Postal services market in Poland 2009

Conference report Postal services market in Poland 2009

On September 23, 2009, in Warsaw, the 5th edition of the conference “Postal Services Market in Poland 2009” was held.

The conference was held under the honorary patronage of Ms. Anna Streżyńska, President of the Office of Electronic Communications.

The conference was attended by 80 participants (including 28 Presidents/CEOs, Vice Presidents, and Management Board Members) representing 40 enterprises from the postal, courier, distribution, and press delivery sectors, as well as representatives of mass mailers from the telecommunications, energy, and publishing industries.

The main themes of this year’s conference were: the commercialization of Poczta Polska and the owner’s further plans for the company, the postal strategy of the President of UKE for 2009–2011, the new Postal Law, directions of development of the postal market, and an analysis of the situation in the markets for letter mail, parcels, and direct marketing; service for the e-commerce sector; and new technologies for postal operators.

The opening address of the conference, titled “The Government’s Strategy toward Poczta Polska. Commercialization and What’s Next”, was delivered by Mr. Maciej Świtkowski, Director of the Postal Department at the Ministry of Infrastructure.

The Director recalled the course of work and sequence of events that led to the transformation of PPUP Poczta Polska into a joint-stock company on September 1, 2009.

He emphasized that in its new legal form, Poczta Polska would have greater opportunities for development, as it would be easier to raise funds for new initiatives, for example in the form of bonds and loans. Thanks to greater access to capital, the company will be able to expand its operations and implement planned investments more easily. Another benefit of commercialization is a change in company management—from the single-person management model (p.p.u.p.) to a model typical of capital companies. In the Director’s view, this model will enable more efficient management of Poczta Polska.

Director Maciej Świtkowski stressed that ownership transformations of Poczta Polska would be possible after 2011, when the company achieves financial stabilization (in line with Stage I of Poczta Polska S.A.’s strategy for 2009–2015). However, full privatization of Poczta Polska is not envisaged; rather, the company would be made public. The State Treasury will remain the majority shareholder, thus ensuring proper oversight of the fulfillment of obligations imposed on the public postal operator.

The Office of Electronic Communications was represented by Mr. Karol Krzywicki, Director of the Postal Market Department at UKE, who presented a talk titled “Regulatory Strategy of the President of UKE for the Postal Services Market for 2009–2011.” The Director outlined the main goals of the Strategy: preparing the market for full liberalization by creating conditions for its harmonious development, introducing the principles of free and fair competition, and ensuring efficient market organization that guarantees the provision of the universal service at a high level and at an affordable price.

The paramount goal is consumer satisfaction. We want to promote modern technologies and electronic solutions in the postal business,” said Karol Krzywicki, who listed as core values to be upheld by UKE: partnership toward entities operating in the postal market, objectivity in assessing all operators, legality in decision-making and actions, as well as professionalism and an understanding of the economic and legal mechanisms governing the postal market. Low barriers to market entry—i.e., the ease of starting a business in this industry—are also a priority for the regulator.

“At the moment, there is no free competition in the postal market. On the one hand, we have a monopoly; on the other, creative methods of circumventing the regulations that protect it. We aim to ensure clear rules of the game, protect consumer interests, and maintain high service quality,” said Director Karol Krzywicki.

UKE’s activities should focus on:

• ensuring that users (including persons with disabilities) have access to postal services at affordable prices, while guaranteeing diversity and quality;
• preventing actions that restrict competition;
• removing existing market barriers in postal activities;
• supporting the creation and development of the postal network.

Director Karol Krzywicki informed conference participants that in December 2009 the price-cap model currently being developed—i.e., the method by which UKE calculates tariffs—was expected to be ready. This is a tariff-approval methodology used in Belgium, France, and Germany. With this method, the public operator will be able to plan profitability and price increases for specific service categories over the long term. The Director announced that UKE would seek to clarify the reserved area so that regulatory tools would be available to respond effectively to cases of law-evasion by operators who add weight to letter mail to bypass restrictions.

Mr. Rafał Brzoska, President of the Management Board of Inpost Sp. z o.o., delivered a lecture titled “Serving the E-commerce Sector: A New Direction of Development for Postal Operators.” The speaker presented data indicating stagnation in the European postal market, a decline in letter volumes, a pronounced decrease in administrative letters (invoices increasingly replaced by e-invoices), and growth in parcel volumes (driven by e-commerce). The structural decline in the number of letters sent is particularly evident when compared with economic growth figures. Until 2003, the number of letters sent rose along with GDP. For the past six years, despite economic growth, letter volumes have been decreasing.

E-substitution is on the rise. According to the data presented, within the next few years as many as 50% of customers will receive bills electronically.

The most dynamically developing segment of the postal market in the coming years will be the e-commerce segment, i.e., B2C and C2C parcel delivery.

According to Mr. Rafał Brzoska, dissatisfaction among e-commerce customers with service provided by traditional postal operators (queues at post offices) and courier companies (focused on B2B services) created space for Inpost to enter the market with parcel locker services. Inpost’s “Paczkomaty 24/7” offer was “tailored” to customer preferences identified in a study by Simon-Kucher & Partners. The essence of the service is 24/7 availability, the individual choice of pickup location and time, a guarantee of delivery within two business days from the date of posting, SMS and e-mail delivery notifications, and competitive prices.

Mr. Rafał Brzoska presented plans for the development of the parcel locker network. At the end of September 2009, 150 machines were operating in 30 cities (located at petrol stations and 24-hour car parks). By the end of October, this number was to be doubled, and by the end of March 2010 there were to be 450 machines in place. The target number of devices is 800, of which 450 are to be located in towns with fewer than 10,000 inhabitants.

The total investment cost in the parcel locker network is to amount to PLN 150 million by the end of 2011. Concluding his presentation, the speaker presented service quality results as of the end of September 2009: 88% for D+1 and 9% for D+2. The declared delivery time is D+2.

Ms. Alina Kępczyńska, Director of the Legal Regulations Office of Poczta Polska S.A., presented a talk titled “The Postal Market in Poland in Light of Current Regulatory Solutions.” She framed the assumptions behind market liberalization in three aspects: competitiveness, lower prices for customers, and a guarantee of the universal service. In Ms. Kępczyńska’s view, the changes being introduced have not met customers’ expectations or operators’ hopes.

In the segment of items already covered by market liberalization (weight 50g–2000g), worth around PLN 800 million, competitive players have not captured the anticipated 20% of the market since January 2006, but barely 5%. According to the speaker, alternative operators have therefore not filled the gap envisaged by the proponents of liberalization, nor have they created a sufficient number of new jobs.

Director Alina Kępczyńska pointed to the disproportion in the scale of operators’ activities.

In 2008, Poczta Polska delivered 1.6 billion items, while InPost—its largest competitor—delivered only 29 million. She noted that alternative operators have focused on serving mass mailers, and the individual customer has not benefited from market opening.

She also emphasized that alternative operators offer poorer service indicators than Poczta Polska. The speaker pointed out that non-public operators operate only within large cities, whereas Poczta Polska’s indicators are calculated based on data from across the country.

Director Alina Kępczyńska argued that the existence of the reserved area—often mistakenly perceived by private operators as a huge privilege of the monopolist—is, in fact, a method of financing the universal service. Current law does not sufficiently protect the inviolability of this area, as evidenced by practices to circumvent it by artificially increasing the weight of items and placing content from more than one economic entity in a single shipment.

She also considered it inconsistent that the draft of the new Postal Law proposes excluding items sent by mass mailers from the universal service, while simultaneously failing to take care of individual customers, who will not gain much choice of services or providers.

The remarks of the Director were complemented by Mr. Mirosław Markiewicz, Member of the Management Board of Poczta Polska S.A. He emphasized that Poczta Polska welcomes competition and does not intend to fight market trends. He announced that Poczta Polska would strive to retain mass mailers and would thoroughly prepare for the full opening of the market in 2013. He pointed out that after full liberalization, major foreign players will enter the Polish market, and their arrival will change the scale of competition and the balance of power.

Ms. Lilianna Badura of Sygnity S.A. presented a talk titled “Cooperation Between Client and Contractor: The Case of Implementing an Integrated ICT System.” The system was prepared for Poczta Polska and is in the final stage of implementation.

The system is to enable clients to track their shipments at every stage—from acceptance at a postal facility to delivery to the recipient. The main goals of the project are: streamlining supervision over the flow of items, reducing irregularities, improving management, and enhancing customer access to information about the status of a shipment. The scope of the project includes the delivery and implementation of infrastructure, the implementation of the application (WiEmPost), ongoing adaptation of the application to changing needs, and maintenance of the entire system.

The project has taken nine years from the tender decision and contract signing. The planned completion of the contract and launch of the system is scheduled for December 2009.

The system is intended to make Poczta Polska’s service offering more attractive (customers will gain electronic access to information), improve cooperation with mass mailers, enhance the security of item handling, reduce labor intensity, and simplify the organization of postal operations.

Mr. Marcin Gurda, President of the Management Board of I.D. Marketing S.A., presented a talk titled “Challenges and Directions of Development of the Postal Direct Marketing Market in Poland.” He presented the concept that the core asset of distribution companies—the address database—can itself become a medium. The thesis that “the address is a medium” follows from the essence of a postal direct marketing operator’s activity, which is precise, effective, and punctual delivery; moreover, reaching everywhere and always—i.e., reliability and ubiquity.

According to Mr. Marcin Gurda, the essence of precise delivery is recipient personalization—the art of aligning a mass sender with the individual needs of a potential customer. In particular, this involves personalizing the database, geographic selection of criteria, and establishing the relationship between an address and the place of purchase. The right message sent to the right recipient yields customer satisfaction, and the sender can then expect a commercial response—i.e., a sales effect. In the speaker’s view, such delivery maximizes results.

The long-term goal is to establish lasting, positive relationships between sender and recipient.

A marketing strategy requires frequent and regular messaging. Such an approach builds lasting—or at least long-term—customer loyalty. The bond thus created allows the sender and their offer to evolve along with observed changes in recipients’ habits and needs.

The head of I.D. Marketing noted the rapid growth of electronic direct marketing tools (an increase in promotional emails, the development of advertising in mobile telephony, growth in TV marketing on digital platforms, and a forecast of consolidating the above tools into a single medium). He noted that the spread of electronic solutions is driven by lower logistics costs, the need for innovation, convenience, recipient mobility—i.e., following the customer—and environmental aspects such as reducing paper consumption.

Mr. Marcin Gurda does not foresee the victory of one communication technique (traditional or electronic) over the other, but rather the emergence of synergistic solutions. “Both domains can support and reinforce each other within integrated campaigns,” he concluded.

To support this conclusion, Marcin Gurda cited studies (Royal Mail & Proximity, 2009, and TNT Post, 2008) showing the advantages of postal direct marketing over electronic methods.

They demonstrate that the majority of respondents still prefer advertising messages delivered by traditional means, which often inspire them to search for more information about the product online. Further findings show the very high effectiveness of traditional marketing methods such as sampling and direct mail.

Mr. Marcin Gurda pointed out that the proper development of direct marketing in Poland requires removing external barriers to access to the medium. In particular, it is necessary to ensure full access to mailboxes for all postal operators (completing the process of replacing old mailboxes with “Euro-mailboxes”) and enabling direct access to mailboxes for delivery personnel (placing mailboxes in locations accessible to operators).

Mr. Wojciech Bytner, General Director of Georg Utz Sp. z o.o., presented a talk titled “Improving Service Quality Through a Modern Solution in the Transport and Storage of Postal Items.”

The speaker presented the history and experience of a company founded in 1947 in Switzerland, operating on the Polish market for 12 years. The company manufactures multifunctional containers and pallets. The core idea is the use of reusable products. The systems are applied in industries such as automotive, chemicals/pharmaceuticals, food, apparel, postal services, automated warehouses, electronics, and retail.

The speaker discussed specific products dedicated to postal operators, in particular the Kolox system developed for La Poste. The container is intended for transporting and storing advertising mail and correspondence from business clients.

Mr. Wojciech Bytner then presented other Georg Utz products for postal operators worldwide (including Deutsche Post, Swiss Post, Die Post, the US Postal Service, and Poczta Polska). Special containers for shipping laboratory samples, CDs/DVDs, and containers for transporting documents by couriers were also presented.

Mr. Robert Sulich, President of the Management Board of the Express Carriers Forum, delivered a lecture titled “The Express Deliveries Sector in the Face of Postal Market Liberalization.” The Express Carriers Forum has existed since 1996 and brings together the following courier companies: AGAP, DHL Express, Federal Express, General Logistic System, OCS, Posłaniec, Riders Express, Siódemka, TNT Express Worldwide, and UPS.

The purpose of the FPE is to represent the interests of its members and the entire industry, especially with respect to the creation of laws affecting the functioning of the express delivery market.

At the outset, Mr. Robert Sulich characterized the express service and the express shipments market. The speaker stated that the express shipments market in Poland is already formed and fully competitive. Many entities operate on it, none of which has a dominant position. There is a full offering for the B2B and B2C sectors, and companies offer city, domestic, and international services.

The speaker was critical of the current regulations, which do not allow for a transparent distinction between a postal service and a transport service. He pointed to inequality regarding operator liability for improperly provided services (universal services versus others).

Regarding the regulations introduced with market liberalization, the speaker noted that inequality has arisen among operators concerning the obligation to provide the universal service. It is unclear whether this is treated as an equal postal service or as a service from another area of law. This results in a division between operators burdened with providing this service and the rest.

“The only thing one can expect is the abolition of the reserved area. I don’t think any of us is interested in it,” concluded Mr. Robert Sulich.

Mr. Marek Sadowski, President of the Management Board of PAF Operator Pocztowy Sp. z o.o., delivered a presentation titled “Analysis of the Mass Mailing Market: Changes and Mailers’ Preferences.”

He noted at the outset that changes in this sector appeared after private operators entered the market, for whom mass mailers are the most important clients.

The main industries generating the mass mailing market are utilities, telecommunications operators, the financial and insurance sector, addressed advertising, and the publishing sector. The value of this market is growing dynamically. In 2006 it exceeded PLN 6 billion, and by 2008 it had approached PLN 9 billion. It is anticipated that by 2012 the value of this market will exceed PLN 12 billion.

According to Mr. Marek Sadowski, the B2C market is characterized by mailers’ focus on relationships with customers, and e-mail as a tool is insufficient for achieving this goal.

“The changes began in 2006, when the market turned toward mass mailings,” observed Marek Sadowski.

New operators, seeking to acquire mailers, offer added value, such as shipment tracking. To meet mailers’ preferences, an operator must have a large distribution network. PAF Operator Pocztowy has the largest network among alternative operators, built with the provision of postal-financial services in mind. It has branches in 340 localities, many with fewer than 10,000 inhabitants. In total, it has over 500 branches in the country connected by a telecommunications network. The operator is introducing solutions aimed at reducing the cost of the so-called last mile of delivery. One such solution is the hybrid mail service (introduced for servicing offices and smaller clients).

In summary, the speaker stated that competition and the rivalry for mass mailers, along with new technologies used to serve them, have led to a significant drop in prices for mass services.

Mr. Olgierd Świerzewski, Attorney-at-Law, Managing Partner at the law firm Łukowicz, Świerzewski i Wsp. Sp.k., presented a talk titled “The New Postal Law: Legal Conditions for the Liberalization of Poland’s Postal Market.”

The speaker presented the assumptions behind the draft amendment to the Postal Law prepared for the Office of Electronic Communications. The most significant element of the amendment will be a new method of financing the universal service.

The presented plans for financing and operating the universal service after 2013 allow for either refinancing it from the state budget, or from a compensation fund, or… they assume the possibility of no reimbursement from any fund. The first two solutions require calculations of the so-called net costs of the universal service, on the basis of which the amount needed to refinance the service could be estimated. But what is innovative about the third idea?

In the draft submitted by the authors, which is to be presented for approval to the Council of Ministers, there is a proposal to include its costs in the price of the service increased by the margin of the operator providing it, i.e., Poczta Polska (based on statements by Director Maciej Świtkowski, Poczta Polska will be the designated operator for the next 5 to 7 years).

“We are used to thinking about financing the loss incurred by the operator; meanwhile, in light of our concept, such a loss cannot occur. The regulator will, under the price-cap method, accept real prices of the universal service after market opening. These prices will be based on the operator’s real service costs plus its margin,” said Attorney Świerzewski.

He admitted that the prices of universal services may jump after market opening, but they will not exceed the upper limit of common sense, because they will be constrained by the requirements of market competitiveness. “If an operator overdoes price hikes, it will lose customers and market share. Other players may, in certain situations, apply low prices; one must even reckon with dumping, which is prohibited by antitrust law. We are going in hard, but these are the consequences of liberalization,” he acknowledged.

This draft assumes that mass services will be excluded from the universal service and that its scope will be further limited to the necessary minimum.

The operator will pass the costs of the universal service on to customers. There will then be no defined loss that would have to be refinanced. The work of Poczta Polska’s accountants will be limited to the method of calculating the margin so that the provision of the universal service is not loss-making. At the same time, this idea would be linked to removing the ban on cross-subsidization. The operator could finance such a service from profits derived from other activities.

The lawyers have taken advantage here of the imprecision in the EU directive’s wording that the universal service must be “affordable.”

List of companies and institutions participating in the conference