Questions and answers on our proposal
New Zealand Post has proposed an update to the Deed of Understanding (“the Deed”) it has with the Government regarding standard letter delivery and postal outlet services.
That proposal is discussed in our media release and public submissions are sought on a discussion document which is available on the Ministry of Business, Innovation and Employment (MBIE) website www.mbie.govt.nz.
The following information addresses questions and answers about this proposal.
Q: What are the main changes New Zealand Post is seeking from what is currently in the 1998 Deed of Understanding?
A: We are seeking greater flexibility around how often standard letter mail is delivered, and how the store/outlet network is defined.
These changes wouldn't happen for some time – we're seeking flexibility to plan for change in the years to come.
The 1998 Deed prescribes mail delivery frequency based on what mail volumes used to be. Since then, mail volumes have fallen dramatically. Kiwis are now posting 265 million fewer items per year than they did ten years ago (a drop of 24%). Total mail volumes are forecast to fall a further 25% (208 million items per year) within the next five years.
The 1998 Deed requires six-day-a-week delivery to more than 95% of delivery points which was viable at the time when mail volumes were around 1 billion pieces per annum. Declining volumes mean that without making fundamental changes, our postal business will not be able to meet the statutory objective of a State Owned Enterprise to “be as profitable and efficient as comparable businesses that are not owned by the Crown.” Our postal business will lose money unless we can adapt in the future.
We're proposing a guaranteed minimum of three-day-a-week delivery for standard letter mail. This does not mean we are about to immediately reduce to three day delivery for the standard letter service. It is a guaranteed minimum frequency, which we could if necessary move to in years to come as and when volumes decline. We do not need to adjust delivery frequency now, but we are seeking the flexibility to be able to do so in the future when we have to.
We are also seeking to revise the definition of our postal store/outlet network to reflect the changing ways in which customers are accessing goods and services. The 1998 Deed prescribes that over-the-counter postal services are available through 880 outlets, of which 240 are also to provide 'agency services'. We currently provide those over-the-counter services through PostCentres which are hosted in businesses such as dairies, pharmacies and stationery shops, while PostShops provide those services as well as agency services such as bill payment.
Our proposal recognises that delivery of services does not need to be defined by 'bricks and mortar' locations, but will be provided through numerous channels such as hosted businesses, online services, self-service kiosks etc.
|1998 Deed of Understanding||Proposed new Deed|
|Postal Outlet Network|
Q: Is New Zealand Post going to immediately reduce mail delivery frequency?
A: No. New Zealand Post is seeking the flexibility to be able to change the frequency of its standard letter service in the future. New Zealand Post is exploring other solutions such as mail production and processing.
Any change to delivery frequency would be well signalled and we will engage with senders who pay for the service, wider users of services, New Zealand Post people and unions etc.
Q: Why seek changes to the agreement with the Government now if changes such as delivery frequency could be years away?
A: New Zealand Post needs the certainty and flexibility so it can plan now to be able to act in the future. We can then communicate these plans clearly and early on to all our stakeholders including communities, large business and government senders, small and medium businesses, the rural sector and other community groups such as older New Zealanders.
The 1998 Deed which is very prescriptive locks New Zealand Post into a 1990's view of the world, preventing it from planning with certainty for the future.
Q: At what point will volumes dictate that New Zealand Post has to reduce frequency?
A: There is not a definitive timeframe or point in volumes where we can say for sure that delivery frequency will change. There are a number of other factors such as the rate of decline, mail production and processing solutions and technology impacts. The answer to this question will become clearer over time.
Q: What impact would the proposal that ‘the network may be made up of a combination of outlets owned by New Zealand Post, services hosted by other businesses and electronic self service kiosks’ have on the current PostShop and PostCentre network?
A: New Zealand Post is committed to providing postal services throughout New Zealand. The focus should be on the provision of services and not what channel they are provided through. The 1998 Deed prescribes a 'bricks and mortar' approach i.e. services must be provided over a counter in a shop. PostCentres and more than half of PostShops are already hosted in other businesses.
Our proposal takes account of the fact that technology and changing customer behaviours mean services can and will be provided through various channels. These will include via hosted businesses such as book and stationery stores, dairies, pharmacies, service stations and supermarkets. Services will also be available via self-service kiosks and online.
Including self service kiosks in the definition of the network of 880 outlets recognises the opportunities technology can offer consumers in accessing services.
Q. Does the current Deed of Understanding or the new proposed Deed cover courier services or non-standard letter services?
A: Courier services are not covered under the proposed Deed and have never been considered under the existing Deed. Our courier business operations such as Pace and CourierPost which provide same and next-day delivery services are not guided by the Deed. That reflects that those businesses operate in a highly competitive environment.
The proposed Deed only covers standard letter services. Because the 1998 Deed required six day delivery of letters, it did not need to make any distinction between premium and standard letter services. In contrast, under the proposed Deed, New Zealand Post guarantees a basic letter service with a minimum of three day per week delivery to 99.88% of delivery points. New Zealand Post might also choose to offer premium letter services, which would not be covered by the proposed Deed.
Q: Why is there speculation about New Zealand Post ‘cutting mail deliveries to three days’?
A: Our proposed Deed with the Government commits to a basic postal service including 'not less than three day per week delivery to 99.88% of delivery points'. That is a guaranteed minimum – not an end point we will go to immediately. New Zealand Post is simply seeking the flexibility to move in the future as necessary.
Q: Why can’t the profitable parts of New Zealand Post such as Kiwibank subsidise the postal business?
A: It is important the postal part of the business can stand on its own merits. It needs to be viable so revenue can be invested into maintaining and developing that part of the business. Taking funds from other businesses doesn't solve the fundamental design problems – it would only be a short term 'sticking plaster' solution.
Another important issue is the credit rating we receive from ratings agency Standard & Poor's. If Kiwibank began to subsidise the postal business, New Zealand Post's credit rating would drop. This would mean Kiwibank's credit rating would also drop, making it more expensive to obtain funding. That in turn would eat into Kiwibank's profitability. A vicious circle would be created whereby both businesses would suffer.
Q: Does the Deed of Understanding or the proposed Deed involve Kiwibank?
A: No. The Deed has only ever covered letter mail services and postal outlets. The original Deed was written in 1989, 13 years before Kiwibank was even launched. There is nothing in the Deed or the proposed Deed which prescribes the number of Kiwibank branches. Kiwibank locations and access to services are guided by our business strategy aimed at delivering the optimal banking experience for our customers, and reflecting that Kiwibank operates in a highly competitive environment.
Q: Why can’t the postal business be run to just break even?
A: New Zealand Post was established by the Government as a business when it was created as a State Owned Enterprise. It is obliged by the Government to be run as a business and to make a profit. A portion of this profit is given to the Government and the taxpayer via dividends. Since its creation as an SOE, New Zealand Post has returned $720 million to the Government for the benefit of the taxpayer.
Profits are also vital for investing back into the business so it can grow and improve. New Zealand Post requires money to invest in maintaining our postal network. 'Breaking even' would mean no dividends for the Government, and no money to put back into the business. Over time that would lead to running down and cutting back services.
Q: Isn’t the growth in parcel deliveries compensating for the fall in letter mail?
A: No. There is good growth in the parcels market with the increase in online shopping, the impact of TradeMe and 'e-tailing'. But our postal business relies on big volumes. Parcels currently make up just 2.5% of our mail volumes. Over the next five years parcel volumes are forecast to increase by 8.5 million items while letter volumes are forecast to fall by 216.5 million (meaning a net change in total mail volumes from 835 million to 627 million). The increase in revenue from 8.5 million parcels won't cover the loss in revenue from 216.5 million letter items.
Parcels are a definite growth area and our postal network is well geared to handle this. New Zealand Post is delighted to now have 100% ownership of Express Couriers Limited which is a market leader in same and next day delivery through its Pace and CourierPost brands.
Q: What will happen if New Zealand Post isn’t able to get the changes it wants?
A: The postal business is rapidly heading into loss-making territory. That's because it has a network designed for volumes of around 1.2 billion pieces of mail and we are currently delivering just 835 million pieces. Volumes are forecast to drop to 627 million within five years. At the same time as volumes have dropped, costs have risen due in part to an increase in delivery points. We also have a store network that is constrained in design by the Deed, undermining the potential to be viable.
Rising costs and falling revenue would leave New Zealand Post with the following options;
- Asking the Government to fund the postal business through taxpayer funded subsidies estimated at approximately $30 million per annum and increasing year-on-year.
- An end to paying the Government dividends from the postal business. New Zealand Post has paid the Government $720 million in dividends since it was established as an SOE in 1987. That money has gone into funding services for New Zealand communities.
- Frequent and significant price increases. This would not be a sustainable solution and would in fact accelerate the decline – we cannot price our way out of a fundamental change in the market demand.
- Looking at reducing services as much as possible within the current parameters of the 1998 Deed to cut costs.
Ultimately, without the flexibility to make the necessary strategic changes to its business, New Zealand Post would effectively run its postal business into the ground, not investing in maintaining or developing it. This would mean it would not be able to respond to the changing needs of its customers.
Q: What about rural communities which don’t have the delivery options of urban communities?
A: It is important to remember that changes to delivery frequency are some time away on current trends. However New Zealand Post is fully aware of the specific challenges and requirements involved in the rural network. We are committed to engaging with the rural sector through organisations such as Federated Farmers and Rural Women New Zealand to help develop solutions that will work for the rural sector as well as meeting the challenges our business faces.
Q: How can people have their say?
A: The New Zealand Post discussion document is available online on the Ministry of Business, Innovation and Employment (MBIE) website at www.mbie.govt.nz. The public has the opportunity to make submissions over a six week period from 29 January to 12 March 2013. Hard copies of all the proposal documents can be requested by contacting the Ministry on 04 4742908 or at firstname.lastname@example.org.
Submissions should be sent by email to email@example.com
Or by post to:
Communications and Information Technology Group
Energy and Communications Branch
Ministry of Business, Innovation and Employment
PO Box 1473
New Zealand Post is working with organisations such as GreyPower, Federated Farmers and Rural Women New Zealand who will be contacting their members to coordinate submissions.
Q: What happens after the submission process?
A: Government officials will consider the submissions along with the New Zealand Post proposal. New Zealand Post's proposal, with input from the public submission process, will form the basis of a paper to be put to Cabinet outlining a new agreement between the Government and New Zealand Post. This process is expected to take up to a couple of months from the end of the public submission period.