‘Tardy’ USO tariff revisions ‘didn’t adequately compensate’ for losses – MaltaPost CEO

MaltaPost plc CEO Joseph Gafa’ has affirmed that even though the Malta Communications Authority’s (MCA) tariff revisions for the Universal Service Obligation (USO) impacted profitability, they were “tardy” and still did not fully compensate for the losses incurred.

His comments came in the leading postal services company’s annual report, released on Tuesday, revealing its financial results for the year ended 30th September 2023. In the report, MaltaPost announced a pre-tax profit of €2.3 million, significantly higher than the €637,000 that was recorded in the same period last year. This was largely a result of a 26 per cent rise in revenue to €39.6 million, fuelled by an increase in the company’s international business activity.

Mr Gafa’ described the financial year as one of “business transformation”, with the company making a number of changes to its last-mile delivery process, including a fleet of over 120 electric vehicles in order to reduce emissions.

“Improving productivity by the optimisation of our last-mile delivery profile, while also boosting parcel volumes, are among our major priorities. To cope with the year-on-year diminishing letter mail volumes, we are also reorganising the last-mile delivery by combining letter mail and select parcel delivery, into one stream,” he explained.

However, when commenting on the financial results more specifically, he pointed out that the MCA’s tariff revisions, announced earlier this year, were “tardy and did not adequately compensate for the losses incurred to deliver select postal services”.

The USO aims to ensure that postal services are available to end-users in Malta at an “affordable” price. As the sole licensed Universal Service Provider of postal service in Malta, MaltaPost is tasked with collecting and delivering mail to every address in the country.

The company has repeatedly reiterated that this is an “unfair financial burden”, and has sent multiple requests to the Malta Communications Authority (MCA) for a revision of tariffs related to the USO. Earlier this year, the company received approval to charge higher tariffs, thus allowing it to continue fulfilling the USO without suffering financial losses.

In the annual report, Mr Gafa’ said that some of the services covered by the USO are still “loss-making” as the tariffs to date “simply do not cover the full cost of providing them”.

He added that the obligations of the USO have “for years been conditioned by the year-on-year decline” in the domestic, inbound, and outbound traditional letter mail volumes, a decline that was “further accelerated” during this year, especially through the presence of various initiatives from entities to increase digitisation and e-substitution.

“We see opportunities to gain further market share in reverse-logistics through partnerships with international consolidators and retailers, while enhancing our cross-border offering to better align ourselves to current market expectations,” Mr Gafa’ stated.

Turning to the labour market, he remarked that MaltaPost is one of Malta’s largest employers, and “over 25 per cent of staff” are non-Maltese speakers. Mr Gafa’ said that MaltaPost is facing “challenges” to recruit within an intensely competitive labour market, even though it is meeting work-life balance expectations and improving its remuneration packages on an annual basis.

Looking ahead, Mr Gafa’ said that MaltaPost is “positively optimistic” that despite various macroeconomic challenges the postal industry faces, e-commerce traffic will continue to steadily increase over the coming five years.

“The group remains determined to provide a satisfactory return to its shareholders, a quality service to its customers, and fair and reasonable working conditions to all its staff. We are also confident of the group’s financial prospects going forward,” he added.

Also reflecting on the results, Chairman Joseph Said said that during the period under review, the postal sector emerged from the challenges brought by the aftermath of the COVID-19 pandemic and the emergence of the war in Ukraine. This made MaltaPost’s financial year one of “adjustment to industry challenges and realities”.

“A year of further changes in consumer and business behaviour resulting from an inflationary economic environment, tight labour markets and where consumers experienced a cost-of-living squeeze,” he added.

He reaffirmed that the postal company’s profitability would have improved further had it not been for the losses it incurred to fulfil a number of services within the USO in Malta, “mainly, though not exclusively, concerning local letter mail”.

“As matters stand today, MaltaPost continues to carry an unfair financial burden especially in the case of delivery of local mail. Despite the recent tariff adjustments, the domestic postal service tariffs in Malta remain the lowest in Europe,” Mr Said continued in the annual report.

He clarified that the company “is not seeking state aid”, but it “should not be expected to subsidise certain loss-making services”.

Due to “persistently rising labour costs” related to the USO, Mr Said has confirmed that MaltaPost is “in discussions” with the MCA over the establishment of an Automated Tariff Adjustment Mechanism. This would create a price cap per postal service falling under the USO, and once implemented should “go a long way to ensure that MaltaPost does not suffer financially to deliver any service provided under the USO”.