During a parliamentary session held on 4 October, Senior Minister of State (SMS) for Communications and Information, Tan Kiat How, defended Singapore Post Limited (SingPost)’s recent decision to raise postage rates for standard regular mail.
He cited the necessity to address financial challenges, accurately reflect postal service costs, and ensure sustainability in response to evolving postal dynamics.
Mr Tan explained that while SingPost’s overall business remained profitable in the financial year 2022, more than 90% of these profits were attributed to its logistics division, largely driven by overseas investments.
“SingPost’s core business in Singapore is post and parcel, which incurred operating losses of S$16 million, ” Mr Tan told Parliament.
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.
On the 19th of last month, SingPost announced a 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.
Tracing the lineage of Singapore’s postal and telecommunication transformations, the 1980s and 1990s emerged as pivotal decades.
Key milestones included the merger of the Singapore Postal Services Department with the Telecommunication Authority of Singapore (TAS) in 1982, the corporatization of Singapore Telecommunications Private Limited in 1992, and eventually, SingPost’s public listing in 2003.
The then Minister for Communications, Mr Mah Bow Tan, during the 2nd Reading of the Telecommunication Authority of Singapore bill in 1992, remarked, “The need for the postal authorities to innovate and compete… applies also in the case of the postal authorities… Corporatisation of the postal authorities would also allow them to take advantage of these changes and to compete in the same arena, like the courier companies and so on.”
SingPost’s operating profit
Speaking of corporate competitiveness, let’s examine SingPost’s profit since its listing in 2003.
It is evident that SingPost’s operating profit experienced a gradual upward trend until it reached its peak in 2019.
Notably, SingPost’s core business, post and parcel services, generated an operating profit of S$165.8 million, the highest among profits from other business segments.
However, in 2020, the COVID-19 pandemic had a global impact, causing SingPost’s overall operating profit to decrease. Nevertheless, the post and parcel sector still contributed S$127.4 million to SingPost’s earnings that year.
Subsequently, this sector experienced further declines but still reported profits of S$24.8 million for its post and parcel activities in FY2021/2022, S$43.5 million in 2021, and S$127.4 million in 2020.
In total, SingPost had a profit of S$2.48 billion from its postal service alone and had garnered S$9.9 billion in revenue.
It indeed prompts us to reflect: considering the substantial profits SingPost has accumulated over the years, where have these profits been directed.
Is it equitable to transfer this burden onto consumers?
It shouldn’t be the case where profits are taken up by shareholders when times are good, and when the company’s revenue drops, consumers are told to pick up the pieces. Is this yet another case of privatizing profit and socializing cost?
Even if the government argues that it’s primarily businesses utilizing these services, it’s evident that consumers will ultimately bear the expenses.
Have SingPost been operating efficiently?
Now, let’s examine the company’s expenditures. Has it been operating efficiently?
The chart below illustrates SingPost’s revenue in comparison to the operating profit from its postal services.
For example, in FY2021/22, the company generated revenue of S$604.7 million, but the operating profit from postal services amounted to just S$119.8 million.
Similarly, in FY2022/23, the operating revenue reached S$505.5 million, yet the post and parcel business incurred operating losses of S$15.9 million.
A review of SingPost’s announcement made in May of this year reveals its operating expenses for the full fiscal year FY2022/23, which were reported at S$1.78 billion, while it recorded an operating profit of S$93.2 million.
This represents an increase in spending from FY21/22, which was reported at S$1.56 billion, alongside a higher operating profit of S$112.1 million for that financial year.
Balancing logistics, essential postal services, and profitability
When examining SingPost’s revenue in relation to its expenses, one has to question: shouldn’t SingPost, as a government-held entity, operate more efficiently with less focus on shareholder profits?
While postal services have traditionally been SingPost’s core business, as emphasized by Mr Tan, an interesting shift was observed in FY2022/2023.
The bulk of its profit in this fiscal year originated from logistics. This shift suggests that while post and parcel might be the heart of SingPost, logistics has increasingly become its financial backbone.
Further complicating the picture is the overlap between the logistics and post and parcel segments. Though logistics is distinct from post and parcel operations, in the broader sense, it encompasses the entire essence of the postal business.
In essence, the infrastructure, facilities, and manpower dedicated to the postal services could potentially serve dual roles, allowing for cross-subsidization of expenses. Such a model would ensure SingPost’s continued commitment to offering essential postal services in Singapore.
Even though Mr Tan stated in Parliament that the majority affected by the hike in postal service fees would be businesses, he failed to realize that businesses would simply pass the cost on to the consumers. Is it reasonable, then, to raise prices simply because the postal services segment wasn’t as profitable as expected?
One potential strategy to remedy this is the strategic application of cross-subsidization. Using profits from the thriving logistics segment to support and perhaps modernize the postal services can ensure that they remain accessible and affordable for all.
The property segment, another arm of SingPost’s operations, further illustrates the potential for cross-subsidization. With properties like the eCommerce Logistics Hub in Kallang and the Kallang Delivery Base, there’s a clear opportunity to integrate property revenue streams with both logistics and postal services.
For FY2022/23, SingPost’s property business contributed a revenue of S$88.3 million. Although property revenues saw a dip post the divestment of the General Storage Company, they can still play a role in stabilizing the company’s overall finances, given a strategic cross-subsidization approach.
Reflecting on the broader historical context, one must ponder: had the postal service’s accumulated earnings, amounting to at least S$2.4 billion, been channeled into the Singapore reserves over the past decades, would the returns have been sufficient to offset the expenses?
This thought inevitably brings to mind the decision to privatize the public service in 1992, prompting us to question the long-term implications of such a move and the challenges of balancing profitability with public service obligations.
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