Thank you Chair and Senators. My name is Paul Graham, I am the Group Chief Executive Officer & Managing Director of Australia Post. I'm joined today by Jane Anderson our Executive General Manager, Community, Sustainability & Stakeholder Engagement and Nick Macdonald our Group Corporate Secretary.
I would like to start by acknowledging the traditional custodians, the Ngunawal and Ngambri peoples and pay my respects to their elders.
I join you today as Australia Post continues to face challenging times.
Structural declines in letter volumes and intensifying parcels competition, driven by global marketplaces, have been further compounded by the largest oil shock on record.
The Middle East conflict has triggered extreme fuel market volatility, with a direct and material impact on Australia Post.
Like many Australian businesses, fuel is an integral component of our operating costs, and is not a cost we can simply absorb.
I wanted to take some time to provide the facts on how we are responding to this situation.
Since the crisis began, our fuel costs have risen sharply from $35.7 million in February, to $50.3 million in March and higher again in April to $56.5 million.
To put that into perspective, our April fuel costs were significantly higher than December last year, despite volumes being a third lower than our busiest ever peak period.
To address these significant cost increases caused by the fuel crisis we have had to adjust our fuel surcharge for our larger contracted corporate customers.
A fuel surcharge is a standard, industry-wide mechanism for recovering fuel costs from contract parcel customers that's based on a rigorous formula, is externally benchmarked, and reviewed by our auditors. It has consistently fluctuated on a monthly basis.
We've had a fuel surcharge mechanism in place since 2017 for Australia Post, and since 2005 for our StarTrack customers.
I want to stress that 94% of our parcel customers are not subject to the fuel surcharge. Last month it applied to 17,000 contract customers - which is 6% of all our customers - and claims in the media that it will increase parcel prices by over 300% are simply wrong.
In practical terms, the cost to send a $10 parcel for these customers has gone from $10.48 including the fuel surcharge before the crisis, to $11.95 - a 14% increase - which will come down once fuel volatility eases.
Despite the increase in fuel, Australia Post's surcharge remains one of the lowest in the transport industry. We delayed the increase for as long as possible but ultimately had little choice.
Given the highly volatile nature of this fuel crisis, we do not expect that the fuel surcharge will cover the significant additional cost increases of recent months. So we will suffer significant losses on fuel despite the surcharge.
However, I am pleased to report there is some better news for fuel on the horizon - as we have seen fuel prices stabilise, remembering our surcharge is on a lag, tomorrow our July surcharge will reduce to 12.3%.
We are laser focused on ensuring our rates remain competitive in a very tight market.
Despite the inflationary environment, the Annual Price Review last year saw our rates increase by just 1.95%, far less than the annual inflation rate.
We are doing what we can to support Australian businesses in these tough times and the wider team deserves great credit for their efforts, we have to be careful not to erode community trust in our business and gives a leg up to international competitors.
We are also future proofing our business and reducing our reliance on fuel by accelerating the electrification of our fleet.
The Government's recent announcement of $40.5 million investment for electric vehicles for Australia Post, which builds on our existing fleet of more than 5,100 EVs is expected to cut diesel use by nearly 900,000 litres and reduce our carbon emissions.
Despite tight margins and rising costs, we are investing to ensure we remain a vital part of our critical national infrastructure, particularly in rural and regional Australia, where we provide essential postal and banking services and support local eCommerce businesses.
We have recently opened a new delivery facility in Corowa, New South Wales, with further sites at Murray Bridge, Kadina, Port Pirie and Tanunda to open across regional South Australia. Over the past few months, we've opened a number of post offices in regional areas, including Community Postal Agencies in Greta in New South Wales, Eton in Queensland, Cooee in Tasmania, Torquay North in Victoria and Waterloo in Western Australia.
This month we officially opened the Brisbane North Parcel Facility, Mookin Yaba, and announced a new facility next to Hobart Airport.
These complement major projects already underway, including a new Sunshine Coast Parcel Facility and our half-billion-dollar Adelaide Parcel Super Hub, as we build safer, more efficient facilities that support our teams and deliver for customers now, and into the future.
Our Licensed Post Offices play a vital role in supporting communities, especially in regional Australia. Last year commissions rose to $604.2 million to support our LPO partners - updated Bank@Post agreements will further boost future payments - and we continue to invest in technology and services to help more than 2,600 licensees adapt as customer needs evolve.
We are acutely aware of the financial challenges facing some licensees as over-the-counter transactions continue to decline year-on-year and more customers shift to digital channels.
I have raised these challenges with this committee multiple times over the years and recently negotiated fairer and more appropriate agreements with our banking partners, which secured higher commission payments for our Licensees. Over the past 18 months, Australia Post has been in active engagement with our LPO network and conducted multiple rounds of consultation with the Licensee Representative Council, POAAL and LPOG, to present a program that better supports the long-term sustainability of these small businesses, particularly in regional, rural and remote Australia.
Australia Post is focused on presenting practical measures to improve the overall sustainability of individual licensees and the broader LPO network. Our latest discussions have focused on modernising operations, updating agreements to provide greater clarity and commercial certainty, alongside a simpler, more predictable payment model with a fixed base component that better rewards licensees and reflects that over 60% of Post Office visits are now parcels-related, so we can continue to meet the needs of customers now and into the future.
I have said before that letters will never return to profitability, and continued digitisation of services will further reduce over-the-counter transactions. Our parcel business is growing, but our Community Service Obligations, rising costs and unprecedented competition points to a very challenging financial outcome.
Further reform of our business is essential.
In closing, I thank our team members, Licensees and Delivery Partners, who are the beating heart of the communities we serve, and our hundreds of thousands of customers who support us every day. By fighting hard and planning for the future now, we're building a modern, sustainable Australia Post that will continue to serve all Australians for generations.
