KYIV – Working at KPMG and BCG Europe in New York, Igor Smelyansky often went through the paper exercise of tearing apart a failing company to find value.

Now he has the opportunity to do this in real life, as acting CEO of Ukrposhta, the national postal service and Ukraine’s third largest employer, after the state oil company and the state railroad.

After 18 months on the job, Smelyansky has identified three pockets of real value for the 21st century.

Born in Odesa, Igor Smelyansky came back to Ukraine with a string of American degrees: MBA from Georgetown University, law from George Washington University Law School, and accounting from Pace University, New York. (James Brooke)

E-commerce deliveries boom

E-commerce is prompting a boom in delivery of parcels to homes. Nova Poshta, the private postal system, got a head start. Last year, it delivered 120 million parcels, 7.5 times Ukrposhta, which was converted this year into a joint stock company.

To catch up, Smelyansky is in talks with USPS, Amazon Fulfilment, Paypal, and Ukraine’s three largest e-commerce companies. Since Ukraine has a duty free limit of EUR 150 per package, he also is talking with the state Customs Service to allow for direct shipping contracts and electronic duty collection. The target: quadruple deliveries to 2.2 parcels per Ukrainian by 2021.

In contrast to old yellow telegram image of Ukrposhta, the company now offers chat bots for customers to check on the location of their package and sends viber messages about package arrivals.

Banking for the Unbanked

Rural banking is another growth sector.

About 10 million Ukrainians – one quarter of the population – do not live within 5 km of a bank branch. But the post office is there. About 80 percent of Ukrposhta’s 11,700 post offices are in towns or villages with less than 2,000 people.

At present, Ukrposhta delivers to retirees the cash equivalent of hundreds of millions of dollars in pensions. For safety and convenience, Ukrposhta would like to acquire a rural banking role, allowing rural dwellers to receive pensions and to make utility payments electronically.

This could return to the nation’s economy as much as $100 million that is literally tucked under mattresses.

The idea of attaching limited banking facilities to post offices in not new. The first case was Britain in 1861. Now 87 countries allow banking through post offices. In some countries, generally highly urbanized, postal banks have been privatized.

“Italy’s postal service makes 80 percent of its profit from banking,” he said. He noted that Ukrposhta currently makes 45 percent of its profit from financial services – overseas money transfers, delivery of pensions, and handling of utility payments.

Big city banks: no banks for villagers

In Ukraine, a bill to add banking services to the Postal Service has encountered opposition in the Rada. Ukraine’s banking community generally opposes the bill, seeing Ukrposhta as unfair competition.

But, after cutting bank branches in Ukraine by 10 percent, to just over 9,300, banks now have no plans to reverse course to reach Ukraine’s un-banked 25 percent.

Smelyansky said he would not be competing, but complementing the nation’s existing banking network. Rather than originating rural loans, Ukrposhta would merely service them. He would pay account holders a low interest rate -- for example 6 percent -- that would not be attractive to city dwellers. The money would be parked in commercial banks.

If commercial banks continue to balk, Smelyansky has a plan ‘B.’

“I am not sure we can push it through the Rada,” he said over coffee near Ukrposhta’s historic headquarters on the Maidan. “I was pretty honest with the banking community – ‘If you block me I will buy a bank.’”

By rejuvenating the Ukrposhta truck fleet, Smelyansky, improves service and raises employee morale. (supplied)

Money Transfers from Ukrainians working in EU

A third area for growth is money transfers.

“Every year, 2,000 marshrutkas bring $2 billion to Peremezyl, Poland,” he said, referring to cross border van traffic to a city in southeast Poland that has become a hard currency banking hub for Ukraine.

The National Bank of Ukraine, the central bank, is drawing up a liberal foreign currency regime based on the premise that what is not specifically prohibited is allowed. By this time next year, this new reality will open up prospects for more international foreign currency transfers, especially from EU countries like Poland, Italy and Portugal where hundreds of thousands of Ukrainians work.

Fast Foward to 21st Century

Similarly, much of Smelyansky’s work is to drag a tradition-bound state company with 75,000 employees into the 21st century.

Since czarist days, mail sorting centers in Ukraine were located near rail stations. Mail moved by rail. Now, with Ukrposhta finding that customers love same day and overnight delivery, Smelyansky wants to move sorting centers to ring roads around regional capitals – for the convenience of today’s truck-based system.

With ProZorro and ProZorro.sale, the nation’s new, digital tendering and auction systems, he plans to dispose of excess post office properties. A mail sorting center near a rail station could find a new economic life as a shopping center tied to a transportation hub.

“I have 12 resorts I would love to get rid of,” he said, referring to Ukrposhta hotels, training centers, and banquet halls that constitute little used leftovers from the Soviet era. Smelyansky, who got his MBA from Georgeown University and Law Degree from the George Washington University in Washington, calculates that by rationalizing Ukrposhta’s real estate division, he can cut the company’s annual rent bill of $25 million.

Two weeks ago, Ukrposhta’s company, Ukraine Stamps, issued these commemoratives marking the 150th anniversary of Canada emergence as a modern state. (UNIAN/Vladislav Musienko)

Fashion show in the P.O.

Going beyond printing commemorative stamps, Smelyansky looks for new revenue streams. For example, the historic central post office in Odesa and Kiyv were recently rented out for fashion shows.

Less eye catching is the modernization of the postal system.

With the average truck 14 years old, the fleet is being rejuvenated this year with the purchase of hundreds of new delivery trucks. With financing from international financial institutions, Ukrposhta is designing a new computerized delivery and sorting system that would probably cut the sorting centers from 35 to five. Salaries are being raised, with the emphasis on performance.

By March, the portion of post offices that are computerized will have doubled in two years, to 35%.

For many villages, the only store

In rural Ukraine, Ukrposhta often serves as the only retail outlet in a village.

By posting a standard price list, Smelyansky believes he has cut down on price gouging by employees. He also has updated theproducts for sale, either directly or by catalog.

“Our electronics orders are up 338 percent over one year,” he said.

Under pressure to cut costs but maintain services, he plans to institute a fleet of mobile post offices that would bring mail and produce to villages according to a set schedule. Kazakhstan’s experience with post office buses taught him the obvious: villagers don’t like queuing up outside a bus in the middle of winter. As a result, Ukraine’ mobile post offices may work out of schools or community centers.

Postal services: Change or Die

Behind all these innovations is the sense that for a postal service, the slogan should be: ‘change or die.’

Since 2011, the number of items delivered by Ukrposhta – mail, pensions, and parcels – has dropped by 53 percent, hitting 71 million items last year.

“There are growth areas -- parcels and financial services,” said Smelyansky, who is committed to turning Ukrposhta into a profit making company in 2018. “The rest -- letters, newspapers – are dying.”

For comments and story ideas, please contact UBJ Executive Editor James Brooke at james.booke@theubj.com

Posted Nov. 3, 2017