Australia Post losing $70 million a year on international pricing structure

Australia Post is losing $70 million every year because of the huge number of parcels it has to process thanks to the rise in online retailing, the head of the postal service said yesterday.

But it’s not entirely Australia Post’s fault, chief executive Ahmed Fahour said – and experts agree.

“I don’t think this is something Australia Post can necessarily change under the Universal Postal Union structure,” Parcel Express chief executive Jason Picknell told SmartCompany this morning.

“Unfortunately, there doesn’t seem to be another way around it all.”

Fahour told a Senate inquiry last night the organisation is losing up to $70 million a year, which has forced it to drive up prices for sending parcels.

The hikes were revealed by SmartCompany earlier this year, when small businesses complained they had received price increases in new contract terms.

At the time, Australia Post said in letters sent to businesses that it was “operating in a challenging business environment with increasing external costs”.

Fahour has now said the huge number of parcels weighing less than two kilograms cost the organisation more due to international pricing structures.

These pricing structures are set by the Universal Postal Union. It determines the rates its member countries pay for international mail distribution. 

“The only way we can minimise our losses is if the domestic price goes up,” he said. It’s a complaint Australia Post has made before, especially during Christmas when it was swamped by a huge number of parcels creating a backlog.

While the organisation has invested in new ways to deal with the rush, including 24/7 postage lockers and new delivery services, Fahour says the UPU structure is putting pressure on domestic prices.

The UPU was set up when letters were the primary form of correspondence, he said, adding that plenty of other economies are in the same situation.

“All of us are suffering because we’re net importers from a lot of these other developing countries,” he said.

Fahour added that Australia Post welcomes the rise of domestic online retail: “The more Australian retailers go online, the happier we are, because we actually make a buck on that.”

Picknell says the situation necessitates an increase to the offshore mailing rate structure.

“I think he’s right in lobbying to get that UPU structure right, because essentially we’re, as consumers, offsetting the price through the domestic pricing structure,” Picknell says.

“If postage is set at a certain cost through the UPU, they’ve got to make that up through domestic pricing.”