National Audit Office: more parcel machines are needed. The organisation of postal service is outdated and needs change

12/21/2021 | 11:09 AM

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TALLINN, 21 December 2021 – Even though the number of letters sent has decreased fivefold in the last decade and people prefer parcel machines to post offices, the organisation of the universal postal service has remained largely the same over the years. According to the National Audit Office, the current organisation of the postal service is unnecessarily costly and unprofitable and should be updated, taking into account the significant changes in consumer behaviour and service volumes. 

"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Estonia and the post office is usually visited in order to pick up a parcel, it is obvious that the current system is outdated," said Märt Loite, Audit Director of the National Audit Office. The total volume of the universal postal service has decreased by about 30% in ten years. In 2020, a total of 9.7 million parcels were sent using universal postal services, and the majority of these – 6.9 million – were international inbound letters, including maxi letters, two-thirds of which were sent via e-commerce. There were only 1.6 million domestic letters. The share of domestic unregistered letters in the total volume of the service has decreased from 47%
to 16%. The sending of domestic parcels in the framework of the universal postal service has also decreased because the parcel delivery service is provided by numerous logistics and courier companies, and a large part of consumers prefer getting their parcels from a parcel machines.

The National Audit Office finds that the current organisation of the universal postal service does ensure the provision of basic postal services but hinders the provision of more suitable and modern solutions. No decisions have been made for a long while that would allow a balance to be struck between the needs of the people who need a 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," admitted Audit Director Märt Loite. “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."

According to the National Audit Office, the current system is costly and the financing model does not work. The quality and conditions of the universal postal service are established by legislation and have a significant impact on expenditure and revenues. The expenditure of AS Eesti Post for the provision of the universal postal service in 2010–2019 exceeded the revenues by a total of 31 million euros. The loss forecast for 2021–2025 is 16.6 million euros. The reasons for occurrence of the loss are the costs arising from the requirements set for the postal network, the declining demand for the service, the selling price set below the cost price of the service, and delays in changing the price.

The price increase needed to cover the expenditure was abandoned on several occasions because 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. As the price was not increased gradually, the price of sending a letter in the hectic corona spring of 2020 went up by as much as 38%. In the system of financing the universal postal service, there is a process with a high administrative burden, where Eesti Post requests compensation for excessively burdensome costs from the fund, the monetary means of which are largely collected from Eesti Post's own contributions from the provision of free market services.

In Estonia, the universal postal service provider must also deliver periodicals via its postal network. Although Eesti Post increases the price of home delivery of periodicals every year and the state subsidises home delivery in rural areas, it does not cover the costs of home delivery in the rural areas, as the number of subscribers has been decreasing and the costs have been increasing. Therefore, an increase in the price of the service is inevitable, but subscribing to the press delivered at home 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 speed of letter delivery has been below the level required by law for years. The requirement of the Postal Act to deliver 90% of letters on the working day following posting was not fulfilled in 2012–2019. In 2020, the current one-day delivery letter was replaced with a higher-priced express letter and a lower-priced letter was added, which reaches the recipient's mailbox within three working days, and after this, in the autumn of 2020, the service was provided in accordance with the law.

The National Audit Office 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 National Audit Office recommends that the requirements of the postal network should 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 found out what the other services are that certainly need to be provided in a physical post office, and whether there are any options to replace them with an alternative solution.

The National Audit Office recommends making the price of the postal service as cost-based as possible and eliminating the bureaucratic compensation for the universal postal service. In addition, the National Audit Office finds that determining the price of letters and parcels should not be the task of the Minister. Cost-based pricing should be under the control of the Competition Authority. The National Audit Office recommends finding a compromise for the nationwide functioning of the home delivery of periodicals – the options are either to increase the support allocated for home delivery (state budget support) or to reduce the number of delivery days to save costs.

In its response to the National Audit Office, the Ministry of Economic Affairs and Communications indicated that the Ministry has started updating the universal postal service. The Minister of Entrepreneurship and Information Technology noted that the Minister’s Regulation “The requirements for access points used for the provision of universal postal services and their location” has been sent for approval to other ministries, and the intention to draft the draft of the Act amending the Postal Act is also being prepared. The National Audit Office considers the discussions initiated by the Ministry of Economic Affairs and Communications at the end of November as a step in the right direction. 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 euros out of the dividends of Eesti Post.

Background:

Estonia has acceded to the Universal Postal Convention, which means undertaking to ensure that all users, i.e. customers, have access to the universal postal service that includes the permanent provision of high-quality basic postal services at affordable prices throughout the territory of Estonia. Also, Estonian legislation must also comply with the requirements established by the European Union Postal Services Directive.

The universal postal service means the consistent, high-quality and affordable forwarding of addressed postal items – domestic and international ordinary, registered or insured letters of up to 2 kg; postal parcels as registered or insured postal items of up to 20 kg – throughout the country.

Requirements for the license for the provision of the universal postal service in 2019–2024:

■         215 post offices open 5 days a week for 2 hours a day;
■         in rural areas, where the post office is more than five kilometres 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.

Although technical possibilities and consumer preferences have changed, the importance of postal services in the society as a whole has not decreased. Letters are now sent by post five times less than ten years 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.

 

 

 

 

 

Priit Simson
Head of Communications of the National Audit Office
+372 640 0102
+372 5615 0280
priit.simson@riigikontroll.ee
press@riigikontroll.ee
http://www.riigikontroll.ee/

  • Posted: 12/21/2021 11:09 AM
  • Last Update: 12/21/2021 1:26 PM
  • Last Review: 12/21/2021 1:26 PM

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