Why NZ Post has to keep increasing its prices

The cost of posting a letter has to keep rising if Kiwis want to keep the service, an economist has warned.

NZ Post bumped the price up 10c to $1.30 on Wednesday, only 12 months after the price rose 20c.

"New Zealand currently has one of the highest rates of decline in the world, as people choose to communicate more online," said general manager of mail, Matt Geor.

"Only around 1 percent of mail sent in New Zealand is made up of personal letters, the rest is business mail."

The number of mail items dropped 60 million last year - down more than 10 percent.

"This issue is not going to go away - how often to you send a letter?" economist Shamubeel Eaqub asked The AM Show on Thursday morning.

NZ Post currently delivers about 400 million mail items a year, and recently announced a $7 million after-tax profit for the six months to December. But 10 years ago NZ Post was reportedly delivering more than twice as much mail.

"We need to make the price change to help cover the cost of delivering letters and to ensure we can sustain the current postal service for those who are using it," said Mr Geor.

The state-owned business has survived through the rise of parcels and courier services, led by online shopping and sites like Trade Me.

"Not only are we getting more of that online shopping, but retail businesses are running much shorter runs - they have less product on site, they're getting more things moved on very short runs," said Mr Eaqub. "We're seeing the logistics stuff out of retail businesses into these logistics businesses."

Shamubeel Eaqub.
Shamubeel Eaqub. Photo credit: The AM Show

Mr Geor told Stuff NZ Post will struggle to cut costs as volume declines because of New Zealand's low population density and "long, skinny" shape.

"It's largely a fixed cost network, so we don't have the benefit of expenses declining as volume declines."

Mr Eaqub says New Zealanders would not like to see NZ Post give up on delivering mail altogether, even if we only send around 4 million personal letters a year - less than one each.

"How do we manage this service that everybody wants, but nobody uses?"

The new price will kick in on July 1.