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​Trashed mail a sign of deeper issues at SingPost?

Published on: 01-Feb-2019

The firm may have overstretched resources in aggressively growing e-commerce business to sustain its lower-margin postal services

Recent lapses, like an errant postman dumping mail into the dustbin, have led the regulator to rap Singapore Post (SingPost) over the knuckles with a warning of "firm action" if need be.

A slew of options are available to the Info-communications Media Development Authority (IMDA), the agency empowered by the Postal Services Act to discipline postal operators.

SingPost is the Republic's only public postal licensee; its duties include managing postbox access, international mail links and stamps. Its licence was renewed for 20 years in 2017.

CGS-CIMB analyst Ngoh Yi Sin said that SingPost could face a fine of up to S$1 million or even a modification of licensing terms under stricter rules.

Ms Ngoh predicted that every S$1 million in fines would have a one-time impact of about 1 per cent on the net profit, while higher service standards - such as a bigger headcount - could weigh on operating margins.

But an outright cancellation of the licence is unlikely, she said. Instead, "there could be greater focus on postal segment and greater urgency to turn around or dispose of its logistics or e-commerce segments by its major shareholders". 

"Business units or property assets could be monetised to boost earnings, Ms Ngoh added, warning that "management may have to bite the bullet and divest overseas operations if they realise profitability turnaround needs more time or investment".

SingPost's aggressive expansion into e-commerce logistics - including a much-maligned deal for US group TradeGlobal in 2015 - has come under heavy scrutiny by various parties. 

Kevin Koh, an associate professor of accounting at Nanyang Technological University's Nanyang Business School, told BT that - besides wielding the stick - the IMDA could work with SingPost's senior management to tackle questions such as whether resources have been diverted from its raison d'être as postal service provider to other operations like e-commerce. 

But corporate governance expert Lawrence Loh, a faculty member at the National University of Singapore Business School, noted that diversification was needed to keep lower-margin postal services in SingPost's portfolio.

The United States Postal Service may be a self-funding federal agency, "but the market (in the US) is bigger so the critical mass for postal services is there . . . unlike here, it is shrinking". 

As much as a kick in the pants might be welcomed, it's unlikely that the mainboard-listed mailman risks the same fate - takeover by state investor Temasek Holdings - that befell embattled rail operator SMRT in 2016, watchers told The Business Times.

Prof Loh is a fan of turning SingPost into a public agency but said that the chances of that happening are low. 

"SMRT was different. The political cost was very high," he said, referring to public dissatisfaction with rail breakdowns. "For postal services, I don't think the balance has tipped yet." 

TSMP Law Corp managing partner Stefanie Yuen Thio, whose firm was involved in the SMRT takeover, said there are good reasons to nationalise companies like SMRT and SingPost. 

She pointed to their dual problems: having no serious competitors to force efficiency, while not being able to freely set prices for public services. The latter issue has made reacting to disruption tougher, she noted. 

Still, Prof Koh said that it would be difficult to introduce fresh competition, as the authorities might have to commandeer facilities such as postboxes and distribution centres, and take over international services. 

Prof Loh called it a "very tricky situation". He noted: "If the licence is taken away, there is no alternative in the market that could immediately fill this gap."

He added that SingPost's management has got to turn the group around. "The industry is not rocket science; it is several thousand years old."

SingPost is releasing its third-quarter results, for the period to Dec 31, 2018, on Friday morning. 

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