Is Mark Barnes turning the Post Office around?

Mark Barnes has a lot of good ideas to turn the SA Post Office around and enable it to compete in the Internet world — among them a better package-delivery service, banking and social grant distribution. But getting government backing for every move he makes may prove to be a tougher challenge than anything competitors can throw at him. 

The story of how former Standard Bank executive Mark Barnes scored perhaps the worst job in the country sounds apocryphal, but isn’t.

Barnes had already seen the news that the Post Office planned to shut down a third of its branches and retrench thousands, and believed it didn’t have to be that way.

So, soon afterwards, he fired off an e-mail to deputy president Cyril Ramaphosa, titled "Amazon buys 30% of SA Post Office in joint venture with SA government". An incredulous Ramaphosa (who was in Indonesia at the time) wote back, asking what Barnes had meant. Well, that story isn’t entirely true, Barnes replied, but just imagine if it was?

His point, he says today, was this: "Rather than taking a dying economic entity and making it a smaller dying entity, who don’t we grow this thing? The Post Office won’t survive simply delivering post. We need e-commerce, we need financial services, we need to change."

It was a characteristically left-field move for the Harvard and University of Cape Town-trained businessman, who initially studied actuarial science, before heading into the high-adrenaline world of corporate finance.

Success for Barnes will be ‘when the Post Office plays an integrated role between government and the people’

Good thing too. Barnes, unlike most actuaries, is brash, impulsive and passionate.

Impressed by his desire to do the job, parliament invited him to pitch his proposal to turn Sapo around.

But has Barnes delivered what he promised, since taking over 15 months ago?

In recent days, he has pitched into the story that Sapo could step in to fix the social-grant delivery crisis, saying he was "ready" to use the organisation’s 1,520 branches around SA, as well as 707 retail postal

agencies.

When government appointed Barnes, he became Sapo’s seventh CEO in just over 10 years. In that decade, things had gone from bad, to appalling, to life-threatening.

For years, Sapo has been a typical state-owned entity, stumbling from self-created crisis to corruption scandal, with the odd billion-rand loss chucked in for good measure. In 2013 it reported its first loss: R337m. This deepened to R422m the following year. And in 2015, a year when a catastrophic strike defined all that was wrong with Sapo, losses hit R1.5bn. It was almost a relief in 2016 when losses eased back to "only" R1.1bn.

Today, Barnes says there’ll be no profit until 2018.

So how will he gauge success?

"When the post office plays an integrated role between government and the people of this country," is his answer.

By that measure, you can hardly say Sapo is a success yet. His customers might be happier with something more basic, like getting post delivered within days rather than weeks — and delivered intact.

But Barnes says delivery times are monitored constantly, with weekly meetings to discuss progress, or the lack of it. Performance varies between regions: Western Cape and KwaZulu Natal perform close to target; North West and Limpopo far below.

"It’s a management issue; we’re working on it," he says. Speeding up delivery will, of course, also reduce the chance for handlers to interfere with the post.

If you’re looking for a symbol of Sapo’s decline, consider what has happened to the hundreds of heritage buildings it owns across the country. These once-graceful, imposing and busy structures are generally neglected, often slightly seedy and virtually empty. Pietermaritzburg’s historic 114-year-old post office building has been described as a "dump" ever since vagrants set up camp in the entrance. They settled in after they were evicted from a site elsewhere in the city. It seems neither Sapo nor the police can do anything about it.

The past 10-15 years have been nightmarish. There have been dramatic changes in the operating environment, largely brought about by the spread of the Internet and the near-death of the letter; and together with sweeping political change in SA, this made changes in the management of Sapo ineluctable.

A new option being developed is an exclusive deal with Woolworths

Barnes takes comfort from finance minister Pravin Gordhan’s comments that money would be found to put Sapo (and SA Airways) on a sounder financial footing.

The problem for government (Sapo’s only shareholder) and the people alike is that Sapo doesn’t provide anything like the service traditionally associated with it. After years of decline, many no longer expect it to even deliver post on time.

It hardly seems the time to be developing noncore services such as social-grant distribution and banking.

Here’s a story that demonstrates just how significant this challenge is. As Barnes was arguing for a slice of the grant-delivery action, Sapo found itself facing a crisis of its own: it was unable to supply stamps for ordinary local mail because the Dutch company that printed them hadn’t been paid, thanks to Sapo’s chronic funding problems. So, for several months, it stopped supplying stamps.

It resumed only in February, when a government guarantee helped Sapo raise R3.7bn in debt funding — part of which was used to pay off accumulated debt. Lack of funds was cited as the reason Sapo failed to meet most of its strategic objectives in 2016.

But Barnes isn’t only fighting years of inertia, he’s fighting the larger issue of whether a post office is still relevant.

In 1994 there was no Internet to compete against. Sapo had only one job to do — deliver post — and the National Party government had backed it all the way.

Its social mandate (largely restricted to "white society") required it to have a certain number of offices for every 10,000 people; it received an annual cash subsidy; and, like the railways, it provided sheltered employment for the "volk".

Barnes speaks passionately about Sapo, in a way that makes you believe his stint in government has changed him quite dramatically: "When the post office makes a profit, the people make a profit," he says, sounding more EFF (Economic Freedom Fighters) than WMC ("white monopoly capital"). He sees social grant distribution and full banking by Sapo as an inevitable part of its package of services. And he dismisses talk of privatisation.

"You can’t use privatisation to meet all this country’s needs, it’s not the panacea for service delivery. It creates an even more divided society and it won’t transform the economy," he says.

"[With the state] as the biggest player in the economy, there’s a critical place for state capitalism," says the former private-sector banker.

Barnes is a keen supporter of the idea that Sapo has an important socioeconomic role to play, with an almost romantic vision of what its should be doing. "It should be the connection between government and the people, delivering all sorts of services."

Not many know this, but the only institution licensed to send parcels weighing less than 1kg is Sapo — even though a rash of rivals, like PostNet, are doing so.

Barnes must know it would be pointless to try to enforce such rules, given Sapo’s inability to provide consistent services.

But he is determined to claw back market share lost to growing numbers of private-sector operators, and to make sure Sapo is profitable.

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Almost 70% of revenue is from mail, with 80% of this corporate. Courier and parcel revenue (CFG) comes in at around 10%. Because of the decline in revenue (lost to competitors), CFG has been incorporated into Sapo.

The future revenue mix is targeted as one-third each from financial services, mail and e-commerce. Barnes plans to re-launch the parcel business during 2017/2018.

Though most of the anger directed at Sapo comes from individuals, they account for only a small part of its business.

The first challenger to emerge was PostNet which, all the way back in 1994, spotted opportunities. It now has 330 owner-managed stores in urban areas across SA. In many cases, PostNet was able to charge hefty prices for essentially piggy-backing on Sapo services. Swift Cargo and Fastway Couriers set up soon after. Even interprovincial bus operator Intercape offers a parcel-delivery service. The latest to spot an opportunity is Uber.

Now nearly every urban neighbourhood has an operator offering parcel-delivery services. They had a remarkably good time in 2014 when things ground to a halt at the strike-bound Sapo. But the much more expensive private-sector offerings are a serious alternative only for wealthy urbanites.

Allan Greenblo, publisher of Today’s Trustee, says private-sector courier services are too expensive to be a long-term option and even then can only be used when there’s a street address.

Karin Mulder of RamsayMedia, a division of CTP, is responsible for ensuring 90,000 magazines reach subscribers across SA every month. She is tentatively supportive of Sapo’s progress since the strike, but says there are still lots of problems, particularly with Witspos (the Gauteng hub).

"Obviously it’s a process, nothing happens overnight. When it works it works extremely well." Mulder says Barnes has a lot of good plans but needs to do more to communicate these through his organisation.

Despite the progress and Barnes’s encouraging plans, Mulder is working on viable long-term alternatives. She uses multiple contractors for hand deliveries where there is a street address. They are much cheaper than Sapo and, she adds, more responsive when there are problems.

Sapo takes 7-10 working days for a re-delivery, against about 72 hours for contractors. While hand deliveries are a nice option they do have their own problems, she says.

A new option being developed is an exclusive deal with Woolworths, which allows its card-carrying customers to pick up their magazines at their local store.

If Barnes wants to ensure Sapo has a long-term future he will have to persuade people like Mulder they don’t need alternatives. That will involve the tedious process of getting the basics right, chief of which is motivating the 19,000 employees (down from 23,600 in 2014), whose morale has been crushed by years of chronic mismanagement and public antipathy.

As if that weren’t enough to be getting on with, Barnes’s "to do" list includes getting a bigger whack of government’s business (remarkably, government does not feature on Sapo’s list of major postal customers, which is dominated by banks, retailers and cellphone companies sending bills and marketing pamphlets); building its e-commerce-related business, establishing a low-cost banking option and distributing social grants. It’s not just government’s post that Barnes is looking for.

As part of his vision of Sapo as the link between government and its citizens, Barnes wants it to be the distributor of a host of government services. It currently issues licences (hunting, fishing, TV, vehicle) and processes bills for municipalities and other state-owned enterprises, as well as traffic fines. Last year 3m vehicle licences were renewed at post offices in the five provinces where this service is available. "It’s services of this nature that the company will now seek to expand," says Barnes, explaining that returning to financial stability is predicated on a return to pre-2014-strike postal volumes and significant growth in revenues from government business.

And while the Internet killed off a large chunk of the traditional postal business, it has more than made up for it through the delivery needs of online retailing. There aren’t figures for SA, but in the UK 13.8bn addressed letters were sent in 2014 (3bn were spam); by 2023 this is expected to be down to 8.3bn. Compare that with the estimated 250bn e-mails sent each day. But the Internet also means more parcel deliveries as online retailing increases.

E-commerce presents the biggest growth opportunity for postal services across the globe. Barnes is in discussion with the Universal Postal Union — the UN governing body for post offices worldwide — for Sapo to be the e-commerce hub for Africa.

The most profitable postal service in the world, Deutsche Post DHL, has just reported a near-30% hike in profits from its e-commerce business and is on track to become the global market leader. Much of the

e-commerce opportunities in SA have been snatched up by competitors. Barnes and his colleagues are going to have to work exceptionally hard to get any of it back.

Right now he is working on establishing partnerships with big players like Amazon and Alibaba. Servicing e-shoppers requires speed, reliability and trust — all in short supply at Sapo. As is the sort of infrastructure online retailers need to track parcels. One of the biggest local players, Takealot, bought 100% of Mr Delivery Parcels after deciding Sapo was unable to meet its standards.

During the 2014 strike, Amazon stopped using Sapo for its deliveries. It has since resumed but there is no formal relationship. Securing relationships with either Amazon or Alibaba is a clunky, time-consuming process that will require investment in new technology and government approval for that investment where there aren’t partners.

For Barnes, having to secure government backing for every move he makes may prove to be a tougher challenge than anything competitors can throw at him. No doubt, after delivering several presentations to parliamentary committees and spending many weekends in Pretoria trying to get, or keep, government support from some or other initiative, Barnes realises politics, not business, will take up most of his energy.

Few people, anywhere in the world, have successfully made the move from the private sector to the public sector. The experience of former SABMiller chairman Meyer Kahn will have chilled many who considered it. In 1999 Kahn announced, after two years during which he achieved little, that he was not renewing his contract as CEO of the SA Police Services.

"If you don’t get a lot of goodwill and sustained political support to make the tough decisions, then it’s impossible to survive, let alone succeed," said one political analyst, who described Barnes’s appointment as a step in the right direction. "But at any stage they can throw him under a bus."