The current organization of the state postal service is unnecessarily costly and unprofitable and should be updated, the National Audit Office (Riigikontroll) finds.
This updating should take into account the significant changes in consumer behavior and service volumes, the office says.
Märt Loite, Audit Director at the National Audit Office said: "In a situation where one letter on average is sent per person per year in Estonia and the post office is usually visited in order to pick up a parcel, it is obvious that the current system is outdated."
Rather than ensuring the provision of basic postal services, the current universal postal service organization does hinders rather then helps, the provision of more suitable and modern solutions, while nothing has been done to offer a balance between the needs of the people who require a physical post office and a letterbox, and those who prefer more flexible solutions.
"Even if the post office is not used much, it is still an emotional topic for the people in rural areas because it is feared that the availability of the service will become more limited," Loite went on.
"The reality is, though, that it is more convenient for people both in the city and in rural areas to receive and send parcels from a parcel machines instead of a post office with limited opening hours. However, in rural areas, parcel machines are located further away from the users of postal services than post offices, as the network of the latter must meet the requirements established 15 years ago. There are no requirements for the availability of parcel machines," he added.
Estonia is a part of the Universal Postal Convention, under whose terms customers must have access to the universal postal services at affordable prices throughout the territory of Estonia.
Estonian legislation must also comply with the requirements established by the European Union Postal Services Directive.
A universal postal service provider must also deliver periodicals via its postal network, the audit office notes and, although Eesti Post/Omniva increases the price of home delivery of periodicals year-on-year, and while the state subsidizes home delivery in rural areas, this still does not cover the costs of home delivery in the rural areas, due to falling subscriber numbers and rising costs.
This makes a rise in the price of the service is inevitable, but, the audit office finds, home subscriptions should not become a luxury service.
The allocation of a subsidy to the periodical home delivery service in the state budget should be based on an income-expenditure analysis, and the regional policy impact of the subsidy should also be taken into account, the office adds.
The requirements for the license for the provision of the universal postal service in 2019-2024 are, according to the audit office:
- 215 post offices open 5 days a week for 2 hours a day;
- in rural areas, where the post office is more than 5 km away, it is possible to invite the letter carrier home;
- 1,453 mail boxes;
- payment of pensions and allowances via the postal network;
- provision of money remittance services (i.e. making money transfers) via the postal network;
- delivery of periodicals across Estonia six days a week once a day.
While technical possibilities and consumer preferences have changed, the importance of postal services in the society as a whole has not decreased, the office adds.
Letters are now sent by post at a rate one fifth of that a decade ago, but the importance of postal services as a driver of the economy and trade has grown strongly in the recent years.
During the pandemic, under quarantine conditions, postal services became more important than ever, allowing people locked up in their homes to get the products they needed.
Audit office report on postal service quick facts:
- AS Eesti Post/Omniva expenditures for the provision of the universal postal service in 2010–2019 exceeded revenues by €31 million.
- Loss forecast for 2021–2025: €16.6 million.
- In the third reading of the state budget for 2022, the support for the delivery of periodicals in rural areas was also increased by €2.75 million out of the dividends of Eesti Post
- Total volume of the universal postal service has fallen by about 30 percent in ten years.
- In 2020, a total of 9.7 million parcels were sent using universal postal services, the majority (6.9 million) being international inbound letters, including maxi letters, two-thirds of which were sent via e-commerce.
- 1.6 million domestic letters were posted in 2020.
- The share of domestic unregistered letters in the total volume of the service has fallen from 47 percent to 8 percent.
- Domestic parcels share has fallen, due to competition from various logistics and courier companies, and the rise of automated parcel machines.
The audit office says that the current system is costly and ineffective, hampered by legislation, while losses are the result of costs arising from the requirements set for the postal network, declining demand for the service, a selling price set below the cost price of the service, and delays in changing tariffs.
The price increase needed to cover the expenditure was abandoned on several occasions as, in 2017 and 2019, the minister responsible for the pricing of the universal postal service did not make the necessary decision to increase the price on the basis of the proposal of the Competition Authority (Konkurentsiamet).
In the meantime, prices rose by nearly 40 percent as a result of the pandemic, from spring 2020, rather than rising in increments.
The National Audit Office nonetheless finds that the state has no clear plan for the future of the universal postal service. No development plan or other strategic document covers the strategic objectives in the field of postal services or the measures to achieve them, the office says.
Recommendations include those where the requirements of the postal network would allow post offices and post points with light traffic and limited opening hours to be partially replaced by parcel terminals.
In doing so, it must be ascertained what other services constitute essential services, to be provided in a physical post office, and whether there are any options to replace these with an alternative solution.
In its response to the National Audit Office, the Ministry of Economic Affairs and Communications said it has started updating the universal postal service.
The National Audit Office says these discussions, initiated, at the end of November re a step in the right direction.
The original report in its entirety is available from the National Audit Office site here.
Editor: Andrew Whyte