The Estonian experience
Mail and Express Review posed questions to Estonia Post on a range of issues such as the implications of independence, the Estonian marketplace, competition, the impact of recession, and the future. Board member Aavo Kärmas provided the answers. Regaining independence in August 1991
The date was very significant for Estonia Post, following the launch of the state enterprise Estonia Post Ltd on 1 June. We had to build up a comprehensive postal service and restore the traditions of a trustful and customer friendly postal company; and to develop a new approach to the provision of up to date postal services. Gaining understanding of new goals and a new corporate culture amongst employees was also a big challenge.
We received a lot of support from our Nordic neighbours to help increase quality of service and to update our processes to meet European requirements. It was hard work: for example, in the course of the transition process, problems occurred with regards to the means of postal payment. The rouble denominated stamps provided by Moscow ran out before new stamps had been printed.
Furthermore, in a rapidly changing and developing society, traditional postal services were no longer profitable and volumes dropped significantly. A number of new services were implemented in 1993 and 1994. These allowed an increase in profitability to be achieved.
Facts and figures
Estonia Post Ltd employs 3,200 people. The company has almost 400 post offices.
The Group includes subsidiaries Estonian Electronic Mail Ltd (50.86% of shares) and Estonian E-Invoicing Center LLC (50.1%). Through Estonian Electronic Mail the Post has 33.3% of the shares of Elektronpost.kz in Kazakhstan.
Letter volumes have been declining annually by up to 10%. We regard high penetration of different e-services as the reason for this decline. Development of e-services is our priority considering the large number of Internet users and nationwide mobile network coverage.
We are also focusing strongly on developing logistics services include parcels, express and warehousing. Although the overall economic situation and declining volumes have influenced our results negatively in recent years, we have made profits in 2008 and 2009.
About 45m letters were sent in 2009, which is nearly 15% less than in 2008. For the coming period we expect a 7-10% decrease. The total domestic parcels market is some 3.5m items a year.
The Universal Service Obligation
The USO is defined in the postal act as the continued and high quality provision of postal services at an affordable price throughout the whole territory of the Republic of Estonia, for correspondence up to 2 kilos and for parcels up to 20 kilos as well as registered and insured items.
Ordinary letter mail is delivered to residents’ post-boxes, and registered mail to recipients against a personal signature. Parcels are delivered according to customer requirements: to the home or to the nearest post office or the customer can collect from the delivery centre.
Delivery of letters is five days a week, and for newspapers six days.
The Post is 100% state owned. Privatisation is one of the possible options for the future. Our main activity is regulated by the Estonian Competition Board.
The impact of the recession
The Estonian economy was hit not only by the global financial crisis but also by a period of overheating in the national economy along with the bursting of the property bubble when the country’s two main banks tightened lending conditions.
GDP dropped by 14% in 2009 and the unemployment rate rose to 13.8%. However, a full fledged crisis was avoided due to existing buffers and a determined response by both the public and private sectors. In 2010 we expect a 0.9% rise in GDP.
In both 2006 and 2007, Estonian Post was not profitable even though the economy was booming. In the second half of 2007 and in 2008 we made major structural changes which helped us during the downturn and to make us profitable in 2008 and 2009.
Responding to competition in parcels and letters
We have more than 30 competitors in the express segment. As the market is so fragmented our strategy is to remain competitive and to sustain our market leader position by investing in technological solutions and by widening our service range. We have moved into pallet transportation and warehousing including value added services. Our technology investments are intended to enhance customer service levels and the overall visibility in our value chain, including track and trace and EDI.
For one of our main competences, the B2C segment, we are planning to offer different delivery options to provide recipients with more choice. We are strong in door-to-door deliveries and we have improved our delivery service to outlets. The next step is to offer automated delivery machines.
All our main express services are available over the Internet for both business and retail customers. Of course we utilise our extensive door-to-door delivery network covering all addresses in Estonia, and the largest network of delivery points in our post offices. We have to a great extent redesigned both of our networks to reduce costs and to offer cost efficient services to our customers.
In direct mail services, we have managed to leverage the product portfolio with new added value services such as database management, address validation and print services.
Last but not least we have also learned from the market that high level quality has always been the standard for selling direct mail services. This is why we measure quality regularly and take into account any client feedback received through market analysis or everyday operations.
Other posts are actively represented in our market. Itella, Bring (Norwegian Post) and Posten Norden are all involved in express and logistics. One of our main competitors in the domestic express segment is DPD, and of course we have all the global brands such as DHL, TNBT and UPS represented here in Estonia.
Developing a Baltic strategy
Due to economic changes in our region many of our domestic customers are changing their strategy. More and more distribution is now centred on one location for the Baltic region, and in these circumstances companies demand pan-Baltic distribution services. Another regional trend is that many Estonian companies, especially e-tailers and distance sellers, are looking for market expansion and the main target is the other Baltic countries. The third driving force is the global trend to supply chain disintermediation and the growth of B2C.
Estonian Post’s strategy is therefore to cover a larger region with unified services. We want to offer the same service levels and customer interfaces in all Baltic countries. Our plan is to extend our parcels services to Latvia and Lithuania, with door to door deliveries by couriers, and deliveries to collection points, including automated delivery machines.
Search for partners
As the Estonian market is relatively small from a European perspective we also see that, by covering a larger region, we can be a more attractive partner for global operators. Our aim is to integrate into a global network to obtain the economies of scale and of scope that are so crucial in the logistics industry. We are looking for alternative partnerships to improve our services for parcels.
Partnerships with strong companies in the fields of web services and database management, as well as business development, will give us greater confidence. In e-commerce we envisage partnerships with webshop application providers and integration of e-shopping companies with our logistics and database services.
Other products and services
Estonian Post’s e-invoicing operator eArvekeskus has developed an e-invoicing platform which makes it possible to enter the paperless bookkeeping era.
My Mark is an Estonian Post e-service where it is possible to order your very own postage stamp from photos.
Financial services are not our first priority and only 7-8% of our revenue comes from the provision of financial services. We offer delivery of pensions and post bank services in co-operation with SEB. We mediate different payments and we offer domestic and international money order services as well as Western Union.
The future
E-services are one of the key opportunities on a five to 10 year time horizon: e-invoices, e-document management, e-receipt, e-delivery order; or mobile based services integrated with web based solutions and secure authentication.
What is as challenging as e-services is database management such as address databases, geographic co-ordinates, different registers and CRM databases. Here data protection will be the key issue.
Since there is still a lot of paper in circulation, we will also offer document digitalisation services and hybrid mail solutions for direct marketing.
This article was published in June 2010’s Mail & Express Review. To subscribe to the industry’s leading quarterly publication, please click here.
