Unraveling An Post’s intricate web of history, politics and price hikes

In the age of email and WhatsApp, traditional mail is dying. When was the last time one of us wrote a letter to a relative or friend? Most utilities stopped sending paper bills a long time ago.

The impact on An Post of this technological change has been devastating. Traditional mail volumes fell by more than 7% in 2020, the last year for which figures are available, and by 43% over the previous decade.

Things were not helped by An Post which imposed a series of price increases above inflation. The cost of a first class stamp for domestic mail has risen from 55c in 2010 to €1.25 compared to last month, a total increase of 127pc.

Justifying the most recent increase, from €1.10 to €1.25, An Post boss David McRedmond said the 13% rise was “essential to cover rising costs and ensure continuity service at the same level as the best in Europe”.

Maybe so, but I can’t help but think that responding to falling volumes with ever higher price increases is counterproductive.

If An Post maintains this strategy of responding to declining mail volumes with price increases above inflation, traditional mail will be gone long before the end of this decade.

However, An Post has not remained inactive in the face of the online threat. Based on the principle that “if you can’t beat them, join them”, An Post has transformed itself into the delivery company of choice for most major online retailers, including Amazon.

This bet on online delivery paid off during confinement. With most of the country under de facto house arrest for nearly two years, the only way to get information was online. Contract or online parcel volumes at An Post grew by 100% in 2020, in addition to a 30% increase in 2019 and 35% in 2018. This represents a cumulative increase of 250% in just three years.

This huge increase in online parcel deliveries is the main reason why, despite the collapse of traditional postal volumes, revenue from An Post’s Irish letter and parcel business has grown strongly in recent years – from 523 million euros in 2015 to 635 million euros in 2020.

Although An Post does not break down profits by business activity, Irish letters and parcels are by far the company’s largest business, contributing around 75% of its total sales in 2020. This means that it was the main contributor to the transformation of An Post. net income in recent years, with an EBITDA (earnings before interest, tax, depreciation and amortization) of only 5.1 million euros in 2015, rising to 32 million euros in 2020.

However, EBITDA was even higher in 2019 at nearly €80 million, with the reduction in 2020 being due to a €70 million increase in operating costs generated by increased contractual parcel volumes. . The challenge for An Post will be to grow revenues from these e-commerce parcels faster than its operating costs.

Even with that caveat, it seems reasonable to give An Post the benefit of the doubt on packages. He took a legacy business that was slowly dying out and carved out the guts of a profitable business.

Kudos to McRedmond and his management team.

But, and unfortunately this is a big “but”, An Post’s retail network issues are still 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% of these non-corporate post offices are already co-located with convenience stores, a proportion that will almost certainly increase in the coming years.

The history of the postal network in recent years has been one of steady decline – from 1,164 local post offices in 2010, to 939 at the end of 2020, to just 888 today. This contraction of the physical network occurs at the same time as the value of the activity carried out via the network also decreases, from €164 million in 2015 to €151 million.

Part of the problem with trying to chart the future of the postal network is that it is entangled in a complex web of history and politics. While no politician wants a post office closed in their area, they are also not ready to do anything to solve the problems facing local post offices.

“The pink vision of the post office of the past is of a post office that no longer exists,” Bobby Kerr wrote in his 2016 report on the future of local post offices.

Last week the Irish Postmasters’ Union, which represents most local post offices, published a report calling for the existing commission payment system (which dates back to 1907) to be replaced by an annual contract fee.

IPU Secretary General Ned O’Hara says its members must be able to look to the future.

“We don’t want to be seen as whiners. We want to serve. We know things change… We are independent contractors. We are not paid.

“We need some kind of security to be able to plan for a three to five year business cycle.”