KEY POINTS:
Battered on the one hand by email and other computer-based communications, the amount of mail sent by Kiwis is falling steadily.
And hit by falling volumes on one hand, New Zealand Post is whacked on the other side of the ledger by increasing costs of delivery - especially
as many people no longer send letters to each other. Instead, they expect the postie to deliver all the junk they trade on the internet.
NZ Post was last week able to post a 9 per cent increase in its half-year profits of $52.9 million. Without Kiwibank - which had a 31 per cent profit hike - this would have been down 3 per cent.
NZ Post chief executive John Allen says despite international mail and courier businesses doing well, its core postal service is under pressure, from email substitution, and from falling margins stemming from higher fuel prices and labour costs.
Domestic letter volumes are falling by between 3 and 5 per cent yearly - and this decline is accelerating. The average weight of items is also rising and the number of delivery points is increasing due to new subdivisions and property developments.
Allen told the Herald on Sunday that NZ Post has been preparing for declining mail volumes for the past 15 to 20 years. A big part of this is trying to diversify away from a reliance on domestic post, but there has also been a lot of investment in new buildings and equipment.
"It is absolutely true that when I look at the business over the past half, most of the growth has come from the diversified businesses and our international business and not from the domestic letters business," says Allen. "We're not by any means giving up on the letters business or saying it's dead. It's critically important for NZ Post - we're investing heavily in it and believe in its future, although the future is challenging."
Margins are being squeezed, because volumes are coming down in the domestic market, although costs are increasing. More heavy, large and bulky items are now going through the postal system, says Allen.
He says that posties used to deliver mostly smaller envelopes with letters in them, but they are now delivering all kinds of packets and parcels - a more expensive proposition.
It is here that new prices introduced last week will have the most impact. Posting parcels will cost more, but the size of letters allowed to be posted with 50 cent stamps has increased.
NZ Post says the changes to its pricing have been made to "ensure that NZ Post can continue to provide a high standard of service into the future".
"Until now, large pieces of mail have been the same or similar price to smaller ones and this has not reflected the extra effort and costs required to sort, transport and deliver them," says Allen.
The larger a mail item, the more effort it takes to handle, with people, not machines doing the processing.
They cost more to transport because of size and need double- handling by mail sorters and posties.
One of the rivals to NZ Post trying to carve its own niche of the post market is Pete's Post, which is a privately owned company formed in 1999 after the de- regulation of the industry.
Pete's Post, like a few other smaller companies, essentially re-brands and re-packages what is offered through NZ Post's network.
Pete's Post is targeting smaller, business-to-business mail.
It has an access agreement set up with NZ Post, where the state-owned enterprise transports and delivers Pete's Post pre-paid envelopes through its network.
Grant Dalgarno, chief executive of Pete's Post, says it's a tough busi- ness. "It's been com- mon knowledge for quite some time that overall mail volumes are declining on a year-on-year basis.
"You have to assume with the likes of email and all that, that as the price of mail goes up more people are going to turn to other methods."
Post is not a pro- duct where a marketing push, or pro- motion, could be launched to encourage peo- ple to use it more, Dalgarno says. "Unfortu- nately, post is not a glamorous industry. It's not like telecomms - there's not a lot of money in it.
"When you're talking about an average stamp price of 50 cents, you have to sell a hell of a lot of them to make any money."
Last week's NZ Post price changes are trying to move its business away from mail that needs to be handled many times.
Posties find it difficult to deliver all these parcels, many of which are now sent by Trade Me users.
"That's what it appears to us, anyway," Dalgarno. "Some of the larger envelopes have taken a 50 or 100 per cent increase in price and that hurts a lot of people.
"As an industry all we can do is look at other options - how we can try and re-generate some of that mail volume back through.
"We've had a number of ideas, but it's working through the nuts and bolts. But it's got us all bushwhacked if you know what I mean. There's not a lot of new product we can develop. A letter is a letter.
"We've all been racking our brains and it's about coming up with something new and exciting. But when you look around the world at what other mail operators are doing, there's nothing exciting there either."
NZ Post has now been a state- owned enterprise for 20 years.
Allen is not keen to speculate too wildly about what the next two decades might hold, but he does think that, rather than pulling back on services, the company is likely to move towards offering customers a wider range of services.
This could mean getting deliveries not only on the day they want, but at a specific time or place.
"I think what you're going to find is rather than getting a withdrawal of service, which is a blunt instrument to respond to change, you're going to get an increasing range of services and customers are going to have options about what they're prepared to pay for for that convenience."
AT A GLANCE: WHAT THE CHANGES ARE
New Zealand Post introduced a new pricing system on Friday for all standard domestic mail, which it describes as a "more logical pricing-in-proportion system".
* All standard domestic letters and parcels are now priced in direct proportion to their size and weight. Previously, parcels have been priced mainly on weight.
* NZ Post says the postage price for most standard domestic letters
going through its network has not changed because most of these are small. Bulk mail products - VolumePost, GoFlexible and PrintPost - and letters sent overseas are unaffected.
* Standard domestic letters sent using Standard Post, FastPost, BoxLink and FreePost are affected. The maximum height allowed for "medium" letters has increased from 120mm to 130mm. This means that more greeting cards can be sent at the medium letter postage price of 50 cents, which has not changed.
* NZ Post is trying to soften the blow of its price changes with a new product called ParcelPost tracked, which is cheaper than a courier service, and takes between one and three days to arrive.
POSTING NUMBERS
EXTERNAL REVENUE figures for New Zealand Post.
* For the six months ended December 31, last year:
Postal services - $383.7m.
Banking services - $122.7m.
* For the six months ended December 31, 2006:
Postal services - $393.7m.
Banking services - $105.9m.