Annual Report
The Postmaster General's Statement
By the time this Annual Report goes to print, I should have completed my two-year tenure at Hongkong Post (HKP) and concluded my thirty-odd years of service in Government.
This is not my valedictory statement, but it is a suitable occasion to take a retrospective look at the work we have done in HKP in the past two years, which I believe will have an impact on the choice of the paths HKP might have to take in the next decade in order that the postal service in Hong Kong can be sustained without recourse to the public coffers amid serious competition from the private sector.
I came to HKP when everything looked rosy, as business was doing very well indeed, resulting in healthy operational surpluses after a long period of economic depression which had badly affected its business. HKP has also undergone a long period of re-orientation and succeeded in evolving from a conventional government department into a more business-like organisation, paying greater attention to service quality and market demand, and gaining more awareness of the need to survive the growing competition from couriers and related industries. The Trading Fund1 approach seems to have borne fruit : we are able to provide a first-class postal service which is efficient and affordable without public funding. However, my first question when I came to HKP was: Could it be sustained? The same question would probably still be lingering in my mind on my last day at work in HKP. I have not yet been able to find an answer after two years.
Right from the beginning, the Trading Fund was conceived as an intermediate step for selected government departments to become financially and, ultimately, administratively independent from the Government. HKP has survived the challenge with flying colours, demonstrating clearly that it has all the potentials to develop into a full-fledged profitable enterprise, providing that certain bold steps are be taken to detach it from the bureaucratic framework of the Government and to allow it a free hand to adopt a truly market-oriented business approach in its operation. For various reasons, we have stopped at this intermediate step for ten years and feel comfortable with the position we are in. In this way, we could easily become oblivious to the problems that have been looming large around us as a consequence of the changes occurring in the courier, parcels and logistic industries in the world.
Postal service is no longer about mail delivery only. Nowadays no postal administration could survive on mail delivery alone, since the mode of inter-personal communication has changed completely with electronic innovation. Diversification is the key word for most postal administrations in order to stay potent and relevant. HKP is in just such a position. We must keep pace with the tide of time or we will get lost. It is a sink or swim situation.
We continued to turn in good results for 2007/08. We were able to meet the performance targets and over-achieve the financial target return rate of 8.4% on fixed assets set for us by the Government, with a total turnover of $4,373 million. All these have been attained through the team-work and effort put in by all my colleagues in HKP, on the solid foundation laid down by my predecessors who started the transformation of the 167-year old department. Moreover, we were riding on the tailwind of the strong economy which has created great business opportunities for the whole community, including the postal sector. It was an exceptionally good year for business.
I have already outlined in the last Annual Report some of the major challenges HKP has had to face: rising operation costs, competition, and the structural and institutional limitations of HKP as a hybrid government department cum business enterprise which subject HKP to serious constraints in its business manoeuvring.
We have introduced a number of measures to curb operation costs with some success, like closing down expensive but under-utilised post offices and better management and deployment of staff and other resources; but we still could not keep up with the rate of further increases as a result of inflation, especially in Civil Service pay and fuel and conveyance costs, which constituted two of the most significant items of our expenditure, and both of which were beyond the control of HKP. We are also mindful that there is a limit to how far we can go in curbing costs without turning it into a political issue or dispute with our staff unions.
We performed strongly amid keen competition from other operators, big and small. We won with our full network of post offices, local delivery coverage and links with over 200 major cities in the rest of the world. Our reliability as a government department gave comfort to our clients, in particular small and medium enterprises (SMEs) and casual customers. However, HKP is expensive to run, due to our complicated costing structure and rigid pricing policy and formula. We did not have a huge advertising budget to build up the necessary brand name and commercial image. We could not use the cut-throat discounts or rebates adopted by some of our big competitors to attract customers. More importantly, we lacked sufficient commercial instincts, knowledge and experience to gauge fully all the business opportunities. We are running the risk of losing market share if we do not do more to further strengthen our competitiveness.
As a hybrid establishment, HKP is expected to provide an efficient and affordable postal service, make an operational profit and, at the same time, compete in the open market. Yet we have little control over our operational costs and our pricing policy. Adjustment to postage rates and related fees and charges is more a political than commercial decision, although it is generally recognised that the existing postage rate in Hong Kong is probably the lowest in the world for the quality of service rendered. In addition, we are subject to a lot of government rules and regulations, which renders it impossible for us to move quickly enough to match market movements and meet changes in clients' demands. There is no proper corporate governance to provide guidelines for making business decisions, like entering into important business contracts and making commitment on major investment.
We put our hope in a study which HKP and the Efficiency Unit of the Government jointly commission from a reputable international consultancy firm which is tasked to take a look at the position of HKP vis-à-vis recent development in the postal sector in other parts of the world. We hope the consultant will identify our strengths and weaknesses and throw some light on what alternatives are available to HKP, other than keeping the status quo, to overcome its inherent limitations, meet the challenges, survive the competition, and sustain efficient and affordable services.
However, it will be a long time before any major changes could be introduced to HKP, if any were to be introduced at all, since there are a lot of colliding vested interests involved, and it will touch on the raw nerve of a number of interested parties and stake-holders. The political process is expected to be protracted. In the meantime, we must do all we can to maintain the viability of HKP as far as possible. We must be more aggressive in keeping and developing our market share, and we must introduce new services where we enjoy comparative advantages over our competitors and which will add value to both HKP and our clients.
Speedpost is our flagship product. We are working in close partnership with postal administrations in our most important markets in the Kahala Posts Group2, especially Mainland China, the US and Japan, which represents nearly 80% of our EMS business, and we also do not rule out the possibility of cooperating with other courier companies. We have introduced a number of new services to meet the different requirements of our clients, such as "Next Morning Delivery" and "Next Day Delivery" services, Hub and Logistics services, and more. We have revised our costing policy so that we can keep our prices competitive. We put pressure on our partners to improve their services in the last mile delivery and the standard of track and trace service. This is a market full of challenges and opportunities, and we must always keep ourselves alert in order to develop our market share.
We have to diversify to other areas of activity in order to find new sources of revenue and to grow our business. We promote local and cross-border Direct Mail Services which is a highly cost-effective means for dissemination of information to a large number of audiences and is particularly useful for SMEs with a small publicity budget. We have made considerable investment in developing our e-Post Service which provides a one-stop service for businesses to print and deliver bills, invoices and other statements. We are putting the finishing touch on an ambitious project to establish a full-scale e-Commerce System, providing online shopping and delivery facilities and services, taking advantage of the growing interest in Internet shopping all over the world. We also opened a logistics service centre to provide storage and delivery services for multi-national manufacturers and suppliers.
However, we do not intend to turn HKP into a trading house. We create these additional, value-added activities in order to boost mail traffic volume which is our core business and main source of revenue. Our primary concern remains delivery, in the course of which we hope to provide more channels for SMEs to develop their business while at the same time maintaining the viability of HKP so that we can continue to operate an efficient and affordable postal service for the whole community. This is an international trend, and is fully endorsed by the Universal Postal Union (UPU) as one way of re-vitalising the postal system.
Of course we must not neglect our universal obligation as a postal operator. We must use our best endeavour to maintain our high standard of service, which is widely recognised and looked at with envy in many countries but very often taken for granted in Hong Kong. There is international pressure on us to review our local postage rates, since the Terminal Dues3 debate in UPU is still going on, and while we have successfully averted the immediate imposition of a hefty increase of Terminal Dues on Hong Kong at the most recent round of the UPU Congress, the strong voice for rationalising the Terminal Dues System by using operating costs and local postage as yardsticks for calculating Terminal Dues cannot be resisted for very much longer. A review on local postage rates and related fees and charges is long overdue.
The delivery and courier industry is a thriving business. Technology may take away some hard copy transmission, but physical conveyance and delivery is still indispensable whenever trading activities exist. That is why major international couriers are still investing heavily to develop their networks. There is no reason for HKP not to participate actively in this area and exploit fully our potentials and comparative advantages for the benefit of the whole community. There must be a willingness to take up some risks and challenges conceptually, administratively and politically, sort out the limitations inherent with the institutional structure of HKP and give HKP a clear direction for sustainable development.
It is not without regret that I have to leave HKP at this most interesting and challenging juncture. Time and tide wait for no one and the Government's retirement rules for the Civil Service are carved in stone. In the past two years, I could do no more than identify some of the problems facing HKP and try to resolve some of them, but time is running out for me, and the task will fall on whoever takes over from me. I can assure my successor that the work in HKP will never be boring. My colleagues in all ranks are aware of the situation HKP is in and will give all the support they can and use their collective wisdom to forge a sure and bright future for HKP.
I shall look forward to enjoying an even more efficient but still affordable postal service.
1 Trading Fund is an accounting entity within the Government establishment to manage and account for the operation of a government service and is funded by the income generated. The Post Office Trading Fund was established on 1 August 1995.
2 Kahala Posts Group includes Australia Post, China Post, Correos Post, Hongkong Post, Japan Post, La Poste, Korea Post, United States Postal Service, Royal Mail and Singapore Post.
3 Terminal Dues is a way to calculate the charge paid to destination postal administrations for delivery of a letter sent abroad.
TAM Wing-pong
Postmaster General and
General Manager of the Post Office Trading Fund
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