in­sur­ance, reload­able credit cards, Chi­nese credit cards and ‘load and go’ cards while also be­ing the place where some peo­ple get their cash to pay their bills”. In Vic­to­ria it han­dles ap­pli­ca­tions for work­ing with chil­dren and in Western Aus­tralia it dis­penses driv­ing li­cences. It has been is­su­ing pass­ports for 30 years. With 4400 re­tail out­lets, 2500 of which are in re­gional Aus­tralia, it is the ideal ser­vice provider. The gov­ern­ment could help by giv­ing Aus­tralia Post re­spon­si­bil­ity for other ser­vices, es­pe­cially in coun­try towns where the post of­fice is the only gov­ern­ment agency. Why not make it the Medi­care out­let? Or the Aus­tralian Se­cu­rity & In­vest­ment Com­mis­sion's cor­po­rate reg­istry busi­ness that reg­is­ters pri­vate com­pa­nies? The reg­istry busi­ness was flagged for sale in the bud­get, mak­ing an Aus­tralia Post deal un­likely. These ser­vices would help keep it com­pet­i­tive in the re­tail strip and in the process en­able it to con­tinue of­fer­ing let­ter ser­vices for longer. The more rea­sons there are for peo­ple to walk into a post of­fice, the higher the chances of selling other goods and ser­vices. Fa­hour sees this as a growth area: “We are one of the last providers of so­cial ser­vices across the coun­try.”

CEO, Ahmed Fa­hour

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