Lost in the mail - Poland

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The national postal service, Poczta Polska, is entering a critical year as it prepares to be incorporated. Costs are rocketing, technological transformation is sorely needed and the competition is getting fiercer. Within a few years, the whole European postal sector will be liberalized - can the Polish icon survive?
The challenges for Polish national postal services operator Poczta Polska (PP) will mount this year. Preparations for the complete liberalization of the postal market, the process of commercialization of the institution by the end of the year and the drive for a technological upgrade are only a few of the hurdles to be faced. These tasks are all the more difficult given PP's financial struggles in recent months.

An enticing morsel

The last bastion of the postal-services monopoly is to fall on January 1, 2013, in Poland and other new EU-member countries. On that date, the market will open for private firms to deliver items which are lighter than 50 grams, under a directive adopted by the European Parliament in January 2008.

This service may prove an enticing morsel for companies in the postal-services market. "This is not only about birthday and holiday cards, or personal letters, as one might think. The core of the segment is a whole range of bills, receipts administrative deliveries and corporate correspondence which companies send by the millions every month," said Grzegorz Jabłoński from Spedycje.pl, a transport and logistics website.

The market of postal services will be worth about zł.7 billion following de-monopolization in Poland, according to Stowarzyszenie Tanie Listy, an association of postal and logistics-services operators. The fight for a decent share of the market will be fierce, especially since it is not expected to grow rapidly.

The competition for PP is a range of young and dynamic delivery operators that have emerged in recent years. These include such firms as InPost, Polska Grupa Pocztowa (PGP), PAF Operator Pocztowy, Polskie Centrum Doręczeniowe, and Miejska Poczta Doręczeniowa.

Challenging Goliath

These operators claim they can offer better quality of service and more innovative solutions. "We are the only firm on the market which has the possibility to track parcels, registered mail and regular letters," said Marek Sadowski, spokesperson for PAF Operator Pocztowy. The CEO of PGP, Leszek Żebrowski, added that his company wanted to attract clients by offering careful monitoring and reporting of deliveries as well as flexibility of services. While Poczta Polska's competition is young, its ambitions are high. "We are aiming to be the second-largest Polish operator after Poczta Polska in mail servicing," Rafał Brzoska, the CEO of InPost said.

Although de-monopolization is due no sooner than in four years' time, some firms have already found ways to evade restrictions on delivering letters of under 50 grams. Some, for example, offer the sender the possibility to attach an additional weight to the letter. "This is a natural trend … the sender is forced to take such steps if he wants to get higher quality for a lower price," said PAF's Sadowski, noting, however, that his firm abstains from such practices.

Time to prepare

Despite the fierce competition, the private players say they understand that Poczta Polska needs some time to prepare for liberalization.
"I totally understand Poczta Polska's difficult situation and, as a Pole, I fully support the institution," PGP's Żebrowski said.

Poczta Polska admits that complete liberalization will be a huge challenge. At the same time, it agrees that the process is beneficial for the postal services market.
"[The liberalization] is an inevitable but desirable element of the market, according to Poczta Polska spokesperson Zbigniew Baranowski.

But experts are more pessimistic. "There is very little time left and the institution is not prepared for the full liberalization of the market, either technologically, or financially," said Spedycje.pl's Jabłoński.

PP's excess of employees, the poor quality of its services and problems with delivering mail on time are the most urgent issues, Jabłonski said. Some of Poczta Polska's technology is obsolete and despite recent investment in its hubs, delays will be difficult to make up for, especially when it comes to grasping modern logistics-management patterns, he added.

Although it is the largest postal operator, with 8,487 outlets across Poland, Poczta Polska may see a significant dent in its profits after full liberalization occurs. According to PAF's Sadowski, the small-deliveries market may behave similarly to the courier market after liberalization in 1994. Poczta Polska has retained just under three percent of that market, despite having had a monopoly before liberalization.

Money remains an issue

Poczta Polska's financial troubles are escalating too, especially after raising salaries by an average of zł.537.50 per month last year, which resulted in a zł.50 million increase in monthly operational costs. Mariusz Wnuk, the vice director general of Poczta Polska, was quoted by Parkiet in December as saying that the institution may find itself on the verge of losing liquidity in 2009. In November, Poczta Polska introduced a plan to cope with the crisis.

"[Poczta Polska's] main goal is to improve the quality of its postal services by implementing a system for tracking deliveries, simplifying and automating services and by economizing on internal transport and adjusting the number and size of postal outlets to demand," Poczta Polska's Baranowski said.

Poczta Polska is also implementing its 2007-2015 plan, which aims to create a new logistics model based on a network of eight fully automated hubs and 12 smaller sorting centers. Fully automated distribution centers already operate in Warsaw, Poznań, Łódź and Kraków. Recently opened hubs include ones in Gdańsk, Wrocław and Zabrze, although these have not yet been fully automated.

A company in the making

Incorporation of PP is another step being taken to reform the institution, following legislation that came into force in November. The 12-month-long process will allow the State Treasury to sell shares in PP to private investors. While the services offered will remain unchanged, the transformed company will have greater opportunities to gain funds from external sources in order to finance investments, through instruments such as bank loans or bond issues, according to Baranowski.

"The change will also improve the decision-making process and will enable [Poczta Polska] to transform itself into an effective, thriving enterprise focused on increasing client satisfaction and guaranteeing security for its employees," he said.

But a lack of funds may be a serious impediment for the commercialization of PP. "It is a good solution, but neither the [Treasury] Ministry nor the management of Poczta Polska has the necessary funds," Spedycje.pl's Jabłoński said.

Financial support from large international investors is also uncertain, Jabłoński said. "The queue of investors may not be very long … Two or three years ago I would have mentioned Deutsche Post and La Poste as potential buyers. I am not sure if such a step would be profitable for these companies [at present]. These are not times for such investments, like the one by France Telecom of Telekomunikacja Polska [in 2000]. [Telekomunikacja Polska] had a full monopoly, which is not the case of the Poczta Polska today."

Additional discouragement may come from the fact that even if privatized, Poczta Polska will have to carry out public functions, including less profitable ones, Spedycje.pl's Jabłoński said.

Investment opportunities

Meanwhile, interest from foreign firms may focus on private players instead. This could enable the expansion of the infrastructures and networks of private postal providers, which at present remain relatively undeveloped.
"The need for investments is enormous, so the delay of liberalization may benefit private companies," Jabłoński said.

The private investors are busy developing their infrastructure and implementing innovative solutions, however. PAF's Sadowski said that his firm is capable of operating throughout 70 percent of the country.
"We deliver parcels to almost all the regions of Poland and we deliver letters to 100 cities and towns in Poland," he said.

The firm has recently introduced systems allowing it to lower prices and has also implemented a solution allowing recipients to pick up their mail at a selected outlet, open 24 hours a day.
"We are planning to have a thousand outlets by the end of 2009," he said.

Meanwhile, InPost is launching a system by which recipients can order delivery over the internet to special machines located throughout Warsaw. The first trials of this service will begin at the end of January, according to CEO Brzoska.

Unattractive markets

While liberalization offers new opportunities, not all the areas of the market are attractive for operators. Such is the case of smaller towns and villages, servicing of which may turn out to be unprofitable.
"Who will be willing to take one delivery to a village?" asked Spedycje.pl's Jabłoński. "I can imagine a situation in which the operators will forward the poor-profit messages to the public mail system, because the latter has to take [such letters]."

According to PP's Baranowski, one of the key challenges of liberalization will be to make sure that citizens in Poland will have equal access to all basic postal services in all the parts of the country.

Big enough to last

The coming years will be a busy time for Poczta Polska and much will change, yet the firm still has enormous potential.
"The brand is very strong. If you ask anybody in the countryside about postal-service providers, they will think of Poczta Polska. What is needed is money, technology and sensible managers that are independent of political influence," Jabłoński concluded.

Konrad Kiedrzyński