Australia Post Case Study
Introduction
Australia Post has the legislative monopoly to deliver bulk mail. Recognising challenges and opportunities ahead, Australia Post has moved away from its traditional business of mail deliver to recognize it is more broadly in the logistics industry. Contrary to general the belief, the number of letters sent in Australia is increasing. Personal letters have fallen, however as this only accounts for 5% of all mailing the increase in commercial and bulk mailing has ha s more than made up for this. Accordingly it has developed technological, supply chain and transport assets to meet the needs of this industry. In a difficult economic climate Australia Post still manages a net profit for 2008-2009, but further challenges lie ahead. ahead . Using the Nine Forces Industry Analysis and the SWOT analysis tools, this paper will examine the unique position that Australia Post finds itself. The paper will conclude by evaluate recommendations and opportunities over the next five to ten years.
Product Range
Australia Post is organized into three core business unit. This is diagrammatically shown in Appendix A. These are: •
Parcels and Logistics
•
Letters
•
Agency Services and Retail Products
To give an indication how Australia Post has moved away from its traditional business, over the last five years the parcels and logistics business has outperformed the letters business, not in volume but in terms of contribution to net profit. In the 2007/08 financial year parcel and logistics net profit was $246.4m, letters business was $148.5m, with agency services and retail products contributing $86.5m net profit (Aust Post Financial Repo rt, 2008-09). Australia Post represents one of the largest employers in Australia at 35,509 employees across all business units. As a major employer in regional area, government policy of giving employment opportunities to indigenous Australians can be met with ov er 4,000 employed within Australia Post. (Aust Post Financial Report, 2008-09)
The development of the three core business units are tightly integrated using Australia Post’s SAP Enterprise Resource Program software across the entire business. The pa rcels and logistics business was split from letters to identify the growing nature of this area moving into the future, the technological and warehousing function and finally the opportunities for acquisitions and strategic partnerships that have been developed. These will be discussed further in the analysis section of the report.
The move from just supplying postal services from the shop front to agency services and retail products recognized Australia Post’s vast national network, representing 4,433 outlets. This is the largest retail network in Australia. Australia Post is also in a unique situation of being able to provide government, banking and other services across the vast distances of Australia with its 2,541 stores in rural and remote areas. Australia Post serves approximately 1,000,000 customers every business day. (www.afrbiz.com.au, 2009) Market Analysis
Although Australia Post has a monopoly domestically in most of its business units, it is still greatly affected by the wider community in Australia and overseas a s well as major trends in transporting goods and delivering services. To gain insights into these externalities and its internal strengths and weaknesses, this report will use Nine Forces Industry Analysis and a SWOT Analysis. The benefit of using this form of strategic analysis is to combine the two major externalities faced by Australia Post. That is the macro-environment and industry analysis. By starting with the PEST analysis looking at the environment in which Australia Post operates and then moving to industry analysis using Porter’s Five Forces (Porter, 1980), a holistic framework is used to gain insights into the externalities affecting Australia Post. Set out below are the nine forces, commencing with the PEST analysis.
Nine Forces Analysis
Political/Legal
The letters business is regulated by several pieces of legislation. The Department of Broadband Communications and the Digital Economy oversees the legislation and policy development to
best meet the Australian publics social and economic needs. The Australia postal market is deregulated and complies with the Australian Postal Corporation Act 1989 (APC Act). (Department of Broadband, Communications and the Digital Economy Web Site, 2010) All areas of Australia Post must comply with the Trade Practices Act 1974.
Economic
Across its three core business units, Australia Post operates as a monopoly is some areas and competes in other highly competitive domestic and international businesses. Its letter business is monopolistic, however the logistic/parcel business and agency services compete with major international organisations. Australia Post needs to be highly strategic as it moves forward as it is these highly competitive business units where its future business and the most g rowth is to be.
Over the previous decade, Australia Post achieved profit growth year on year. However due to the global financial crisis and a slowing of the Australian economy in 2008-09, the net profit declined by 35.7%. There was still a pre-tax net profit of $380.9 million from a record high of $592.2 million. This is opposed to most international postal companies which reported major losses over the same period. This can be attributed to the fact that Australia’s economy was one of the few OECDs to not go into recession and the diversified nature of the Australia Post business. The business unit effected most was parcels and logistics as this serves the business-to business and business-to-consumer markets.
Social
Changes in the demographics of Australia to an aging population has an impact on Australia Post as those less able to travel rely on one central point for their banking, insurance and utilities payment needs which Australia Post offers. This is represented by the fact that agency services and retail was the best performing business unit in 2 008-09, with a revenue growth of 3.2%.As Australia continues to be a globalised economy with many of its population born overseas or a wide heritage, parcel and logistics is a growing area. Australia based letter movements did drop from a high of 5.2 billion to 4.9 billion this year.
Technological
Continued technological trends and the broader effect technology has socially and economically have a major impact on Australia Post’s business into the future. The move to electronic information from traditional letters has an ongoing downward effect on its traditional business. However the growth in online business has lead to the growth in more packages needed to be delivered individually from sellers to buyers homes. Australia Post has been able to meet this demand. Technology has also allowed the Australia Post network to offer a range of business and financial services through its 4,433 shop fronts. In 2008-09 capital expenditure was $270.1 million. The majority of this was on the SAP enterprise system and other systems including HR and point of sale. This is to facilitate new product offerings, improve logistic movements and timeliness to produce a customer focused corporation.
Threat of New Entrants
Due to the legislative and historic nature of letter delivery in Australia, there is a low threat of new entrants in the letter delivery business. In the ag ency services Australia Post is in competition with all major corporations with a broad customer face to face network. This includes banks and insurance companies that are able to offer agency services to existing and new clients. Australia Post is a leader in this market. The biggest threat is in the parcel and logistics business where major international corporations are able to enter.
Bargaining Power of Suppliers
As a major Australian corporation with a monopoly in some of the markets it operates, Australia Post’s suppliers have little bargaining power. To have access to the Australia Post network of shop fronts for retail and agency services, its demands would need to be met. As parcel and logistics is its most competitive business units, suppliers of trucks and other transport needs as well as technology providers such as SAP do have bargaining power as a supplier.
Bargaining Power of Buyers
To regulate Australia Post’s monopoly position in the letter market, price setting of postal delivery is set by the government department overseeing Australia Post with input from the Productivity Commission. This affects commercial buyers as this makes up 79% of all letters
posted in Australia. A growing field is other commercial buyers with direct marketing communications consisting 16% of postal mail (Australia Post Financial Report 2008/09). Parcel and logistics buyers have greater power as they can choose from other international corporations such as Federal Express, DHL or Star Express.
Threat of substitute products or services
The major substitute product is the online communication of information for personal and business correspondence. Online payment of bills and delivery of financial, insurance and utilities can also be serviced online. Logistics and parcel movement can also be moved by substitute products.
Rivalry Among Existing Competitors
As mentioned the main competition is in the Parcels and Logistics business unit. To stay competitive in March 2005, Australia Post acquired State Warehousing & Distribution Services (SWADS). This greatly bolstered the Post Logistics business, giving Australia Post reputation and an existing customer base from SWADS clients. Strategic alliances are also being entered into to cover for logistic deficiencies in Australia Post’s network. This include with StarTrack Express to cover road freight, Australian air Express – increased air freight and international capacity. SWADS – increased business-to-business and business-to-consumer capacity. (Airline Business, 2006)
Strengths
Australia Post’s strengths is not only its monopoly in letters, strong brand with the Australia public, but also management strategic thinking and positioning of the business units to meet future challenges. Australia Post has developed strong links in the Asia Pacific region to provide an integrated logistics solution to its clients. The partnership between Australia Post and China Post to provide end-to-end supply chain to manage cross-border business functions. This allows delivery from warehouse direct to customers from Australia’s largest import/export partner China (James, 2007). Australia Post is the third largest importer of goods to Australia.
Weaknesses
Having a legislative obligation to provide letter services may cost Australia Post in the future if it becomes unviable. Australia Post has also over extended itself in an attempt to provide agency services. In 2006 it put many resources into selling Jetstar tickets, but ended up withdrawing after it realized it would have to be exempt from travel agent licensing requirements. Over extending on agency services may be a weakness.
Opportunities
There are also opportunities in agency services using the Australia Post network, if managed correctly with an adequate fit. This is evident in its move into general insurance. This may be risky as a report by UBS consultancy found that customers are unwilling to leave existing established financial companies (James, 2009). Moves into car insurance are another opportunity to compliment existing over-the-counter banking, international money transfer, bill payments, and identity checking (Sibillin, 2009).
Threats
The external threat in letters is from the social trend of the lowering of use of paper letters. This is evident in international trends over recent years. Australia Post recognize this is only viable with an increase in basic postage rate, which may put the cost of letters out of the market. Another threat is the move form an international player in the complete end to end logistics market that is offered by Post Logistics.
Changes and Challenges
As Australia Post is competing with electronic mail which is delivered instantly and courier companies which are paid a premium to deliver direct to the customer, Australia Post must uphold delivery standards to compete. For the financial year 2008-09 it has been able to meet the following benchmarks: delivered 96.4% of large parcels on time or early, delivered 99% of Express Post items on time or early, Post eParcel increased business by 13%.
To meet the challenges ahead, the Managing Director Graham John, points to the continued investment in technology to improve efficiency and the customer service and the expansion further into business to business logistics. There is also the challenge of meeting the demands of complete supply chain logistics solutions as provided by Australia Post with the assistance of its strategic partners both in Australia and in particular in China.
Recommendations For Next 5 to 10 years
Given the analysis and challenges outlined above, each of the three business units require unique recommendations moving into the future.
Letters distribution will have to cost management will have to be monitored closely as the numbers of items drop to an uneconomic level. Especially as there is a legislative obligation to deliver mail to all parts of Australia. If higher prices for postage to represent increased costs are able to be achieved through the Productivity Commission and efficiencies in deliver when using the expanded parcels and logistics network then the letters business unit may remain viable. By using the technology and distribution networks, including the private carriers, then letters can continue to make a profit.
As mentioned earlier, the most competitive but the business unit where there is the most potential is in Parcels and Logistics. By using integrated supply chain techniques, that is not only transporting but managing the whole delivery process for commercial customers, Australia Post will be so entwined in the delivery of goods that the switching cost will make it prohibitive. This is particularly the case with e-commerce as goods are ordered online and Australia Post is notified immediately to meet this order. There is also warehousing revenue from its Chinese strategic partners.
Agency services and retail outlet also offers opportunities to grow, in particular in the regional areas. A greater banking presence could be offered in the rural and remote areas to take over traditional banking companies. This may also include lending, mortgage, savings and other banking services to offer a complete service to the Australian regional clients as the other service providers move away from these geographic areas.
References
AFR Australia Post Case Study, (2010) http://www.afrbiz.com.au/page.asp? 3652=416520&E_Page=416317&3648=416511&case=416519 (Viewed 21/10/10) Airline Business (2006), Competition Heats Up Cargo Market. Airline Business; Sep2006, Vol. 22 Issue 9, p30-30. Australian Government Department of Broadband, Communications and the Digital Economy Web Site ,http://www.dbcde.gov.au/post/policy_and_legislation (viewed 21/2/10) Australia Post Financial Report 2008/09, www.auspost.com.au/annualreport2009/financial-andstatutory-reports.html, (viewed 21/2/10) Australia Post Financial Report 2007-08, www.auspost.com.au/BCP/0,1467,CH4646~MO19,00.html, (viewed 21/2/10) James, D (2009) No Premium In The Post. BRW ; Vol. 31 Issue 36, p13-13. James, D (2007) Special Delivery, BRW, Vol. 29 Issue 29, p68-70. Sibillin, A (2009) Alpha Mail, BRW , Vol. 31 Issue 36, p43-43. Sweeney, C (2006), Travel Weekly, 22 September 2006, Issue 19.
APPENDIX A Diagram From www.afrbiz.com.au : Australia Post Case Study
