The loss to An Post of contracts to deliver parcels for online retailers ASOS and Sports Direct seems to have been one nail – if not the final one -in the coffin of Fastway Couriers, which collapsed last week leaving staff, contract drivers and customers stranded.
Regardless of whether or not this is the case, it has revived the issue over whether An Post is using its State-owned and subsidised mail delivery network to undercut commercial courier companies when bidding for delivery contracts from big online retailers.
It is not quite that simple of course. An Post is a commercial state body and as such does not get a subsidy, but it does get significant sums in grants for specific purposes such as supporting the post office network. It was reported recently that it will get €75 million over the next five years for this purpose.
It also benefits from an implicit State guarantee, which affects everything from credit terms to borrowing costs.
READ MORE
It does have a monopoly on letter post and the issuing of stamps which takes the form of a Universal Service Obligation, stipulating daily deliveries and collections countrywide. It is regulated by ComReg who must approve stamp increases.
The PSO covers letters and parcels and as such An Post is not required to operate the services separately. As a consequence it lumps its parcel and letter delivery businesses together in its annual accounts.
[ Fastway problems: Will parcels around Ireland be delayed?Opens in new window ]
But it is pretty clear the parcel tail is wagging the letter dog. Its most recently published accounts – for 2024 – show that turnover at its letter and parcel division grew from €631 million to €720 million and now accounts for 70 per cent of turnover, albeit with a €65 million bump thanks to the general election.
Within that, parcel volumes rose by 12.6 per cent while mail volumes fell by 7.6 per cent. The company says it delivered 2.4 million parcels per week during the peak November and December season and 23 per address during the year, 54 million in total.
The rest of its €1 billion turnover is from services supplied by post offices and its financial services arm, An Post Money.
Tom O’Brien of Nephin Energy on the importance of gas, the potential of biomethane, and whether our energy bills will come down
There is no visibility as to which – if any of these parts of the business are profitable. As a whole the business just about breaks even in the medium term.
The parcel delivery business is inherently low margin, particularly in the labour intensive “last mile” of deliveries to people’s doorsteps.
UPS – the US parcel delivery behemoth – has cut 34,000 drivers and warehouse jobs in the US this year in an effort to save $2.2 billion, claiming it is no longer sufficiently profitable for them to deliver small packages – like the ones that come through your doors a couple of times a week – from businesses to customer.
UPS is turning to the use of contract drivers for the last mile of deliveries in an effort to cut costs. It’s worth noting that Fastway relied on the contracted driver model and still could not compete with An Post, which uses its own employees and vans for the last mile.
The question as to whether An Post’s parcel business was able to win these contracts because its overheads are shared with the letter post business that has a regulated monopoly is a valid one. But is impossible to answer.
One thing worth considering is that after more than 250 years of being in business in one form or another, An Post might know what it is doing in terms of customer service. It regularly tops the list of most trusted Irish institutions (whatever that means in reality) whilst Fastway’s reputation was mixed at best.
Perhaps Fastway was simply doomed by the mountain of debt loaded on to it by its private equity buyers based on over-optimistic assumptions about the future of online shopping and costs. It would not be the first time.
It does seem inevitable that one of An Post’s big competitors will want an answer to the question about cross-subsidisation of its parcel business. For the moment, the PSO would appear to be a fairly bulletproof obstacle and does not comes up for renewal until August 2029. That said, where there is a lawyer there is a case and a challenge can’t be ruled out.
The question is whether the Government can continue to turn a blind eye to the obvious competition issues raised by the Fastway collapse to give An Post a fighting chance of being able to collect and deliver mail – including election leaflets – everywhere in the country every day without a direct and substantial Government subsidy. The answer seems obvious.
