Let Australia Post float its parcel arm so that it can flourish in Asia

Today’s result reveals the strength of AusPost’s parcel arm, it needs to list in order to take the next big step into Asia.

Australia Post Managing Director and CEO, Ahmed Fahour. (Stuart McEvoy/The Australian)

Before the stench of the Canberra swamp destroys Australia Post, the government should crystallise its $5 billion value by floating the parcels business.

As announced today, Australia Post and its CEO Ahmed Fahour achieved a triumph in the half year to December 31 and the $190m parcels profit was achieved despite three enormous attacks from THE global giants over the past three years. Whether Australia Post can continue to beat off the majors as a government organisation is problematical now that it is about to be salary- and therefore talent-constrained by the government after being blasted by the Prime Minister over its salary structure.

Nevertheless, it is remarkable that the attackers, FedEx’s TNT, Japan Post’s Toll and Singapore Post were all thrashed. Indeed, it was revealed in press briefings that Australia Post’s parcel market share has risen from 70 to 80 per cent in the last two years. Australia Post’s annual parcel turnover rate now exceeds $3bn.

All the attackers have suffered huge losses because they believed the Australian government-owned body would be a push over.

Japan Post paid $6.5bn for Toll believing it would beat Australia Post. Japan Post has since written down its investment in Toll by $2bn.

FedEx faces large writedowns on its $4.8bn investment in TNT and the Singapore government has been taught a lesson in its acquisition of Couriers Please in Australia.

While its opponents licked their wounds, Australia Post lifted profit 16 per cent in the latest half year. Moreover, it also broke even on postage, albeit that the service has been reduced as volumes slump. U.S. Postal Service, facing similar problems, recently lost $US5.6bn.

The three groups who dominate global e-commerce are, China’s Alibaba, Amazon and eBay. They use the major global parcels distribution groups in most of the countries where they operate. In Australia they are all customers of Australia Post.

Seven years ago, when Ahmed Fahour became CEO, Australia Post’s parcel business was valued at about $1bn. It is now valued at more than $5bn.

Meanwhile, the postal business is declining at about 11 per cent a year and will eventually be a very small operation.

Back in 2010, Australia Post realised that there would be an enormous rise in e-commerce and that the Australia Post network had to be reorganised to take advantage of this trend.

In addition, Australia Post learned to operate on two levels — its own Australia Post network, which is usually a slower less expensive parcel delivery process, and StarTrack, which was originally owned partly by Australia Post and Qantas and which offers immediate service.

Some three years ago, Australia Post bought out Qantas’ stake for $500m.

StarTrack had developed a world class parcel delivery technology which has become key to the Australia Post wins.

The war in the parcel business will hot up in 2017 and 2018 because Amazon is coming to Australia. The global majors who have been given a severe beating will attempt to get the Amazon business.

Another global post office that also discovered it had to go hard on parcels was Deutsche Post which formed DHL. It started in the parcel business in Germany but extended into an international network.

Deutsche Post, including DHL, is now listed.

Australia Post is now establishing links in Asia to duplicate what Deutsche Post did and developing an international network.

It’s impossible to undertake such a task as a government body because you must pay global salaries. Australia Post is now not allowed to do that. (Why Ahmed Fahour is worth every cent of his $5.6m Australia Post salary, February 15).