Digitalization and the change in people’s behavior have significantly reduced the number of paper mail items. The number of addressed letters delivered by Posti has decreased by 60 percent within the last ten years, and the households receive a stamped letter only every third week on average. Competition in mail delivery is increasing. In addition to Posti, there are currently 17 operators delivering mail in Finland. The COVID-19 pandemic has sped up the change in the postal business, and the postal service volume decline is expected to continue over the coming years. The decline is accelerated partly by the actions of the public sector and the state to reduce paper mail.
Posti operates on market terms and entirely without public funding. As stated in the Postal Act, Posti is responsible for the universal service delivery that covers letters and postcards paid with postage stamps. The share of mail items covered by the universal service obligation accounts for only around three percent of all mail items delivered by Posti. The majority, around 97 percent, of Posti’s services is fully commercial and offered in a competitive market.
The COVID-19 pandemic started to spread rapidly in March and created a worldwide shock as lockdowns, travel restrictions and social distancing measures were quickly introduced, and global economy entered deep recession. The COVID-19 pandemic continues to dominate the outlook for 2021 and 2022, as there is uncertainty how long it will take to bring the pandemic under control.
Due to the nature and scale of Posti’s operations, the changes in GDP and the development of economy it portrays, have had an impact on the development of traditional postal services and freight services. According to Bank of Finland, the Finnish GDP contracted by -3.8% in 2020, but the economy will slowly start to recover in 2021 if the pandemic is not prolonged and new lockdowns are not introduced.
The growth of eCommerce accelerated significantly during 2020 and especially in the peak season culminating in Christmas, as the COVID-19 situation pushed consumers even more towards online shopping. According to a study conducted in cooperation with Kantar TNS, almost 60% of Finns shop online monthly, convenience being one of the main drivers behind this trend.
Customers grown used to the convenience of shopping and the wide choice of products available online, are unlikely to go fully back to traditional offline retail channels even after the COVID-19 is under control and restrictions are eventually lifted. At the same time, as the digitalization has gained even more speed, the decline of traditional postal services continued even faster than before in 2020. The Ministry of Finance in Sweden forecasts that the GDP in Sweden will fall by -2.9% in 2020 and increase by 3.0% in 2021. Russian GDP contracted by -4.0% in 2020 according to World Bank and will return to growth at 2.6% and 3.0% in 2021 and 2022, respectively.
During the pandemic, protecting the health of its personnel and customers in different locations and countries according to the instructions provided by the local health authorities and government officials has been of utmost importance to Posti.
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. Pursuant to the Postal Act, Posti must be prepared for exceptional circumstances as well as disruptions in normal situations.
While Posti’s Parcel and eCommerce business group benefitted from the growth of online shopping, the coronavirus pandemic has significantly decreased the demand for traditional postal services. In 2020, the number of addressed letters decreased by 16% in Finland. Consequently, Postal Services carried out some special arrangements, which meant for example moving to a four-day delivery for some items. Also Posti’s logistics services were negatively impacted by the pandemic.
Posti is closely following its credit risks and impairment risks on the businesses negatively impacted by COVID-19. No needs of exceptional write-offs have been identified. The 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.
Thanks to its constantly updated and followed-up contingency plan, Posti’s operations are well prepared for the exceptional circumstances. To mitigate the effects of the COVID-19 pandemic, Posti has initiated several measures to adjust its cost structure.
Managing the impact of the pandemic has now become a part of Posti’s normal risk management and it is taken care of by each business as part of the daily management of their operations.