Tan Kiat How: SingPost’s postage price hike required to sustain postal service for Singapore

SINGAPORE: Senior Minister of State (SMS) for Communications and Information, Tan Kiat How, defended SingPost’s recent decision to increase postage rates for standard regular mail, citing the need to address financial challenges, accurately reflect postal service costs, and ensure sustainability amidst changing postal dynamics.

He said while the overall business of SingPost remains profitable in financial year 2022, more than 90% of these profits were attributable to its logistics business and largely contributed by its overseas investments.

“SingPost’s core business in Singapore is post and parcel, which incurred operating losses of S$16 million, ” Mr Tan told Parliament on Wednesday (4 Oct).

He said this is due to the global decline in letter mail, as well as intense competition from logistics companies and e-commerce players growing their own parcel delivery capabilities.

“As a result, per letter delivery costs has risen considerably, ” he added.

International comparisons cited to justify postage rate increase

Mr Tan defended the rate increase by highlighting that, even after the adjustment, postage rates in Singapore remained comparable to those in countries like Japan and the US.

For context, in Japan, sending items up to 25g costs 84 yen (US$0.56 or S$0.78), while in the US, it costs US$0.66 (S$0.91) to send letters weighing up to 1 oz (28.4g).

On the 19th of last month, SingPost announced the rate increase of 20 cents, raising standard regular mail rates from 31 cents to 51 cents, effective from October 9, 2023. This was the most significant rate hike since 2014.

Yip Hon Weng, Member of Parliament for Yio Chu Kang SMC, and Assoc Prof Jamus Lim, Workers’ Party MP for Sengkang GRC, have separately filed Parliamentary Questions to raise concern over the recent postage rate hike.

Yip Hon Weng asked whether IMDA is aware of SingPost’s projected revenue due to the postal rate increase, the projected amount, if IMDA’s approval is needed for such rate hikes, and if the decision to increase postage rates could have been made earlier.

Meanwhile, Asso Prof Lim asked the Minister whether the Infocomm Media Development Authority will take into account the profit of S$38.8 million registered by Singapore Post in FY2022/23 when working with the company to review its decision to increase postal rates.

Mr Tan in his reply emphasized the changing landscape in the postal sector, with the core business of SingPost being disrupted.

“In the 10 years since, the postal landscape has changed dramatically. For example, letter mail volumes have been reduced by about half.”

He noted that the increase would primarily affect corporate entities, as they account for 80% of all letter mail in Singapore, while the average consumer sends less than one letter per month.

Households to receive complimentary stamps to offset postage rate increase

Nonetheless, he announced that all households will receive a booklet of 10 stamps of 51-cent each, which is enough to cover the increase in postage fees for the average household for about a year.

Mr. Tan also underlined SingPost’s obligation as a Public Postal Licensee to deliver letters to every addressable place in Singapore and its engagement in non-regulated businesses, both locally and overseas.

Postage rate hike “may not guarantee SingPost’s financial improvement”, Mr Tan warns

However, Mr Tan said there is no guarantee that the increase in postage rates will improve the financial position of SingPost.

The boost to revenues may not compensate for the accelerated decline of letter volumes if customers opt for more e-substitution.

“As part of the postage rate increase, SingPost is also expected to invest in transforming its domestic post and parcel business so it remains efficient and provide high quality service. ”

“Nonetheless, this is a move that could put SingPost on a more sustainable path to fulfil its obligations as a Public Postal Licensee.”

In his supplementary question, Mr Yip inquired whether, in addition to the 10 stamps provided to each household to alleviate the impact of the increased postal rate, the ministry would consider offering targeted assistance to those who might be particularly affected, such as property agents, SMEs, or charitable organizations.

In response, Mr Tan reiterated that the impact of the postal rate increase on the average consumer would be minimal since they send less than one letter per month.

He said The majority of domestic mail (80%) is sent by corporate entities, including larger corporations like banks and financial institutions, as well as small and medium-sized enterprises (SMEs).

“To mitigate this, SingPost will continue to provide appropriate bulk discounts to businesses and provide other customer support for this group of consumers and businesses.”

Additionally, Mr Tan said SingPost would also honor first and second local stamp purchases made before the rate increase, providing assurance to businesses using these stamps.

Mr Tan challenges cross-subsidization as unsustainable for SingPost’s business model

MP Associate Professor Jamus Lim, a Workers’ Party representative for Sengkang GRC, raised concerns about whether the postal rate increase, given that government is possibly the primary user of postal mail, might effectively amount to a self-imposed tax on the government itself and whether there might be a more efficient approach to managing the cost increases.

His second supplementary question revolved around the issue of cross-subsidization and whether the timing of the rate hike was optimal given overall net profits.

Mr Tan then clarified that the majority of mail volume in Singapore does not come from the government.

He addressed the issue of cross-subsidization, emphasizing that it’s not sustainable for a publicly listed company like SingPost to support loss-making businesses in Singapore, especially when most of its revenue and profits come from unregulated businesses outside Singapore.

“When the business is doing well outside Singapore, it is expected to support the not-so-profitable businesses in Singapore. But what happens (if it) is the other way around? ”

“What if businesses in other countries are loss-making? Is there (an) expectation for us to backstop those losses?”

“We have to make clear that this is not the regulatory framework which we are operating under. The revenues, and the profits are ringfenced for the domestic regulator segment.”

“It’s not supposed to offset the losses in other businesses and vice versa,” said Mr Tan.

Singpost achieves S$24.8 million profit in 2022 from its post and parcel activities

While it is reported that SingPost incurred a loss of nearly S$16 million in 2023, it’s worth noting that in 2022, SingPost recorded a profit of S$24.8 million from its post and parcel activities.

This followed profits of S$43.5 million in 2021 and S$119.8 million in 2020.

According to the Business Times, SingPost in August this year reported year-on-year growth of 11.8 per cent in its operating profit for the first quarter ended Jun 30, to S$11.9 million from S$10.6 million in the same period the year before.

This came despite a decrease in revenue by 15 per cent to S$404.1 million from S$475.2 million previously.