Mr Matthew Schroder 10 February 2014

General Manager—Fuel, Transport and Prices Oversight

Australian Competition and Consumer Commission

GPO Box 520

MELBOURNE VIC 3001

Dear Mr Schroder

Submission to ACCC re Australia Post Basic Postage Rate increase

Once again submissions are requested in an unreasonably short time frame at a time when business is getting back up to speed after the summer holiday and matters of business and profitability are more pressing than responding to another Australia Post (AP) price increase.

However, before I address the matter of the Basic Postage Rate (BPR) increase to 70 cents let me inform you that Australia Post on 3 February 2014 advised the business sector that it intends to implement postage increases on 31 March 2014 for the range of postal services that are used by business.

Some years ago Australia Post was required to submit to the ACCC an application to increase bulk rates. Due to the work required by AP to prepare, this was only done every three or so years and the application was along CPI lines of about 3% per annum, thus a cumulative 10%. The now defunct Major Mail Users Australia (MMUA), opposed these increases for a number of reasons but the key one was the quantum of a three year increase and the significant impact it had on generators, who would not increase their budget but reduce the volume and over time query the ROI. Postage is the only cost that has increased in direct mail for decades.

MMUA, the mailing industry association and AP conferred and agreed that an annual increase in the bulk rate along previous increases, more or less linked to the CPI would be acceptable. This has been the case since and although no one likes an increase this agreement has now been debased with a 13% hike in our main product line of Regular delivery mail. This 13% proposal is on the back of a 3.5% jump in April 2012 and 2.26% April 2013 (Regular, Direct Tray, Same State). I don't have previous price books.

Throughout that time the BPR has remained at 60 cents and business has been slugged every year to take up the ‘loss’ in AP’s letter operating costs on its monopoly services. Note the key word is MONOPOLY.

The Australia Post - Mailing Industry Update Jan 2014 (euphuism for Notification Postal Increase Bulk Mail) says, ” . . .growth in parcels will soon not be enough to compensate for the losses in our traditional letters business” Why is that relevant?

This parcels growth has been built on the back of 204 years developing a postal

system and network with 4,429 postal outlets creating the second most reputable brand in Australia. Those achievements were made on the back of a letters business and for almost 50 years, at considerable profit. I’d like to be convinced that the Parcels division is charged for this infrastructure and pays a rental to the Letters division. I've never had any confidence in the findings from the ACCC that says cross-subsidisation does not occur within Australia Post between; Parcels, Print Post, Australia Post competing with their mail house suppliers, as a start.

To address the questions posed now by ACCC is difficult without adequate time to try and extract this information from the AP Annual Report and I don’t have the time or the resources to do that, so have to take at face value the forecasts provided by Australia Post in the hope that the ACCC does have the resources to ensure these deliberations are on a factual basis.

1.1 Do you agree with Australia Post’s volume forecasts for its reserved letter services?

In your view do the forecasts reflect likely long-term demand trends for Australia

Post’s letter services and your expectations about future usage?

Based upon our business experience over the past 5 years these declines are within our anticipated parameters.

1.2 Do you consider that Australia Post’s forecasts reflect the current and future

economic climate and its effect on Australia Post’s reserved letter volumes?

Economic climate is best left to the experts and my reading is somewhat pessimistic as to the world economy and that will have a flow on detrimental impact on the Australian economy. Therefore one would expect these forecasts have factored in all inputs so again in broad terms must accept these figures.

1.3 What impact do you expect the proposed price increase may have on the demand for

ordinary letter services, and over what potential time frame?

Obviously a 10 cent increase in the BPR will cause a drop in ordinary letters volume. In addition the ageing of the letter writing population and the adoption or more so the migration of electronic communication as the younger population ages, will see ordinary letter volumes continue to drop.

The governments push to reduce red tape will also see letter volumes drop as electronic communications supersede ordinary physical mail in many one off and bulk business transactions.

What we might not be able to forecast could be a major threat to electronic communications caused by electronic eavesdropping, data and identity theft, privacy issues posed by social media, that could result in wholesale fraud and create a significant flow back to physical mail.

Similarly the fact that email marketing, whilst having a very low cost base also has a very low open and respond rate, so if its ROI is nearly, (or) nil then it becomes a very expensive medium. Almost everyone I speak with, starts their day by deleting all marketing (and junk) emails, even email communications to which they have subscribed.

The public has a strong aversion to telephone marketing, which with my calls consists entirely of scam foreign operators selling shonky telco or utility contracts or advising me that my “computer has a virus” they need to fix, and the face to face charity operators are seeing a drop in take up as that market has been well canvassed.

The facts are that physical mail is a very effective method of promoting goods and services and generating a positive response. It is far from dead but continual bulk price increases are speeding up its demise.

2.1 What are your views on the efficiency of Australia Post’s cost base, in particular its

operating costs for its monopoly letter services?

Without significant insight into AP’s processing network and financials it is impossible to consider what are the true operating cost to run the monopoly letter services. The mailing industry since 1998 has implemented a number of efficiency processes that makes the processing of bulk pre-sort mail far more efficient and at less cost to AP than the cost to deliver one single ordinary letter.

The introduction of bulk pre-sort mail was at a significant cost to the mailing industry and continues to take time and financial resources to prepare bulk pre-sort mail to facilitate efficient bulk processing by Australia Post.

2.2 Do you consider that Australia Post’s price notification demonstrates that Australia

Post has taken steps to reduce costs in response to its expectation of declining letter

volumes? Please provide supporting reasons for your answer.

This is not about Australia Post taking steps to reduce costs. This is about a realistic and way overdue attempt to share the costs between ‘ordinary’ mail and bulk business mail. Business has been the easy target politically and from a legislative (ACCC) aspect in that it is no longer required to have the ACCC review applications to increase the business rate.

At last we have a political climate and hopefully a government that can see that many well run Australian industries are struggling and that we have to address the real cost of doing business that might enable Australia Post to charge a financially adequate Basic Postage Rate. No revenue = no profit = no tax = social security.

Unfortunately it is already too late to bring about some equitable balance between the revenue earned (the cost of a stamp) and the cost to Australia Post to deliver one ordinary envelope.

The cost variation between the Basic Postage Rate and the bulk pre-sort rate has been out of balance for a number of years. If we applied the bulk rate increases (and I don't have them all) the BPR should today be in the 65 – 70 cents range. Therefore this increase should be more towards 75 or 80 cents to reflect the true cost to sort and deliver ordinary mail.

The ACCC should go back to the early 2000’s and review the difference between bulk pre-sort mail and the BPR and also Charity Mail and the BPR (was 20% of the bulk pre-sort rate) and consider the differences in percentage terms then measure what was then, to what will be the difference after the proposed (read confirmed) business bulk pre-sort rates from 31 March 2014. Yes there has to be an allowance for the volume decline but surely AP’s capital costs for sorting machinery and network has reduced considerably and the ACCC financial experts should be able to assess this better than those of us in the industry.

2.3 In your view, in which areas might Australia Post be able to reduce its costs, while

still meeting its community service obligations (CSOs) and performance standards?

This answer is less about reducing cost but more about increasing revenue and recovering costs. Here are some suggestions, none of them new.

·  The base rate needs to rise to 70 cents, at least. How you manage the pensioner rate of 60 cents I’ve no solution. Ignore it. 70 cents across the board with a target of $1. I can see a thriving black market in concession stamp usage to the detriment of Australia Post revenue. It’s an unnecessary bureaucratic impost.

·  Cease competing with AP customers in the mail house market. I can’t see how that can be very profitable and if it is, that’s due to cross subsidisation and utilising the reputation and network advantages AP enjoys, as outlined earlier.

·  Charge Parcels and other AP divisions a true inter-company fee for use of the ‘poles and wires’ created by traditional letter services.

·  Use the MLOCRs to sort mail to delivery sort sequence thus further reducing manual sorting and cost.

·  Deliver mail every other day or Monday, Wednesday, Friday.

·  Work with the International Postal Union and Government to stop accepting mail from overseas (as your regulations allow), that are obviously for Australian generators who circumvent the crippling AP rates providing revenue to foreign postal systems. AP has to deliver and return dead mail, thus adding to AP costs, which in turn leads to another AP rate hike and upwards goes the price increase cycle.

·  Why do I hear Australian mail houses and mail order companies say, “I can send a parcel from China to Melbourne for less than I can post it across Melbourne”? If we can tax dumped Italian tomatoes, then we can tax subsidised postal articles. This free trade mantra is stupid, uncompetitive, unfair and suicidal for just about every (insert name of industry here) entity in Australia.

·  Implement a no return policy for all originating overseas non essential mail, especially parcels, and the items are either destroyed or sold. ( From campaigns we process, I’m staggered at the amount of RTS mail from recipient generated online ordering that is processed and delivered within days but returned undeliverable).

Some years ago the printing and mail industry associations prepared solid statistics that demonstrated the significant value to the economy of these sectors. I fail to understand how the big picture is ignored by government and Australia Post. The big picture comprises a manufacturing sector employing thousands of Australians across many skill sets, creating demand and paying taxes, albeit like Australia Post letters revenue, diminishing.

In summary, that Australia Post continues to ignore the points I’ve raised and politically, successive governments fail to set a realistic Basic Postage Rate that compensates Australia Post for the true cost of delivery of single letters, then the big driver of the postal system, the business sector that covers more of the fixed costs than any other, will follow the downward spiral of Australia Post and the cost to the economy will be significant.

Australia Post needs a healthy business mail sector and that could be achieved by encouraging the use of direct mail, because it works.

Yours faithfully

Lindsay May

Director – The Mailing House Pty Ltd