Delivery volumes are continuing to decline due to digitization, and competition is becoming more intense. The future development and profitability of our company depend to a large extent on the content of the new Postal Act and the universal service obligation. A universal service must maintain the margins required by normal business while also responding to changing times and customer needs.
The rapid growth of e-commerce is continuing and, as a result, logistics services related to e-commerce are seeing continued growth in spite of the challenging economic climate. Competition is very intense and this area will see new international partnership networks built in the coming years. Thanks to our strong market position in Finland and Russia, we are very well positioned to participate in globally strong networks.
In spite of the tight competitive situation, we also have many opportunities for profitable growth in other areas of logistics. Temperature-regulated transport, consumer goods logistics, services for the ageing population and other home services, large-scale warehouse outsourcing and the comprehensive management of customers’ logistics chains are examples of such opportunities.
While Russia can be seen as a challenge today, it also represents a long-term opportunity. A particularly promising area is e-commerce from China and other Asian countries to Russia. Finland as a country and Posti as a company are very well positioned to take advantage of the related growth opportunities in the logistics market. We already have interesting projects with major Asian e-commerce operators.
All of these changes will require major investments in the coming years, such as increased automation, particularly in sorting, as well as maintenance, basic renewal measures, new businesses, expanding current businesses and carrying out acquisitions.
Machine learning allow participants with access to proprietary transactional data to gain long-term competitive advantage. Blockchain is a revolutionary technology set to disrupt everything from supply chain transactions to digital assets. Payment Services Directive 2 will allow for new payment systems to evolve that will support payment terms to become the new competitive advantage.
During the pandemic, Posti has acted according to the instructions provided by the local health authorities and Finnish government officials (Finnish Institute for Health and Welfare THL and the Ministry of Social Affairs and Health) and protected the health of its personnel and customers in different countries according to these instructions.
Due to the nature of its business, Posti plays a major role in maintaining the security of supply in Finland. This means that socially critical basic functions are secured in case of severe disruptions or emergencies. Posti also has statutory obligations related to national exceptional circumstances. Pursuant to the Postal Act, Posti must be prepared for exceptional circumstances as well as disruptions in normal situations. This means, for example, that the delivery of mail must work even in the middle of a crisis.
During the first half of the year, the main impact of coronavirus on Posti’s operations has been the following: Due to the exceptionally large volume of parcels, Posti has increased its number of employees and deliveries as well as obtained new parcel handling facilities. Posti managed to handle the significantly increased parcel volumes well and was able to provide its services as per customer expectations. Despite border closures, goods were still moving into and out of Finland in the first half of the year, but they were partly transported via exceptional routes, which in some cases caused delays and extra costs.
Already at the end of the first quarter, Posti made some product and process changes due to health reasons, such as allowing the handing over of a parcel without a signature or leaving shipments to front doors to minimize social contact and slow the spreading of the virus. Posti was also forced to close some of its service points and mailboxes because the premises that they were located on were closed due to the coronavirus. To compensate for this and as a response to the increased parcel volumes, Posti opened several temporary pick-up points for parcels. These temporary pick-up points were closed on June 17 as parcel volumes started to normalize and Posti was able to open its own service points that had been closed.
The coronavirus pandemic has significantly decreased the demand for traditional postal services. In April–June, the number of addressed letters decreased by 24% in Finland. Consequently, Postal Services was forced to carry out some special arrangements, which meant for example delivering most Friday items already on Thursday during the summer. However, early-morning newspaper delivery, magazine delivery and parcel delivery continued normally according to customer agreements.
Posti has critically examined its trade receivables development during the coronavirus pandemic and has increased its expected credit loss allowance from the beginning of the year. Posti has also assessed indications on goodwill impairment due to the exceptional market circumstances caused by the COVID-19 situation for two cash generating units, Postal Services and Transval. As an outcome of the assessment, no need to perform impairment tests was identified.
COVID-19 pandemic has not significantly impacted Posti’s financial position or liquidity. Posti’s liquidity is still strong and the pandemic has had no effects on Posti’s financial arrangements. Posti’s financial agreements do not include covenants which would have been affected by the COVID-19 situation.
The COVID-19 situation has not impacted Posti’s long term targets or strategy. Posti still seeks growth especially in Parcel and eCommerce and Logistics. Posti wants to build a winning e-commerce customer experience and be the most reliable outsourcing partner in logistics. We also want to continue to keep the mail relevant by building customer-focused digital and physical delivery services.
Thanks to its contingency plan, Posti is well prepared for the exceptional circumstances. Posti’s multi-professional exceptional circumstances working group created different scenarios on how to manage Posti’s operations depending on the severity of the pandemic. The working group monitors the coronavirus situation. The task of the working group is to maintain Posti’s operations and customer service as well as actively report on the situation to the President and CEO as well as the Leadership Team.