Inefficiency, overextension and looming obsolescence: the Israel Postal Authority is beyond saving. It’s time to get rid of it.
Technological advancements have slowly eliminated the Postal Service’s lifelines, making it redundant · Now, with too many branches and inefficient management, Israel’s Postal Authority is on the verge of bankruptcy · As part of a suit in the Tel Aviv District Court, the judge threatened to remove the State’s control of the institution · The situation is so bad, that even privatization won’t help
A dramatic decision by Tel Aviv District Court judge David Mintz on 29 December 2014 threatens to take away the state’s control of the Israel Postal Authority (IPA) and hand it over to a court-appointed observer. Judge Mintz pointed to the fact that while the State controls the Postal bank and is responsible both for supervising it and ensuring its recovery, it is nevertheless dragging its feet. The threat was meant among other things to spur the state to conduct a thorough reform in the IPA before it reaches a state of bankruptcy.
The court’s decision came in the wake of a demand by Hermetic Mutual, a trustee of bonds issued by the IPA. An investigation by Adv. Eyal Gabay, a court appointed observer sent to check the situation at the IPA, found that it will have difficulty meeting its commitments as stipulated by the bonds. In other words, if “an urgent efficiency program” is not carried out, “[the IPA] will reach a state of default.” In other words, the bonds will not be redeemed, the bond owners will come out in protest, and the IPA will declare bankruptcy.
Adv. Gabai’s investigation found a number of serious defects in the IPA, including an excess of branches and inefficient functioning. To these we can add the repeated failure to develop the IPA to provide additional and necessary services to replace those which are no longer needed. However, the main problem was and remains the excessive number of employees at the IPA and their inflated compensation conditions. According to the observer, bond owners and the government, this is the millstone round the IPA’s neck which denies it the ability to balance out its books.
Why do we even need a Postal Service?
But the problem goes even further than excess workers and compensation. Simply put, no-one needs mail anymore. Various technological developments over the years – from telephony and fax to efficient messenger services and the internet – have steadily eroded the postal service’s sources of support. First went the telegrams, after them the letters, postcards and New Year’s cards disappeared, and eventually even the spring of messenger services dried up. All that now remains are reports to and from banks, correspondence with and payment to authorities and billing services, which still live in the age of the fax and whiteout, and wide distribution of small packages. If we reduced the number of postal branches to the actual number of people who have need of it, then they could be reduced to a tenth their present number, at most.
All the recovery plans for the IPA suffered from an internal contradiction: the attempts to grant the postal service new sources of income such as baking and insurance services, special deliveries or sale of products which may or may not have to do with the IPA, all relied on the broad dispersion of the IPA throughout the country – some 675 branches and agencies in all. That’s pretty broad; the Supersol supermarket chain, by contrast, has only 248 branches, and all the banks in Israel put together have 1,194 branches all told as of 2013. But therein lies the rub – this distribution of postal offices is not just an advantage but a serious problem that needs fixing. To truly fix the IPA, all the excess branches would need to be closed so the remaining ones would have the resources to expand the services they provide.
The idea that the IPA should branch out to new areas was always a dubious one. It’s not clear what advantage postal workers have in these new fields over other competitors besides the already existing broad distribution of branches. In the IPA’s core areas – especially the critical field of sending of packages – the IPA is beaten time and again by its competition. Even when the IPA is cheaper, it is still less convenient and often far less efficient. Over time, it’s hard to see how Israel’s citizens and businesses will prefer the IPA’s slow and problematic services over the alternatives.
Privatization is not the solution
The IPA is bloated; at present it employs some 7,000 workers. That’s a big number, but it pales in comparison to the American Postal Service, which employs 80% more workers relative to the population. One could say the same thing about the privatized Postal Service in Germany. In many cases around the world, the number of employees remains bloated even after efficiency and privatization processes. The fundamental problem here is that the IPA is required by law to provide a variety of specified services at a low price, something which forces it to be less efficient and less profitable.
Privatization of the IPA will not solve this fundamental issue. Privatizing a monopoly while maintaining its status as a monopoly doesn’t greatly improve service, since it still does not face competition in monopoly fields. In fact, privatizing the IPA will create the same situation that would exist if it wasn’t privatized at all: outsourcing, part-time workers, bypassing regulations (i.e., providing substandard service for non-profitable fields) and focusing on core, profitable services (e.g., packages). The only difference is that the public will shift its anger at the Israel Postal Authority’s lousy service to the lousy service at the Israel Postal Company Ltd.
Time is also running out; pretty soon, we will inevitably arrive at a situation where all postal services are unnecessary. We have a good example for this in the government employment office, which has long since ceased to help people find employment, instead serving as a rubber stamp for the dole. Another example if Israel’s Channel One with its almost nonexistent audience. The day will come when no-one, save those obligated by law, will make use of the IPA’s services. The IPA might not cease to exist – but it will cease to exist for our benefit.
This may be the time to take more radical measures. One of them might be to simply to eliminate the IPA. Not privatization – elimination. The State will have to take on the obligation of redeeming the bonds, of course – that is, we’ll have to pay for them – but there is no reason why the remaining services provided exclusively by the IPA today cannot be done in existing private companies. In some fields, this is already happening, in others, it won’t take long before they pick up the slack.
The various competing companies will decide how to provide the services, and their competitive imagination will do the rest. For instance, if customer A is a member of company B for package delivery, he could order a messenger from the company (which could also provide envelopes, of course) or he could drop the package or letter off in his own personal mailbox set up at any Supersol, Rami Levi or AM:PM without having to wait in line, make the illogical opening hours or buy stamps. He could then receive regular reports on the progress of the package by e-mail, SMS or other platform.
This idea is not a pipe dream. It is exactly what will happen, sooner or later. It is simply a question how long it will take and how much we the taxpayers will have to pay when the government wakes up to reality. The Tel Aviv District Court’s decision is a clear sign that the end for the IPA is near. Better sooner than later.
English translation by Avi Woolf.