May 1, 2017 (RARC-WP-17-007)
- After years of dwindling mail and booming e-commerce parcels volume, it is easy to overlook the mail business’ actual strategic relevance and financial sustainability.
- The OIG and WIK-Consult found that mail still matters. In nearly all the posts analyzed it has remained a remarkably resilient and profitable line of business.
- To maintain mail profitability, posts took advantage of flexible regulatory environments and government support which allowed them to raise prices and/or decrease their operating expenses.
For this study the OIG partnered with WIK-Consult (WIK), a consulting firm with expertise in international postal markets. In the first phase of the research 13 international posts were reviewed. Despite their differences, 11 of them reported, on average, a positive annual profit margin for mail from 2011-2015. In addition, mail generated over 60 percent of their total profits over the period. In fact, mail represented the single largest source of profits in eight of the 13 posts.
The second phase of the research consisted of analyzing the factors that drive mail profitability. The OIG drilled down into a subset of five posts: Australia Post, Belgium’s bpost, Germany’s Deutsche Post DHL, Swiss Post, and the United Kingdom’s Royal Mail. The best performers benefitted from three main factors:
Less restrictive legal and regulatory environments. Having the flexibility to raise prices as needed was crucial for profitability. Price increases have compensated in part for volume decreases. Flexibility was also seen in labor laws and pension regulations.
A common approach to cutting costs. Where allowed under national laws, the five posts reduced labor costs through workforce attrition, and two-tier wage and benefit systems. They also resorted to automation of mail processing, shrinking the number of post office locations, and streamlining of sorting and delivery— although with different timing and scope.
Government support. This support came in several forms, such as subsidies, debt relief, restructuring aids, tax credits, and transferring pension liabilities to the federal government.