The growing online retail industry is causing losses at Australia Post of around $70 million this year, which is forcing the postal company’s hand to raise domestic parcel prices.
Packages weighing less than two kilograms that originate from foreign markets like the US, UK, New Zealand and China cost Australia Post more than it gets back under international rules that cover handling costs.
“It’s a huge problem,” Australia Post Chief Executive Ahmed Fahour told a Senate inquiry. “The only way we can minimise our losses is if the domestic price goes up.”
Fahour said that Australia Post was among the postal services in developed countries that are disadvantaged by the system where costs are set by the Swiss-based Universal Postal Union (UPU). These costs were established in an era when letters still made up a large portion of the regular postal freight. Now, with the rise of digital technologies and e-commerce, letters are rare and small parcels are numerous.
The UPU determines costs based on an outmoded system, which takes weight, country of origin, exchange rates and other costs into account – but this doesn’t add up in today’s society.
“There are some very obvious characteristics about Australia to do with geography that make it a difficult market, and we also place an emphasis – quite rightly – on border security,” Richard Umbers, Executive General Manager for parcels and express services at Australia Post, told The Australian Financial Review.
Umbers also said that losses from the international sub-2kg parcel category would reach $70 million this year. Meanwhile, Fahour points out that Australia Post has been able to offset any losses so far by increasing domestic shipping costs.
“Rest assured, the more Australian retailers go online the happier we are, because we actually make a buck on that,” Fahour said.