Political decision costs Estonian Post €3m a year

Photo: Urmas Luik / Pärnu Postimees

The law says Estonia must have a post office in each commune, no matter the size. In the countryside, the distance between letterboxes may not exceed two kilometres (1.2 miles). 

Estonia has 40 communes with fewer than 1,000 people in them. All of these have post offices. In a small commune, the post office daily turnover averages €3 a day, but it would be illegal to shut doors.

Last year, the state enterprise AS Eesti Post (Estonian Post, Omniva) spent €2.6m to do the duties of a universal i.e. state postal service provider. What meaneth this?  Every five years, Estonian Competition Authority sets up a public competition to find a universal postal service provider. In 2009, only Eesti Post participated. Private companies did not find the competition attractive back then, and they still don’t.

This summer, another competition was held. Again, Eesti Post was sole participant. The enterprise participated as, in case the competition had failed, the current service provider would have been appointed. Thus, for Eesti Post there’s nowhere to hide from the loss-making obligation.

According to this year’s forecast, the state enterprise will pay €2.9m to provide the service.

Merge the services

Whence the loss? Pursuant to economy and communication ministry regulation, every commune needs to have a post office no matter if its inhabitants number 400 or 2,400. In rural areas, however, people are increasingly becoming a rarity, while utility and salary costs keep rising. 

Over the past years, the practical need for post offices has diminished. Pensions can be received in bank branch or by transfer. A letter may be sent by dropping it in a letterbox. A package may be sent by an automated parcel terminal. Why then all these offices? «The state hath thus decided,» says Eesti Post board member Mait Sooaru, unwilling to descend into details.

Tallinn Technology University regional policy professor Sulev Mäeltsemees doubts if the decision is reasonable. «It was a political decision, as it cannot be considered too reasonable,» thinks the professor. «Eesti Post ought to initiate a review of the law.» According to Prof Mäeltsemees, it would be prudent to combine postal service with other services. He hints at local governments having their shops, libraries, or government facilities – stamps could easily be sold there. Postage stamp automatons might be considered.

Examples of alternative sales points include Germany, Denmark and Finland. Eesti Post also does have sales points in commune centres, stores and libraries. But they have not found partners everywhere.

In economy ministry, no shrinking of post office network is planned. «The social and regional dimension is important as well,» is their official view. In September, a regulation will enter into force, pursuant to which price limits on sending letters and parcels will rise. According to economy ministry communications department deputy head Mart Laas, this should substantially cut state-services losses of Eesti Post.   

The rest of the loss comes because of the letterboxes required. As the law states: in town, the maximal in-between distance is 0.5 kilometres, and two in the country. 

All in all, Eesti Post has close to 2,800 orange letterboxes, on poles on the roadsides. These are checked daily. Half of these get just one letter inserted a day. No more.

«We have lots of letterboxes in Estonia that have no letters stuck in them for months on end,» says Competition Authority energy and postal department head Margus Kasepalu. Therefore, the Authority has proposed that the ministry alleviate the box-density demand. The Competition Authority thinks the density could be up to three kilometres in town and five in the countryside. 

Courier company OSC chief Andreas Türkson says no private company will run as a candidate for state service provider – due to the small and shrinking letter service volume and the obligation to maintain the post office network. 

How much has the letters volume shrunk? In 2007, 60 million letters were sent via Eesti Post, in 2013 – 30 million. The trend would tell the 2014 figure is 25 million. The market is drying up.

Enter internet stores

A state service provider has this to its advantage: many foreign internet stores force clients to choose between an express courier or the «usual». Examples of express couriers would be DHL, UPS or FedEx, who ask for hefty price. The alternative would be the usual service, a client by default agreeing to the service provider selected by the internet store – usually the state post enterprise. That would be Eesti Post, then, in Estonia.

Mr Türkson predicts internet trade market to grow at 10–20 percent a year. At the moment, the growth still isn’t enough for private companies to run for state service providers, as requirements would swallow any profit.

Courier companies are looking for direct contracts with internet stores. According to Estonia-based internet store Galador CEO Sven Salmiste, till 2007 their main partner was Eesti Post, but gradually they entered into contracts with private companies. Currently, they mainly use the services of the couriers DPD and OSC. According to Mr Salmiste , the services of DPD and OSC are more personal. «If the person wasn’t home, they met in gas stations if need be,» says he.

These past years, cursing the Eesti Post services has become rather popular. Facebook now features the commune «Eesti Post on kohutav ettevõte» (Eesti Post is a Terrible Company). The commune has over 200 members and arrows of criticism are shot at Eesti Post daily.

«I don’t claim we never make a mistake,» says Mr Sooaru, adding that the company is doing constant quality checks. For instance: every month, international letter service quality is measured by the so-called test letters. 96 percent of letters arriving in Estonia will reach addressees the next day via Eesti Post. By this result, Eesti Post ranks third among national postal operators in Europe.