Mail volume is in decline…you may have heard. So it might surprise you to learn that many posts around the world still earn more than half of their revenues from lettermail.
In fact, mail remains a profitable business. A collaboration with German research firm WIK-Consult, our latest paper, Mail Profitability in International Posts, examined 13 international posts and found only one, Australia Post, lost money on mail over the last five years. (Data was only available from 2011 to 2015). For eight of the 13 posts, lettermail is the largest source of profits — higher even than parcels and logistics services, which tend to get all the attention these days. Indeed, even highly diversified posts such as Singapore’s SingPost, which also provides courier services, digital mailboxes, and self-storage services, have better profit margins in mail than other business lines.
We dug a little deeper into why mail has remained profitable, even as volumes have dropped. We analyzed five posts — Australia Post, Belgium’s bpost, Swiss Post, Germany’s Deutsche Post DHL, and the UK’s Royal Mail — to determine the main drivers of mail profitability. We chose these five based on the availability of data, the diversity of their circumstances, and a variety of different regulatory and market environments.
It doesn’t take an economist to understand the basic formula behind profitability: revenue minus cost equals profit. Thus, posts that were able to raise revenue, particularly revenue per piece of mail, and lower their operating costs were best able to preserve mail profitability. All five posts pursued similar strategies to achieve this outcome: reduce the size of the workforce, automate mail processing, shrink the number of retail facilities, and streamline sorting and delivery of mail.
We found two factors were crucial in aiding posts’ efforts to raise revenue and cut costs:
- Less restrictive legal and regulatory environments including the freedom to raise prices above the rate of inflation, as well as labor and pension laws that are favorable for the post.
- Government support including direct subsidies, debt relief, restructuring aids, tax credits, and transferring pension liabilities to the federal government.
We noted that the earlier a post restructured and implemented the favorable pricing and regulatory options, the higher the impact on posts’ profitability as these posts have had more time to see a return on investment. This is hopeful news for posts that only recently started restructuring as it could improve future profitability.