Analysis

It’s Time to Privatize the Post Office

Having avoided the fate of Agrexco, a lesson can be learned from the experience of Bezeq

The Israel Post's trading center in Modi'in.
Ofer Vaknin

Finance Minister Moshe Kahlon recently ordered the Government Companies Authority to advance a plan to gradually privatize the Israel Post. Some questioned the move. “It’s a method – hang out a public service to dry, make it a burden on the public and privatize,” wrote journalist Zion Nanus on Twitter. But a few points about the company are worth noting.

First, it is not a public service, or, to be more exact, it’s not a social service like the education system or labor and welfare system. The Israel Post has been a government company since 2007, needing to stand on its own feet financially and to yield profits for its investors. As such, the state cannot “hang out to dry” or “grease” the post office.

Anyway, the critique is off base; the state has pumped up the post office with 500 million shekels ($146 million) in recent years to fund its retirement program. Moreover, even the privatization plan only calls for 40% privatization, with the other 60% remaining in state hands.

When talking about privatization, it’s important to take certain issues into account, the first being downsizing. It’s worth recalling how the post office employed 6,200 people in 2014, just before it signed its recovery plan. The company, like all postal companies in the world, was suffering from a sharp decline in mail traffic from individuals and small firms. It couldn’t manage to downsize because it was a victim of its own labor agreements. These agreements not only prevented the firing of poor workers, they couldn’t even convert a mail carrier into a postal clerk, or vice versa. It was even impossible to change a deliverer’s route without union permission.

In the pre-2014 post office, mail carriers contracted the flu on cue, and would use up all their annual sick days, in the wake of their historic contract guaranteeing 167% of their daily pay on the day after taking sick leave (because a mail bag is so heavy). The postal company before its recovery plan had a so-called auto-pilot agreement to raise worker wages by 6.25% in three years, causing a 150-million shekel increase in wage costs in 2011 alone, as the State Comptroller revealed, despite the enormous challenges it was facing.

In short, it was a fossilized, inefficient, inflexible and expensive company, dragging down its gross profits. Its operating losses had bloated to 6 million shekels by 2014. Without a recovery plan, it would have sunk to even greater losses. There was a fear that the company would stop paying its bondholders (our pensions). There was talk about “the next Agrexco,” referring to the quasi-government agriculture company that went belly up in 2011. Accelerated effort went into the recovery plan signed in late 2014, agreed to by the union. The plan included firing 1,270 workers, among them 730 full-time staff. The state put together a generous severance program, and the average worker who left got 681,000 shekels.

Branches were merged, distribution centers were opened, and an app was launched to make service more convenient. The company recently opened a giant package distribution center to better meet the challenge of international online trade. As a result, the post office is providing significantly better service than it used to, but it has a long, long way to go.

The company’s financial results are also better than ever, but the sword continues to hang over its head because of the continuing shrinkage of mail volume. The company therefore needs urgently to find new engines of growth or it will sink into the red again.

A private investor could bring the company two things: better management practices – the State Comptroller’s report has shown how the postal company has failed to manage its real estate – and new engines of growth. Only a private investor can introduce new ideas to take better advantage of the rare logistics and wholesale platform the post office has.

Recall how Bezeq looked before privatization – fossilized and slow and a focus of derision. For all the criticism of Bezeq, today it is innovative, efficient and very profitable, and it also works for the benefit of its workers.