Unraveling An Post’s complex web of history, politics and price hikes
A post office whose origins date back to the 17th century is by far our oldest state-owned company.
Unfortunately, this long history has left a legacy that now threatens the company’s continued existence.
In the age of email and WhatsApp, traditional mail is dying. When was the last time any of us wrote a letter to a relative or friend? Most utility companies stopped sending out paper bills a long time ago.
The impact of this technological shift on An Post has been devastating. Traditional mail volume fell by over 7 percent in 2020, the latest year for which figures are available, and by a cumulative 43 percent over the past decade.
Matters were not improved by An Post’s offering of a series of above-inflation price increases. The cost of a first class domestic mail stamp has risen from 55 cents in 2010 to 1.25 euros last month – a total increase of 127 pieces.
Justifying the recent increase from €1.10 to €1.25, An Post boss David McRedmond said the 13 per cent increase was “essential to cover rising costs and maintain service continuity on par with the best in Europe to guarantee”.
Maybe so, but I still can’t help but feel that responding to falling volumes with higher and higher price hikes is counterproductive.
If An Post maintains this strategy of responding to falling mail volumes with price increases above inflation, traditional mail will be gone long before the end of this decade.
However, in the face of the online threat, An Post has not been idle. On a “if you can’t beat them, join them” basis, An Post has become the delivery company of choice for most major online retailers, including Amazon.
This bet on online delivery has paid off big during lockdown. With most of the country under de facto house arrest for nearly two years, the only way to get stuff was online. Contracted or online parcel volume at An Post grew 100 percent in 2020 — on top of a 30 percent increase in 2019 and 35 percent in 2018. That’s a cumulative increase of 250 percent in just three years.
This huge increase in online parcel deliveries is the main reason why An Post’s Irish letter and parcel business has seen its revenue grow strongly in recent years, from €523m in 2015 to €635m in 2015, despite the collapse in traditional postal volumes year 2020.
While An Post does not break down profits by business activity, Irish letters and parcels are by far the company’s most significant business, contributing about 75 per cent of total revenue in 2020. This means that it has been the main contributor to An Post’s transformational earnings over the last few years, with EBITDA (earnings before interest, taxes, depreciation and amortization) growing from just €5.1m in 2015 to €32m in 2020 .
Conclude
A Post CEO David McRedmond
However, EBITDA was even higher in 2019 at nearly €80m, with the decline in 2020 being driven by a €70m increase in operating expenses driven by higher contract package volumes. The challenge for An Post will be to grow that e-commerce parcel revenue faster than its operational expenses.
Even with this caveat, it seems reasonable to choose An Post for parcels when in doubt. It has taken an old activity that was beginning to die out and carved out the guts of a profitable enterprise.
Two and a half cheers for McRedmond and his management team.
But, and unfortunately this is a big ‘but’, the problems in An Post’s retail network remain unresolved.
The public face of An Post is its network of 888 local post offices. With the exception of 45 company-owned post offices, these are operated by independent contractors who receive a commission based on their sales of An Post products and services.
About 60 percent of these non-corporate post offices are already in convenience stores, a proportion that is almost certain to increase in the coming years.
The history of the post office network has been one of steady decline over the last few years – from 1,164 local post offices in 2010 to 939 by the end of 2020 to just 888 today. This shrinking of the physical network has coincided with a decline in the business value transacted across the network will, from 164 million euros in 2015 to 151 million euros.
Part of the problem with trying to envision a future for the post office network is that it is tangled in a complex web of history and politics. While no politician wants a local post office to close, they are also unwilling to do anything to address local post office problems.
“The rosy look at the post office of the past is for a post office that no longer exists,” wrote Bobby Kerr in his 2016 report on the future of local post offices.
Last week the Irish Postmasters’ Union, which represents most local post offices, released a report calling for the existing commission-based payment system (which dates back to 1907) to be replaced with an annual contract fee.
IPU Secretary General Ned O’Hara says its members must be able to look ahead.
“We don’t want to be seen as whiners. We want to provide a service. We know things change… We are independent contractors. We don’t get a salary.
“We need some certainty so that we can plan over a three to five year business cycle.”
https://www.independent.ie/opinion/analysis/untangling-an-posts-complex-web-of-history-and-politics-and-price-rises-41558074.html Unraveling An Post’s complex web of history, politics and price hikes