Letters of Intent – interview with Ceska Posta Director
Jaroslav Jurek, 52, began at the bottom of the then-Czechoslovak Post Office in 1970, sorting letters on trains. Following that he was put in charge of the security of postal transport in the Ministry of Post and Telecommunications based in Zilina, Slovakia.
He started the Ceska Posta's marketing department in 1992, a few months ahead of the split with Slovakia. In his new job, he drew on the experience of visits to post offices in the Netherlands and U.K. For the last five years he has headed the post office's small business strategy department. In spite of its size only Jurek and three others the strategy department is at the cutting edge of change in a sector which is evolving rapidly with stepped-up competition from private companies and the prospect of the post office's reserved (protected from competition) area shrinking fast in the near future.
Ceska Posta appears something of a contradiction: It is still trying to shake off its recent past with a little-changed structure, while it already faces tough domestic competition in selected areas. Ceska Posta will have to fall into line with European Union (EU) moves to widen competition between national post offices and private competition.
Jurek told PBJ's managing editor Chris Johnstone that although the structure of the post office will only undergo cosmetic structural changes in the near future, some fundamental shifts in the ways it does business are already being discussed, including bringing in private companies to deliver international mail and cashing in on its slowly developing digital communications network.
Q: What is happening with privatization? A news agency report last November said that the government might be considering selling between 20 percent and 30 percent of Ceska Posta either to a strategic shareholder or as part of an Initial Public Offer (IPO).
A: This is like junk mail. It is absolutely not true. We are now a state-owned company, and in the future we will change to a shareholder company in which there is only one shareholder: the state. I think in the next five to 10 years it is absolutely impossible that the shares will come onto the market.
Q: Why did former Deputy Finance Minister Tomas Potmesil suggest this then?
A: I don't know. I'm not Potmesil. The Minister of Transport [Jaromir Schling] said the same as I said. We are just changing the form of the company.
Q: Are you happy about this? A: If that is the only change it's nothing. If we only change a few letters on our visiting cards it's nothing.
Q: You are currently regulated by the Ministry of Finance, which has refused requests for basic price rises in your services. What effect has that had?
A: It's a problem. We have had to scale back a lot of our investments. Charges for basic services have stayed the same since the beginning of 2001. Over those three years inflation was about 1011 percent. We are negotiating at the moment with the Finance Ministry to deregulate our business prices in the fall. The Ministry of Finance will continue to be our regulator for the foreseeable future.
Q: What spending have you postponed that would have taken place with more money?
A: It is difficult to say. We wanted to build a national data network to link all our offices, for example. This is not happening as fast as we would like. It won't be completed for another two years.
Q: It was a big investment? A: It's one of our biggest. It will cost hundreds of millions of crowns. The second big investment is reconstruction of buildings. At one time it was easy to find a post office anywhere in the Czech Republic it was the most run-down building there. We are trying to change that. The renovation of Prague's main post office cost us Kc 700 million. Normally we spend around Kc 1 billion a year on repairs throughout the country.
Q: Are you looking for strategic partners for any parts of the business?
A: We are looking into partners for some areas, but we are not thinking about strategic partners like Volkswagen is for Skoda Auto. The areas we are looking at are international courier and express services. We have had meetings with one of the important integrators. Maybe we will tell you more in a month. At the moment we use other postal administrations [to deliver international mail to its final destination]. If we had one contract with a global integrator, then we could offer a standard service worldwide. Now, we are reliant on the quality of individual postal services and that is not so standard.
Q: This is a big step. You are moving away from cooperation with other post offices that has existed for years?
A: Yes, but this partner will offer a guaranteed quality of service to every country.
Q: What was the main problem before… A: Actually, most of the problems have been with European countries. Some of these countries have already taken the step we are looking at and used integrators for their services.
Q: What will be the result? A: Czechs should have much better international services for the same price.
Q: The main area where you compete with private companies domestically is on express mail and parcels. What is your market share and how is it evolving?
A: The market is rapidly increasing. It is difficult to say what our market share is. We know our figures but we don't know those of our competitors. There are also many segments of the business, sizes of parcels and rapidity of delivery. For the same-day or next-day delivery, we have around 4060 percent of the market. We have excellent products: next-day delivery or money-back guarantee, tracking deliveries by Internet, etc.
Q: Can you keep this share of the market? A: I think we can increase it because our prices and services are competitive.
Q: How do you see this market evolving? Will there be more players? A: I think all the main players are already here. We already have Deutsche Post, DPD and PPL [Professional Parcel Logistic]. The Czech market is quite small; it is not such a huge cake.
Q: What about new markets? A: I don't think we will see new products; rather, modifications of products, tailor-made for big customers. We already have D plus one [delivery plus one day], tracking of objects. I think the 30-kilogram weight limit of parcels is already enough for our postmen. Maybe when we finish our data network, some services can be offered in connection with that, such as hybrid mail [where a message is sent electronically to a local post office, transposed into paper form, and delivered by hand]. Now we have some such operations out of Ceske Budejovice. It's only now for big customers. When the network is finished we could provide services for medium-sized companies as well.
Q: How will they pay? AThat's a problem. Some services are pre-paid, or we could use credit cards. For companies it's not so difficult. The main problem is for private individuals. At the moment we have about 50,000 contracts with Czech companies. We do a lot of billing for gas companies, and work for banks partly electronically.
Q: How have you been hit by the Internet? A: E-mail is not a replacement for letters; it is more a replacement for phone calls. The main factor hurting letters is social: People don't have time to write these days. Even so, the overall numbers are increasing by 23 percent a year. The figures for private letters are not so dramatic. Most of the increase is from business post. However, overall, we have still a long way to go. In the U.S. there are 100200 letters per person per year. Here, we do not even have 100 letters per person. It is about 70 letters.
Q: What about direct mail [publicity and advertising material]? A: Here, it is increasing very fast. I am talking about direct mail with a name and address on the envelope [as opposed to unaddressed advertising pushed through letterboxes]. That is increasing by about 5 percent a year.
Q: How much of the market is addressed direct mail? A: About 5060 percent. We do non-addressed, but it is a non-strategic activity. It is only an additional activity. Our capacity is the existing postal workers. Once we have to employ more people to carry out this extra business we begin to lose our competitive advantage.
Q: What will be the biggest challenges over the next five years? A: I think the biggest challenge will be strong competition. Our reserved area is small. If you look at the situation in the European Union the reserved area is getting smaller and smaller. We now have the same conditions as in the EU. Our reserved area is currently below 350 grammes, or five times the price of a standard letter. In the future this could be 200 grammes or three times the price.
Q: And the future competition? A: Current competition is the international integrators. In the future it could also be other national post offices. Many of them are already here. When we talk about parcels Deutsche Post is already here. So is France Poste which now owns DPD. Of course when Deutsche Post gets more possibilities, it will use them. Deutsche Post is probably the biggest competitor for the future.
Q: Will Ceska Posta still exist in 15 years? A: Of course. Q: And the workforce, will it still be the same size? A: We have reserved areas and also duties, duties to provide a universal service. To do this I need around 3,500 post offices. We cannot cut these. Of course, there may be some small changes [in the number of workers] but nothing more. At the moment we have 39,500 workers. Ten years ago it was 47,000. We are the second biggest employer in the country after the railways. Unlike the railways, we make a profit every year. We don't get any special treatment we pay taxes like any other company and don't get any subsidies.
Q: We wrote a story awhile back on a battle between private courier companies after one was alleged to be poaching key workers from other companies. Can you compete on wages and conditions with what appear to be aggressive private companies? What has your experience of the market been?
A: We cannot compete on wages with private courier companies. In fact, there are also cases where our people have left because they have been offered higher wages in the private sector. This will happen in the future as well. This is how it is; that's all.
Q: Just one more question, could you comment on this (a notification from Ceska Posta's lost letter department dated November, 2001 to a Belgian address which bears, in French, the masthead Post Office of the Czechoslovak Socialist Republic)?
A: Some of the forms are old It's something to laugh about.
Prague Business Journal
