Can this man save Australia Post?
Australia Post faces a tricky future. John Durie has some thoughts on how it can be saved
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