Mail delivery: A bygone era?

Did you know that the price of stamps is rising?

When asked the above question, many of my friends had no idea what the current price of stamps was. I think the last time I sent or received a letter was about three months ago. The number of Christmas cards my family received in 2014 was three. Now this could just point to the fact that we are anti-social with no Christmas spirit. But this is not a one-family trend. In 2008, the number of letters received each day per delivery point was 1.7. Between then and 2014, that number has fallen by 25 percent to just 1.2, and in 2020 it is projected to be 0.6.  To illustrate this point further, during 2006–2007 Australia Post delivered a whopping 4.5b letters; in 2013–2014, that number declined to 3.4b. This trend has been apparent for some time and is expected to continue. I believe it is time to say goodbye to the daily delivery of letters.

If you can imagine the old world without the internet and smart phones, having an efficient mail service was a key factor in determining the economic efficiency of a nation. It played both a crucial social function and an important role in business, as it allowed geographically distinct communities to communicate and interact.  If you think about the mail service almost as a type of public good, where it is non-rivalrous and comes at a very low cost, the government had an important incentive to ensure an efficient postal service.  And thus Australia Post was set up as a monopoly with two crucial policy objectives: to provide a universal letter service to all Australians, while providing a commercial return to shareholders, the shareholders being the government. However I believe that circumstances have changed, and the services that Australia Post is obligated to provide are no longer in line with what the community demands. Today if I want to communicate with someone, I pick up my phone, I call them, I send a text, I email them. If I want to pay a bill I can do it online, I am able transfer funds with a few clicks; the internet is going to continue to dominate how we interact with each other. Using the basic principle of supply and demand, if the demand is not there, Australia Post should not be obligated to supply at that level.

For some people, especially those in rural areas and older Australians, who do not have adequate internet access, the proposal of no longer having letters delivered door to door is an unreasonable expectation. However I do not believe that the government should subsidise Australia Post for it to keep operating under the same model. Instead, a system where mail is delivered every two to three days, with a modest increase in the price of stamps, is reasonable. It should be noted that the focus is on the letter business, the parcel business driven by online retail and operating within a competitive market is continuing to grow. However with the current rate of losses in the letter business, any profits made by other parts of Australia post will be eclipsed by 2015. Over the next 10 years Australia post is expected to incur cumulative losses of $12.1b in the letter business and $6.6b for Australia Post overall. With the government facing tough budget choices in the current economic climate, I do not believe that the government should subsidise this service. If you assume that willingness to pay is an indicator of need or utility received from a service or good, research undertaken on behalf of the federal government show that only 5% would be willing to pay $25 per annum to retain the current standards of daily delivery. Various price levers such as raising the price of stamps should be used to more closely align the revenue and cost of the service.

Now I understand that technological progress can be intimidating. Australia Post is not the first service that has been superseded by technological progress. Digital technologies have invaded our lives, and there are still fears surrounding it especially when it comes to issues such as displacing workers in the labour market. The term Luddites comes to mind, if you do not know the origin of the word, it refers to 19th century English textile workers who were protesting against the new power looms and stocking frames; essentially new labour economizing technologies that threatened the jobs of textile workers.  Just as the Industrial Revolution changed the way that business operated and what we produce, digital technologies are transforming our economies today and it is an inherently uneven process. While technological advancement forces businesses and the public to adapt to change, it is not necessarily a bad thing. An advantage of this is that consumers are able to pay for what they use.