World experience of successful and not so successful postal reforms

World Post Day is celebrated on 9 October to commemorate “the role of the postal sector in the daily lives of people and businesses and its contribution to social and economic development.” The global postal industry is currently undergoing a period of transformation. Operators in different countries adapt to new conditions at different speeds and with varying degrees of success. In particular, the authorities recently assessed the state of Russian Post with the words “financial hole.” We studied how mail in different countries survive in the digital age, using the example of five organizations.

USA: defaults and write-offs

The United States Postal Service (USPS) has been an independent agency of the federal government since 1971. The majority of the members of the board of governors are appointed by the president with the consent of Congress. By law, the post office is a self-financing institution that operates from revenues from the provision of postal services.

Like many other postal services around the world, the USPS has faced financial difficulties amid declining mail volumes. From fiscal years 2000 to 2021, its activities were primarily unprofitable. The excess of income over expenses was recorded only in a short period from 2003 to 2006.

The USPS defaulted on its employee pension fund payments several times in the 2010s. The organization took steps to optimize costs, including by reducing the number of branches and sorting centers, a more flexible approach to hiring staff and working hours, automating processes, and delegating a number of functions to private companies. During the pandemic, its functionality expanded to include the delivery of Covid testing kits. The postal service’s role in delivering ballots has also grown (four in 10 Americans voted by mail in the 2020 presidential election).

In 2022, after years of discussions, Congress passed a law on reform of the US Postal Service – Postal Service Reform Act, PSRA, introducing a number of organizational and technical changes. The requirement to fund postal employee pensions from the organization’s operating revenues, which had placed an undue burden on its budget, was eliminated. As a result, despite rising operating costs due to inflation, the US Postal Service ended fiscal 2022 with net income of $56 billion versus a net loss of $4.9 billion a year earlier.

It was possible to gain profit only due to write-offs $57 billion in overdue pension payments.

Germany: international expansion

The German state postal organization Deutsche Bundespost, as a result of the postal reforms of 1989 and 1995, was divided into three independent joint-stock companies: Deutsche Post AG, Deutsche Telekom AG and Deutsche Postbank AG. The first began providing postal services, the second became a telecommunications company, and the third became a bank (now a division of Deutsche Bank).

Initially, Deutsche Post AG remained under state control, but its board of directors included experienced managers from the private sector, who launched a modernization process. In 2000, Deutsche Post AG became a public company. Initially, 29% of the shares were sold. Currently, three quarters are in free circulation shares. The state, through the KfW bank, controls 20.49%.

Since the late 1990s, Deutsche Post has expanded internationally, acquiring dozens of companies providing postal, logistics and related services. After consolidating a majority stake in global express and logistics leader DHL in the early 2000s, the company began providing postal services under the Deutsche Post brand and logistics services under the DHL brand. Since July 2023, the company has been named DHL Group.

Since the early 1990s, German Post has gone from a loss-making government agency to a profitable international company doing business in more than 200 countries. Revenue group in 2022 exceeded €94 million, net profit – €5.35 million. Including the revenue of the division providing postal services in Germany (Post & Parcel Germany) – €16.8 million. It decreased year-on-year by 3 .8% due to a decrease in domestic mail volumes.

Japan: Living by Savings

The Japanese state postal monopoly Japan Post has operated as a state corporation since the early 2000s. It was the largest employer, employing a third of all civil servants in the country. At post offices there was a system of savings banks and insurance offices, which by 2005 had accumulated 330 trillion yen (more than $3 trillion). About 70% of Japanese families had accounts and insurance contracts there.

The issue of privatizing the postal service has been discussed for many years. Proponents of the reform believed that transferring accumulated funds to private financial companies would allow resources to be used more efficiently. Opponents feared widespread layoffs in the industry.

In 2005, a reform plan initiated by then-Prime Minister Junichiro Koizumi led to a government crisis and the dissolution of parliament. Nevertheless, after new elections the reform was approved.

The state corporation was transformed into the Japan Post Group, consisting of the holding company Japan Post Holdings and three independent divisions: Japan Post (postal), Japan Post Bank (savings) and Japan Post Insurance (insurance). In 2015, Japan Postal Corporation raised $11.9 billion in a record IPO. At the moment, 34% of the shares in the parent holding Japan Post Holdings remain under state control, the latter owns 100% Japan Post, 61% Japan Post Bank and 50% Japan Post Insurance.

Group revenue in fiscal year 2023 (ended March 31) amounted to 11,138.5 billion yen ($75 billion), net profit 431 billion yen ($2.9 billion). Including the net profit of the postal division amounted to 62.1 billion yen ($0.4 billion), having decreased by 33% year-on-year. Post remains the least profitable of the three divisions of the holding, but over the past ten years it has gone into the red only once, in 2017. This was due to the unprofitability of the logistics company Toll Group, which was part of the group.

India: the most unprofitable in the country

Indian Government Post is one of the departments of the Ministry of Communications. It has the largest network of branches in the world, most of which are located in rural areas. In addition to delivering correspondence, it provides a number of savings and insurance services, and pays pensions and benefits as an agent of the government.

In recent years, Indian Post has been among the top unprofitable enterprises in the public sector. In 2019, Indian media wrotethat it topped the informal anti-rating, beating other unprofitable giants – the telecommunications company BSNL and the airline Air India.

At that time, the gap between postal revenues and expenses reached 150 billion rupees ($2 billion). In the 2021/22 financial year, it increased to 188.6 billion (about $2.5 billion at the exchange rate for that period). In 2022/23, preliminary estimates show losses exceeding Rs 200 billion.

Along with the fall in demand for traditional postal services, the discrepancy between the cost of services and tariffs leads to a chronic deficit in the postal budget. At the same time, the post office has significant labor costs (up to 90% of all income goes to it). Currently, the authorities and the expert community are discussing various options for overcoming the situation, from diversification and emphasis on new areas of activity to increasing tariffs.

Kazakhstan: timid income growth

The State Post of Kazakhstan in December 1999 was transformed into an open joint-stock company “Kazpost” with 100% state participation in the authorized capital. Since 2008, the sole shareholder of the company is the national wealth fund Samruk-Kazyna. Plans for the privatization of Kazpost have been discussed since the early 2010s, regularly postponed, but never implemented.

Experts tie up this is with the need for financial recovery of the institution. The post office’s net operating income has been negative since 2018. By data for 2022, the group suffered a net loss of 12.454 billion tenge (1.9 billion rubles at the end of the year exchange rate) compared to 7.172 billion tenge (1.2 billion rubles) a year earlier.

By data management, a significant part of the losses is associated with the maintenance of rural branches. At the same time, government subsidies allocated to cover these losses amounted to only 2.7 billion tenge (0.4 billion rubles) in 2022.

Kazpost accepts measures to reduce costs, including by suspending unnecessary projects and optimizing staffing, developing e-commerce and financial services.

Based on the results of eight months of 2023, the company for the first time in five years ceased to be unprofitable and received a net profit – revenues grew by 44% year-on-year.

Olga Shkurenko