If you run a business that competes head-on with a government-owned business, you're unlikely to be happy that the government hands your competitor $280 million to prop it up.
That's the situation Freightways has found itself in. Last week's Budget allocated New Zealand Post $130 million over three years "to support the continued service delivery and future of mail services," and another $150 million of additional capital.
Freightways, which operates under a number of brands including New Zealand Couriers, Post Haste Couriers and Castle Parcels, has about 40 per cent of the couriered parcel business in New Zealand. NZ Post, which operates CourierPost, has a similar share. A number of smaller mainly regional companies account for the rest.
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Freightways also competes against NZ Post in the mail business through its business mail service DX.
It's no secret that the mail part of NZ Post's operations has been struggling for many years with the internet and email eating its traditional business.
In February, when NZ Post reported a $31 million net profit for the six months ended December, up from $7 million in the same six months a year earlier, it said letter revenue was down $5 million.
Kiwis sent 23.1 million fewer letters in the six months, down 11 per cent from 196.6 million in the year-earlier period.
Ten years ago, NZ Post was delivering about a billion letters a year.
It was because of that precipitous decline that international ratings agency Standard & Poor's slashed NZ Post's credit rating in December from "A+" to "A," saying that it thought earnings growth in the parcel business would be insufficient to mitigate losses in the mail business.
Freightways chief executive Mark Troughear happened to be presenting to New Zealand Shareholders' Association members the day the budget was delivered and made no bones about his reaction.
"I was ropeable," he told NZSA members. "In my opinion, if they charged the right price for what they do, they wouldn't need to be propped up," Troughear said.
Mispricing "has been the bane of the industry for a while now. You've got to have the right revenue per item for the task that you're performing," he said.
Freightways has been trying to lead prices up, particularly for business-to-consumer deliveries, to ensure it makes a margin.
"If you make a margin on it, you're incentivised to put the right resources in to keep that service at a really high level, which we have done," he said.
"We've been frustrated because we compete against NZ Post who we think don't act particularly commercially in that regard."
During his presentation, Troughear said that through the coronavirus crisis, Freightways has kept delivery times within two working days for 98 per cent of the parcels it handled.
Troughear didn't need to say that NZ Post's service is in trouble. "Where's my parcel?" was one newspaper headline and NZ Post's own website confirms it isn't coping well.
"We're seeing a significant increase in parcel volumes. While the majority are delivered in three days, some are delayed by up to five days – 10 days in Waikato, two weeks in Auckland," the website said.
"Thank you for your patience as we do everything we can to keep things moving."
When one clicks for more information, NZ Post warns it's experiencing high call volumes and asks customers not to even try to phone unless its tracking tool shows it's been more than five days – 10 days in Waikato and two weeks in Auckland – since NZ Post received your parcel.
Talking to BusinessDesk this week, Troughear chose his words more carefully but still had the same message.
"The issue we have is that we feel NZ Post's pricing is below their costs both for mail and courier services."
This isn't the first time Troughear has complained about NZ Post's pricing. Back in February, he said he was thinking of calling the lawyers in after the Commerce Commission declined to take action following a preliminary investigation.
Certainly, the organisations have been going head to head for many years and the balance in the market doesn't appear to have changed very much.
But it's unsurprising that NZ Post chief executive David Walsh was happy to receive the funding injection.
"NZ Post mail and parcel services matter to NZ – we deliver what people care about. We are preparing for the future while taking into account the impact of covid-19," Walsh said immediately after the budget announcement.
The new funds would help maintain current mail service levels "while we work closely with the government on a longer-term solution," and NZ Post had been planning to invest in additional infrastructure to support its parcels and courier services, he said.
"We will now be able to invest and build with confidence."
But one does wonder how much time the government spent looking at NZ Post's track record of delivering returns on investment and assessed whether it delivered value for money.
Since it became a state-owned enterprise in 1987, NZ Post has invested in all manner of things from a joint venture in an airline, AirPost, to a minority stake in Malta's postal service – yes, the archipelago Malta in the middle of the Mediterranean.
In early 2014, it swapped loans of $34.5 million for equity in Localist, an in-house developed business that originally produced printed directories of businesses in Auckland and then moved online. Then it sold the business for $6 million.
But let's just focus on the courier side of NZ Post's operations.
A trawl through NZ Post's annual reports shows it bought Australia-based Couriers Please in mid-2000 for $44.9 million and then in 2008 it sold it and other businesses into an Australian joint venture with DHL for $104.6 million. It then bought half the enlarged business for A$80 million.
Along the way, that business's name changed to Parcel Direct Group and by 2011, the net value of NZ Post's stake and debt the business owed it was $33.9 million.
The following year, NZ Post bought DHL's 50 per cent stake for $153.7 million at a time when NZ Post's own stake was valued at $1 million and changed its name back to Couriers Please.
In 2013, NZ Post injected fresh equity into Couriers Please by buying A$44.7 million in preference shares.
Finally, in December 2014, it sold all of Couriers Please for A$95 million. Because it had written down the assets to well below that, it was able to book a profit of $46 million on the sale.
Express Couriers is now NZ Post's CourierPost, the one part of its business that is reliably profitable.
But it too has a convoluted history.
In December 2004, NZ Post sold all its courier operations into Express Couriers for a nominal $150.5 million and then sold 50 per cent of it to DHL for $90 million and the business still owed NZ Post $30 million.
In 2012, NZ Post bought back DHL's 50 per cent for $153.7 million. At the time, NZ Post's 50 per cent was valued at $76.9 million in its books.
Post the sale, NZ Post valued the goodwill in the business at $165.8 million but the following year had to write that back to $132.2 million.
The latest accounts available for the year ended June 2019 show NZ Post now values the goodwill in its parcels business at $185 million.