Increase in Postal Rates despite Profitability Recorded by SingPost

Assoc Prof Jamus Jerome Lim asked the Minister for Communications and Information whether IMDA will take into account the profit of S$38.8 million registered by SingPost in FY2022/23 when working with the company to review its decision to increase postal rates.

Sir, from 9 October 2023, the postage rate for standard letter mail will increase by 20 cents to 51 cents. The impact will be felt mostly by corporate entities rather than households, as they account for 80% of all letter mail sent in Singapore. In fact, the average consumer sends less than one letter a month. Nonetheless, 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.

This is the first substantive increase in postage since 2014. In the 10 years since, the postal landscape has changed dramatically. For example, letter mail volumes have dropped by about half.

As a Public Postal Licensee, SingPost has an obligation to deliver letters to every addressable place in Singapore. It is also a publicly listed company that engages in non-regulated businesses, such as logistics services and properties, locally and overseas.

While the overall business of SingPost remains profitable in financial year (FY) 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 $16 million. 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 have risen considerably.

The Infocomm Media Development Agency (IMDA) approved SingPost’s request to raise postage rates to better reflect the cost of delivering letters. After the increase, postage rates in Singapore remain comparable to countries like Japan, which is about 78 Singapore cents, and the United States (US), which is about 86 Singapore cents.

As noted by several analysts, 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.

Mr Speaker, I thank the Senior Minister of State for his reply. I declare that I am working in an investment firm that has a stake in SingPost. I asked this Parliamentary Question (PQ) based on my residents' concerns and feedback on the issue.

Some of my residents work as property agents or in organisations like charitable organisations, small businesses, and small and medium enterprises (SMEs) that still depend on domestic postage as a primary mode of advertising and marketing. They have, therefore, expressed concerns that the postage hike will affect their livelihoods, especially when there are also price hikes in other areas. In addition to the 10 stamps that the Ministry will provide to each household to soften the impact of the increased postage rates, would the Ministry consider some form of targeted help for those who will be particularly affected, like those I mentioned earlier?

Sir, the average consumer sends less than one letter per month, so, the impact on consumers will be small, as I had shared earlier in my PQ reply. The bulk of the mail and letters, 80% domestic mail are by corporate entities, most of which are larger corporates like banks and financial institutions, but a significant portion is also by SMEs that the Member has mentioned.

To mitigate this, SingPost will continue to provide appropriate bulk discounts to businesses and provide other customised support for this group of consumers and businesses. SingPost will also continue to honour all first and second local stamp purchased before the rate increase. So, to give assurance to the Member's residents who are using these stamps, they will be honoured even after the postal rate increase.

Two follow-ups from me. Given how large corporations and, more pertinently, the Government, are the primary users of the postal mail, one is left to wonder whether this price hike does not amount to a tax of the Government on itself and, if so, is there actually a more efficient approach to pass through such cost increases? My second question has to do with the fact that cross-subsidisation, as the Senior Minister of State knows, occurs in all businesses. So, given overall net profits, is this the best time for the hike or would a delay be more optimal?

Sir, I thank the Member for his two supplementary questions. Allow me to be clear in the first instance. There are two reviews that are ongoing.

First, the Government is carrying out a fundamental review on the future of post and the longer-term considerations around this sector, as well as changes to the postal landscape in the coming years. As shared earlier, there is a global decline in mail volumes. In Singapore, the decline has been accelerating in the last few years with the advent of digital technologies and, certainly, over the COVID-19 period. We are doing a fundamental review on the future of the postal service. In doing so, we want to ensure that the postal service is sustainable for Singapore, sustainable for operators and sustainable for consumers. This may require us to relook existing assumptions, such as letter delivery standards. So, that is one review.

The second review is by SingPost – I just wanted this to be clear. SingPost has committed to reviewing its costs and operations as part of its business transformation. The Government will work closely with SingPost in its review to ensure that it continues to meet its public postal obligations, while safeguarding the interests of the public and postal workers.

So, there are two reviews.

To the Member's first question, there is a technical clarification. Most of the mail volume in Singapore is not by the Government. The Government contributes to a very small proportion of the total mail volume in Singapore.

Second, on the Member's question about cross-subsidisation, we have to understand that it is not sustainable for a publicly listed company to sustain a loss-making business, especially for SingPost where the bulk of its revenue is from outside of Singapore and more than 90% of its profits are from unregulated businesses. A shareholder of the company will justifiably ask whether this cross-subsidisation is both ways. When the business is doing well outside of Singapore, it is expected to support the not-so-profitable businesses in Singapore. But what happens if it is the other way round? What if its businesses in other countries are loss-making? Is there an expectation for us to backstop those losses?

So, we have to make clear that this is not the regulatory framework which we are operating under. The revenue, the profits, are ringfenced for the domestic regulated segment; they are not supposed to offset losses in its other businesses and vice versa.

To give some context to the Member, SingPost just celebrated its 165 years of service in Singapore. It is a century-old business and a century-old sector, but the changes to its business model have been quite dramatic in recent years with digital technologies and, certainly, mail volume saw a huge decline during the COVID-19 period.

So, we are reviewing the fundamental assumptions around the postal service for the long haul to make it more sustainable and fairer.

While I talked about e-substitution, there is important business correspondence that will still require the basic mail service, although volumes are getting smaller and smaller. Many Singaporeans have shared with me that it is heartwarming to receive a post card from loved ones overseas or even when a child sends a post card to Santa Claus. So, there is a need for the postal service. But how do we design a system that is fairer and sustainable for the long haul and where there is commercial incentive for the operator to continue to reinvest in infrastructure, in technology, in automation and, importantly, in jobs and the upgrading of its workers?

So, that is at the heart of the review that the Government is doing.