THE NEW ZEALAND POSTAL EXPERIENCE: COMMERCIALISATION & CORPORATISATION
BACKGROUND
Many observers, including the current Chief Executive of the British Post Office, have indicated that they consider the experience of the New Zealand postal service to offer the most useful comparison when we in the UK are planning for future developments in the postal marketplace.
This document provides a brief outline of that experience, before examining the economic impact of the changes that have been carried through, and looking at the effect on levels and types of employment in the industry.
HISTORY/STATUTORY CHANGES
Prompted partly by the need to arrest a decline in profitability of the state owned New Zealand Post Office, a national review of the structure and effectiveness of the organisation was set up in 1986 (Mason-Morris Review). This recommended the separation of telecommunications, postal and banking services, and the formation of three State-Owned Enterprises (SOE). The Government agreed with these recommendations, and introduced them through the 1987 Postal Services Act. On 1 April 1987 New Zealand Post Ltd was established as an SOE with initial share capital of NZ$120m. The Government later sold Telecoms and the former Post Office Bank to private interests, although New Zealand Post Ltd remains in Government ownership.
The organisation is registered as a limited liability company under the New Zealand Companies Act, and has two Government Ministers (the Minister of Finance and the Minister of Enterprise) as shareholders. These shareholders also appoint a board of directors drawn from the community.
The 1987 Postal Services Act also reaffirmed NZ Post's position with regard to the statutory monopoly on the commercial delivery of letters under a given weight and/or price. The area initially reserved was for letters carried for NZ$1.75 or less or under 500 grammes.
The 1987 Act also dealt with a number of other issues, including the requirement to disclose financial information to ensure that NZ Post does not take advantage of its monopoly in one market to cross-subsidise other activities where it faces competition, or exploit this position to reduce service levels. These initial moves were seen as the first steps along the route of complete liberalisation of postal services within 2/3 years, with the Government announcing in July 1988 that it intended to sell NZ Post and deregulate the postal market.
However, in 1989 the Government indicated that there would be no "big bang" and that there would be a staged programme of deregulation. This was ostensibly in order to allow NZ Post time to prepare for privatisation and get into shape to meet the demands of competition. This in turn led to the staged reduction of the reserved area through an Amendment to the Postal Services Act in 1990 which reduced the scope of the reserved area in stages to letters carried for less than NZ$0.80c or under 200g in weight, from 1 December 1991.
Changes within the Labour government and a plea for popularity leading up to a general election in 1993 meant that the sale of NZ Post was ruled out for the foreseeable future. Even when a new government was elected in 1996 the junior partner in the coalition (New Zealand First) ensured that the National (Tory) party had to postpone its intentions to privatise. However it did mean that the statutory monopoly was completely removed with the introduction of the 1998 Postal Services Act. This Act (which took effect on 1 April 1998) means that any company or individual can legally operate a business delivering letters. In the 12 months after this legislation took effect, 23 other postal operators were registered.
Table 1: Key Dates
· 1986 Mason-Morris Review recommends separation of telecom, banking and postal services and formation of three State Owned Enterprises (SOE).
· 1987 The 1987 Postal Services Act establishes these SOEs and sets reserved area for NZ Post.
· 1988 Government announces its intention to sell NZ Post and deregulate the postal market.
· 1989 Government decides not to proceed with full competition and announces a staged programme of deregulation.
· 1990 Amendment to 1987 Act reducing the reserved area further.
· 1993 Government pledges that NZ Post will not be put up for sale in foreseeable future.
· 1998 The 1998 Postal Services Act removes the statutory monopoly and allows any company to carry out the business of delivering letters.
STRUCTURAL CHANGES AND EMPLOYMENT IMPACT
The change in the status of NZ Post has meant that the company have been able to transform a loss making and inefficient organisation into a successful and profitable state-owned company. However, this preparation of the organisation for a liberalised postal market has also been achieved by a number of structural changes, which had a direct effect on employment.
For example in 1987 the National Government announced that, out of a postal network of 1244 post offices, 600 were considered uneconomic. After the conversion of the NZ Post to an SOE later that year, these premises were initially awarded subsidies to maintain existing services. However in February 1988 this subsidy was withdrawn and 432 post offices were closed with the loss of 560 jobs, with the remaining offices becoming postal delivery centres or stamp retail outlets.
This was just one of the moves to improve efficiency and productivity since the establishment of NZ Post as an SOE, or "corporatisation" as it has become known.
The company has also undertaken a capital investment programme of some NZ$324 million (1987 - 1996). It is understood that a substantial part of this investment has been directed at core postal business and the building of new mail handling facilities, as well as the introduction of the latest technology (e.g. optical reading machines).
Despite the large scale closure of post offices in 1988, there are more postal outlets than before corporatisation. As at March 1998, there were 297 "post shops" (formerly Post Offices) operated by NZ Post personnel, and 705 "postal delivery centres" owned and operated by people other than NZ Post, as well as 2945 stamp outlets.
It was due to the push for greater productivity as well as the change in the nature of these outlets that staff numbers have declined, from 12,006 in April 1987 to 6,892 full-time equivalents at March 1997. There has been some additional recruitment in finance and marketing areas, and the creation of some 1,000 new jobs due to outsourcing in subsidiary companies, but overall there has been a considerable reduction in staff (see Table 2 below).
Table 2: Change in the Number Employed by NZ Post
| YEAR |
APPROX. NUMBER EMPLOYED |
ANNUAL CHANGE (%) |
CHANGE FROM 1987 (%) |
| 1987 |
12000 |
|
|
| 1988 |
11000 |
-8.3 |
-8.3 |
| 1989 |
9500 |
-13.6 |
-20.8 |
| 1990 |
8500 |
-10.5 |
-29.2 |
| 1991 |
8250 |
-2.9 |
-31.3 |
| 1992 |
n/a |
n/a |
n/a |
| 1993 |
n/a |
n/a |
n/a |
| 1994 |
7500 |
n/a |
-37.5 |
| 1995 |
n/a |
n/a |
n/a |
| 1996 |
n/a |
n/a |
n/a |
| 1997 |
6890 |
n/a |
-42.6 |
Source: NZ Post, NZ Ministry of Commerce, Communications International
The figures available for the number of people employed in NZ Post in each year since became an SOE clearly demonstrate a fall in the size of the workforce. However these figures are incomplete and have been collated from a number of different sources. The data may be based on a different measure of the numbers employed and the accuracy could therefore be called into question. A more complete record of the employment impact is being sought from NZ Post, but the general trend is clear and is illustrated in the graph below.
There have also been recent developments in respect of NZ Post's retail operations with the formation of a joint venture company with Blue Star International called "Book and More". NZ Post owns half of this enterprise with Blue Star International and intends to transfer many of the existing Post Shops into privately operated outlets under this franchise programme.
The trade union representing postal workers in New Zealand, the Engineering, Printing and Manufacturing Union (EPMU), have been pressing NZ Post to give Post Shop workers a guarantee that they will get priority if they wish to transfer to a position in the "Books and More" franchise. However NZ Post have only given a commitment to pay redundancy packages, and stated that it will assist employees in finding positions where it can.
The EPMU would also like to see collective contracts with similar the wage rates and conditions to those in NZ Post, as individual employment contracts may be used to introduce lower pay and worse terms and conditions for employees. The Communications International have also protested about this situation and have demanded that workers wages and conditions be protected. This venture is seen by those involved as the next step on from deregulation and corporatisation, and has been characterised as privatisation by stealth.
OTHER KEY CHANGES
There have also been a number of key changes to the operations of NZ Post since corporatisation.
· Rural Delivery Services
A flat fee had traditionally been charged for the delivery of mail to rural areas since 1921. However, the rural sector, already worst hit by the closure of "uneconomic" post offices, was subject to even greater charges when the rural delivery fee doubled in 1992 from $40 to $80.
In 1995 though, this fee was scrapped altogether, ostensibly due to the policy of price rebalancing and increased efficiency being passed back to the consumer. This change in policy would also seem to be due to the fact that NZ Post now employs 538 rural delivery contractors to service the 600 routes, and have no involvement in delivery beyond the initial sorting.
· The Basic Letter Price
The basic price of posting a letter increased in 1985 from 25c to 30c, and again in February 1987 to 40c, all in order to address the problems of a decline in profitability. Since the moves toward corporatisation this price has increased once more from 40c to 45c in 1991, but this was reduced again in October 1995 back to 40c in order to boost mail volumes. This is a reduction in the real terms cost of the basic letter price since 1987.
· Discounts to Large Customers
Larger business customers can now benefit from discounts due to the volume of letters and/or the degree of pre-sorting done. Much of this direct mail and business house mailing is done through subsidiary companies set up by NZ Post and operated at arms length.
FINANCIAL IMPACT AND PERFORMANCE
The changes to NZ Post have had a marked effect on the profitability of the organisation. (See Table 2 below).
Table 3: After Tax Profit/Loss NZ Post (1987 - 1998)
| YEAR |
NZ$m |
| 1987 |
-37.9 |
| 1988 |
72 |
| 1989 |
31 |
| 1990 |
53 |
| 1991 |
30 |
| 1992 |
5 |
| 1993 |
37.4 |
| 1994 |
66.7 |
| 1995 |
72.4 |
| 1996 |
75.2 |
| 1997 |
47.7 |
| 1998 |
|
Source: NZ Post Annual Report
The company is keen to point out that this improvement in financial performance is down to a gradual move towards much greater efficiency and productivity, lower prices and investment in improving the quality of service. However as the graph below illustrates this process has not been characterised by a steady improvement in annual profits, but by fluctuating results.
In 1991 the increase in the basic letter price from 40c to 45c mentioned earlier, along with the doubling of the rural delivery fee from $40 to $80 in 1992, clearly had an adverse effect on the amount of business attracted by NZ Post. This was one of the reasons that profits dipped to NZ$5m for the 1992 financial year.
Subsequent improvements in efficiency and productivity have helped the business to become more and more profitable, and even achieve record profits in 1995 and 1996. NZ Post also attempted to diversify into other parts of the logistics business around this time but was unsuccessful in its bid to buy the assets of New Zealand's largest courier and fast freight company, "Freightways". This failure was attributed to the failure of government as the company shareholder to allow it to raise the necessary finance, and led to further investment in NZ Post's own courier business, "Courier Post".
This need for further investment to diversify business was one of the factors that probably led to reduced profits in 1997. The reduction of the price of the standard letter back down to 40c at the end of 1995 also fed through for a full financial year. The company claim that this meant they were forgoing revenue of NZ$35m. in order to ensure a continued volume growth in mail.
The strategic investments made in preparation for the introduction of competition in 1998, such as investment in new technology and restructuring also meant that NZ Post made capital expenditure of NZ$53.3m in the last financial year, and contributed significantly to reduced profits of NZ$18m. According to Ross Armstrong, Chairman of NZ Post, "The significant reduction in net earnings should be seen as a one off result. We have invested in technology and the capabilities of our people. The benefits will show in our future competitiveness."
This investment and improvement by the company also means that it handles 20% more business than it did in 1987. However, as full liberalisation only took effect in 1998, there has not been a great deal of time for competing postal operators to make a significant impact. These new operators are generally small and local and do not yet carry significant volumes of mail. According to the New Zealand Ministry of Commerce, this means that NZ Post probably retains around 99% of the postal market at present.
This overall improvement in financial performance, productivity, efficiency and quality of service has been achieved without privatisation, but through an (often painful) process of commercialisation and corporatisation, with a legislatively imposed objective of profitability and efficiency.
The degree to which these changes have prepared the business for the impact of a fully liberalised postal market will be felt over the coming years, but as the Chairman Ross Armstrong has diplomatically stated, "the short term effect is likely to be adverse".
WEBSITES WITH FURTHER INFORMATION:
New Zealand Post - www.nzpost.co.nz
MATTHEW PAYTON
mpayton@cwu.org
Research Assistant
June 1999
RD99/111/1