Postal Services in New Zealand
[ Last Updated 15 May 2006 ]
Document originally published: May 1998
1.1 Introduction
This paper summarises key changes that have occurred in New Zealand since the corporatisation of the government postal operations in 1987 and outlines the fully competitive regime for postal services that was introduced on 1 April 1998.
New Zealand Post Limited has made impressive gains in efficiency since establishment as a State-Owned Enterprise (SOE). It moved from a loss of $37.9 million in 1986/1987 to a $47.7 million after-tax profit in 1996/1997. The company's improved overall position since corporatisation has been founded mainly on productivity improvements and better management systems. Improvements include:
- increased productivity: 40 percent fewer staff since 1987 now handle 20 percent more business;
- through a better, more efficient network configuration, New Zealand Post now has more outlets than before corporatisation;
- the basic letter price has increased just once since corporatisation (from 40c to 45c in late 1991). It was reduced back to 40c effective from 2 October 1995;
- the rural delivery fee was abolished on 1 April 1995;
- larger business customers benefit from volume and pre-sorting discounts; and
- service delivery performance for a basic letter has improved sharply.
New Zealand Post's statutory monopoly has now been abolished and the postal services market opened to full competition.
2.1 Background
The first post office was established in New Zealand in 1840 at Russell, and the Post Office Act 1858 established the postal service as a separate government department. In 1862 agency services for other government departments were commenced, as the Post Office provided an important communication network. In 1880 the Post Office was merged with the Telegraph Department.
The 1986 Mason-Morris Review of the New Zealand Post Office recommended the separation of the organisation into three discrete businesses to overcome structural deficiencies which impeded the effectiveness of its operations. The Government agreed to this recommendation. Three State-Owned Enterprises were formed to take over the commercial functions of telecommunications, banking and postal and agency services, while the regulatory functions were transferred to the Department of Trade and Industry (subsequently the Ministry of Commerce and now the Ministry of Economic Development). Telecom and the former Post Office Savings Bank were later sold to private interests, but New Zealand Post Limited remains in government ownership.
From 1984 steps were taken to arrest a decline in the profitability of the postal and agency services of the Post Office. The basic letter post price was increased in 1985 from 25 cents to 30 cents, and again in February 1987, to 40 cents per item. In the final year before corporatisation, postal and agency services incurred a before-tax loss of $37.9 million, principally on agency services. The price of the standard letter in real terms is reflected in the graph below:
2.2 New Zealand Post Limited
On 1 April 1987, New Zealand Post was established as a State-Owned Enterprise (SOE) with an initial share capital of $120 million. As a State-Owned Enterprise, New Zealand Post Limited is expected to perform as well as any comparable business not owned by the Crown. As at 31 March 1996, shareholders' funds were $207 million.
New Zealand Post is registered as a limited liability company under New Zealand's Companies Act 1993. Shareholders on behalf of Her Majesty the Queen of New Zealand (the Crown) are the Minister of Finance and the Minister for State-Owned Enterprises. New Zealand Post Limited has a board of directors, appointed by the shareholding Ministers, and drawn from the New Zealand community.
Each financial year the Board and the shareholding Ministers are required to agree on a Statement of Corporate Intent (SCI) for the current, and two succeeding financial years. The SCI details the specific information required under the State-Owned Enterprises Act 1986, including the objectives of the company, the nature and scope of its activities, and the financial performance targets for the three-year period. The agreed SCI is tabled in Parliament, as is the Annual Report and Financial Statement of the company.
New Zealand Post Limited is also subject to the key agencies and legislation which review public sector activities. These include the Controller and Auditor-General (which is responsible for audits); the Official Information Act 1982 (which relates to the release of official information); and the Ombudsman Act 1975 (which provides for review of Government activities).
2.3 New Zealand Post's Network
New Zealand Post took over the previous postal network of 1244 post offices, of which 906 were full post offices and 338 were postal agencies. As 600 post offices were identified as uneconomic, the Government retained the title to these premises and paid subsidies to New Zealand Post and Post Office Bank Ltd to maintain existing services. The subsidies ceased on 5 February 1988 and 432 post offices were closed to become "post only" agencies. At the remaining 168 locations, agencies were closed to become postal delivery centre or stamp retail outlets.
Since corporatisation, the company has undertaken a capital investment programme of some $324 million as at 31 March 1996, providing for increased automation and modernisation of its operations. A substantial part of the investment has been directed to the core postal business, rather than new activities, for example, the building of new mail handling facilities in Auckland, Hamilton, Wellington and Christchurch, as well as the introduction of the latest technology such as optical reading machines.
As at March 1998 the network comprised:
| Post shops (including franchises) |
297 |
| Post centres |
705 |
| Total retail outlets |
1002 |
In addition, there were around 2945 stamp retailers.
Post Shops are outlets staffed by New Zealand Post personnel. They offer a full range of postal services and provide agency services on behalf of other businesses and government departments.
Post delivery centres (PDCs) are outlets owned and operated by people other than New Zealand Post, that offer services such as sale of stamps, postage of parcels and letters and mail collection over the counter or by private box. PDCs provide a valuable additional line of business to many rural businesses in small rural districts.
Stamp retailers' only postal business is the sale of stamps, as an adjunct to their regular business. Since late 1991 New Zealand Post has significantly increased the number of stamp retail outlets, to include supermarkets. Many of these retailers are located in city suburban areas, with a street posting box located nearby.
Staff numbers have declined by 43 percent from 12,006 at 1 April 1987, to 6892 full-time equivalent staff at 31 March 1997. Since corporatisation, New Zealand Post has recruited additional skills, particularly in the finance and marketing areas. Decreases in direct employment have in some cases been offset by outsourcing and creation of some 1,000 new jobs in subsidiary companies.
Since corporatisation, New Zealand Post has paid particular attention to its main business customers, who account for much of its total postal revenue. Discounts from the standard charge for the basic letter post are offered to customers with higher postal volumes. The actual level of discount varies and is primarily determined by the level of pre-posting sorting which the customer undertakes as this eliminates some New Zealand Post handling stages. Discounts are also offered for postings during off-peak daytime hours on weekdays; for BoxLink (mail between two post office boxes or private bags); and for mail which encourages a mailed response, for example, accounts from Telecom New Zealand.
New Zealand Post regularly delivers mail to 1.5 million delivery points. 74 percent of these points are to urban residents; a further 15 percent to businesses, and the remaining 10 percent to rural residents (served either by direct delivery to residential address via a rural delivery box, or through collection facilities offered to the addressee comprising either private box, counter collection or community mail boxes).
Over 95 percent of delivery points receive a six-day per week delivery service, and most of the balance receive a five-day per week service. Some 1,200 delivery points in remote areas receive one-to-four day per week delivery service.
2.4 Rural Delivery Service
The rural delivery of mail commenced in 1904 and those householders wanting a delivery service were obliged to pay a large proportion of the costs incurred by the New Zealand Post Office. A flat fee of £4 or £2, depending on the frequency of delivery, was introduced in 1921. Over time, this rose to a level of $80 until, on 1 April 1995 New Zealand Post abolished the rural delivery fee. The decision was taken in the context of a wider programme of price rebalancing, which had previously included reductions in bulk mail and the price of the basic letter. The policy of price rebalancing reflected the company's increased efficiency, which enabled it to pass savings back to the consumer.
New Zealand Post provides a delivery service to 130,000 rural delivery boxholders. Rural delivery represents some 8.9 percent of mail delivery points and 10 percent of mail handled annually. 91.2 percent of boxholders receive a six-day per week delivery service; 6 percent receive a five-day per week delivery service; and 0.4 percent receive a one-to-four day per week service.
At present New Zealand Post employs 538 rural delivery contractors servicing some 600 rural routes. A number of contractors operate multiple contracts, i.e. they have combined two or three small contracts to form a single business activity.
The rural delivery service contractors are typically based at rural post shops or at provincial mail service centres. Mail is:
- transported by New Zealand Post to the delivery base;
- sorted by New Zealand Post to the individual contractor (within New Zealand Post's premises);
- sorted by the contractor into delivery order (typically in New Zealand Post premises); and
- delivered by the contractor typically along with a variety of other goods.
Rural delivery contractors gain their contracts by way of public tender. In the typical situation, tenders are called and, after evaluation, let for an initial three-year period. As long as the contractor is satisfied with the level of payment being provided by New Zealand Post at the end of the first three-year period, and New Zealand Post is satisfied with the standard of service being provided by the contractor, the contract is normally rolled over for another three-year period. New Zealand Post requires the deliveries to be re-tendered at least every six years.
New Zealand Post seeks information from contractors on the level of other revenue they obtain from the delivery of other goods alongside the mail service. It does not however always award the tender to the lowest bid, as it prepares its own assessment of the minimum return necessary to maintain a suitable standard of service.
The rural sector was greatly affected by closures or changes in status and activities of post offices, particularly in 1987 and 1988. Parliament received more than 300 petitions opposed to these changes, and a Parliamentary Select Committee investigated the situation, especially in parts of Northland and the West Coast of the South Island. The Select Committee's 1989 report concluded, however, that it was the loss of banking services, rather than postal services, which was most keenly felt. The widespread adoption of electronic banking services has greatly assisted with the replacement of banking services in such areas.
The replacement of staffed post offices by postal agencies is now well accepted. In rural areas, the agency is typically held by a local store or service station, and is usually open for more hours per day and more hours per week than the Post Office had been. Hence the availability of postal services typically increases with the switch to an agency, although the agencies do not handle New Zealand Post's financial agency transaction business. In most cases, however, such transactions can be handled by mail or through direct credit arrangements. Overall a postal agency provides a boost for the other aspects of an agent's business, and therefore contributes to the retention of other services in rural towns.
3.1 The Postal Services Act 1987
The Postal Services Act 1987, as amended by the Postal Services Amendment Act 1990, provided New Zealand Post with the statutory monopoly on the commercial delivery of letters that had previously been the preserve of the Post Office.
Under the 1987 legislation, the area reserved to New Zealand Post consisted of letters carried for NZ$1.75 or less or weighing less than 500 grammes. An Amendment to the Act in 1990 reduced the scope of the reserved area in stages to letters under 200 grammes in weight and carried for less than NZ$0.80 from 1 December 1991.
Along with the statutory monopoly, the 1987 Act provided New Zealand Post with the sole right to issue postage stamps; enabled it to erect post-boxes or delivery boxes in public places; allowed the detention and disposal of certain postal articles; prohibited its employees from wrongly divulging the contents or information obtained from a postal article; and required it to maintain a public address list of rural delivery boxholders. New Zealand Post was exempted from any liability in the event of a loss, default, delay or omission in relation to any letter carried within the reserved area. New Zealand Post was also required to disclose financial information, to ensure that it does not take advantage of its statutory monopoly in one market to cross-subsidise other activities where it faces competition, or to reduce service levels.
3.2 The Postal Services Act 1998
Taking effect on 1 April 1998, the Postal Services Act 1998 [link to Interim Website of New Zealand Legislation] repealed and replaced the earlier legislation. It completely removed New Zealand Post Limited's statutory monopoly on the carriage of letters.
Any company or individual is now legally able to carry out a business delivering letters (defined as being carried for not more than 80 cents, including GST, with no weight limitation), so long as the requirements of the Act are met.
Under the Act, all persons carrying out business as a postal operator must apply to the Chief Executive of the Ministry of Economic Development to be registered (except where a person is acting as an employee or agent of a postal operator). The Chief Executive may decline an application for registration only if a person concerned in the management of a business has been convicted of certain offences under the Misuse of Drugs Act, a dishonesty offence under the Crimes Act, an imprisonable offence under postal legislation, or an equivalent offence in overseas jurisdictions. An application fee of $95 is payable by those wishing to become registered. A person is not required to be registered if his or her business relates only to the carriage of items for more than 80 cents.
The Act requires every postal operator to mark postal articles carried with a "postal identifier" - a stamp, marking or impression that is unique to each operator and clearly represents to the public which operator has carried the item.
After a transition period of five years, the government is empowered to designate multiple operators for Universal Postal Union purposes (New Zealand Post is to be the sole operator for this period). The right to issue stamps bearing the words "New Zealand" or any abbreviation of them is restricted to designated UPU operators (and hence to New Zealand Post for at least five years), except where:
- the words "New Zealand" form part of the name of the postal operator which issues the stamp; and
- the words form part of the name under which the postal operator is registered as a company; and
- the postal operator's company name appears in full on the stamp; and
- the words "New Zealand" (or any abbreviation thereof) appear on the stamp in the same typeface and point size as the company name appears.
The Act includes provisions mandating the detention of suspicious or dangerous postal articles by postal operators; and making it an offence to unlawfully open a postal article or divulge its contents, or to post dangerous or objectionable material.
It also gives postal operators the right to erect public letterboxes for remote acceptance of mail and deals with misdelivered and undeliverable postal articles.
A number of regulation-making powers are contained in the Act, relating to the disclosure of information by New Zealand Post and other UPU operators (if designated in the future); and rules relating to the exchange of address information, misdelivered postal articles; and the assignment of numbering systems. It is not, however, initially proposed to introduce regulations other than those related to the disclosure of information by New Zealand Post Limited (see below), as these regulations reflect New Zealand Post holding a dominant position in the postal market.
3.3 The Deed of Understanding
In 1989, New Zealand Post concluded a Deed of Understanding with the Crown, in which it agreed to maintain service standards for the basic letter post and a specified number of postal outlets. In February 1998, a new Deed was signed, with terms that reflected the new competitive environment for postal services.
The current Deed of Understanding requires New Zealand Post Limited to:
- maintain 6 day a week delivery to at least 95 per cent of delivery points, and 5 or 6 day a week delivery to at least 99.88 per cent of delivery points;
- maintain a network of at least 880 postal outlets and post centres, including at least 240 postal outlets;
- not increase the price of the standard letter beyond 45 cents for at least three years (the price cap was set at a level higher than the basic letter price in recognition of New Zealand Post's voluntary price reduction in 1995, and to allow the company some flexibility in a competitive environment); and
- provide access to its postal network to competitors on terms and conditions that are no less favourable than those offered to equivalent customers.
The Deed has been established for an indefinite period: it does not expire, but its terms will be reviewed after three years (i.e. in the year 2000). The agreement has been entered into on the basis that New Zealand Post will remain New Zealand's sole representative at the Universal Postal Union. If the government were to designate additional operator(s) in the future, the terms of the Deed would be reviewed.
3.4 The Postal Services (Information Disclosure) Regulations 1998
The Postal Services (Information Disclosure) Regulations were introduced in May 1998 to facilitate entry into and the development of competition in the postal services market, and to ensure compliance with the Deed of Understanding.
Under the regulations, New Zealand Post Limited is required to disclose the following information in its annual report:
- the number of delivery points in each of the categories specified in the Deed;
- the number of post centres and post shops at the close of each financial year;
- in relation to the delivery of letters within New Zealand, the results of an independent survey on the percentage of letters delivered within advertised deadlines, the percentage delivered within three days of advertised deadlines, and the percentage not delivered within three days of advertised deadlines; and
- separate profit and loss statements for letters carried within New Zealand for less than 80 cents (the previously reserved area); and other services.
The company is also required to disclose, on a quarterly basis, each set of standard terms and conditions for the carriage of letters (for which a charge of not more than 80 cents is made), and each discount of more than 20 per cent off the standard price.
In addition, the company is required to disclose the full details of all access agreements with other postal operators within 15 working days of the date on which the agreement is entered into.
4.1 Other Operators
Full contact details for postal operators can be found on the register of postal operators, which is available for public inspection, either at the Head Office of the Ministry of Economic Development, or over the Internet.
5.1 Further Information
Further information about the postal services environment in New Zealand is available from:
Information Communications Technology Regulatory
Ministry of Economic Development
PO Box 1473
Wellington
Please contact
Phil Toye
Senior Policy Analyst
Telephone: 04-462 4267
Facsimile: 04-499 0969
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