Studies on the Changing Postal Marketplace: Vol. 2

Brazil’s Diverse (and Popular) Postal Services

Jessica Ciccone Adams June 2014

EXECUTIVE SUMMARY

razil’s national postal operator, Empresa Brasileira de e Telégrafos (ECT or Correios) is the Bcountry’s designated provider of universal postal service. Under the authority of the federal Ministry of Communications, Correios utilizes the terms of its regulatory monopoly to manage a comprehensive

Correiosnetwork spanningis widely regardedthe world’s as fiftha world largest leader nation. among postal providers for its innovative use of strategic partnerships with other government agencies and private companies. The provider consistently enjoys underservedpopularity among Brazilians, consumers. is the most Its high-profile prominent relationship of these. with Banco Postal, which leverages its extensive network of retail post offices for the provision of consumer financial services, especially to poor and consumers enjoy greater convenience while the postal provider receives supplemental revenue. Additionally, by allowing customers to access a wide range of federal government transactions, The absence of a strong, independent regulator, on the other hand, restricts transparency in ways that undermine these benefits in a number of ways:

• Lacking service quality metrics audited by an independent authority, consumers lack the confidence of informed expectations and uniform delivery standards in their use of mail and delivery services. are being competed against fairly. • Private-sector providers competing against Correios or its strategic partners cannot be confident they • Assurances preventing cross-subsidization from proceeds of the government monopoly to competitive

competitors. markets are also lacking, to the detriment of monopoly consumers, taxpayers or private-sector This paper discusses the reforms Brazil implemented over the last decade, the partnerships created and the culture of the organization that allows it to thrive.

Details follow.

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INTRODUCTION Brazil has one of the largest mail volumes per per capita annually, or nearly three times the av- (Empresa Brasileira de Correios e Telégrafos), erageperson (18.4) in the among world, countries with approximately with similar 52 gross items knownThe Brazilian as ECT Post and andalso Telegraph Correios, isCorporation wholly owned domestic product per capita.5 by the government of Brazil. It is under the super- vision of the Ministry of Communications, which Correios’ is among the world’s most comprehensive is responsible for the postal sector. Under this arrangement, it does not operate under the supervi- sion of an independent regulatory authority, so that postal networks, across the world’s fifth largest operational and regulatory functions reside within 16,500country residents. by both population Among the and largest size. LatinOn average, American the same political hierarchy. Founded in 1969, each post office within Brazil’s network serves Correios, with over 125,000 employees, is the ratios (10,000 and 4,400 respectively).6 country’s largest employer.1 economies, only Argentina and Mexico have smaller Brazil is highly urbanized, with over 250 cities with Correios operates a network with some 12,000 populations of at least 100,000. Indeed 86 percent consumer outlets, of which more than 6,000 are full- of the population lives in urban areas, which allows

are in the country’s interior, in more than 5,000 populated areas.7 Urban areas receive postal deliv- municipalities.time, autonomous It also post operates offices. Ofover these, 4,000 91 commu percent- foreries efficiencies every working and frees day inup Brazil. capital8 to serve less - Yet Brazil’s postal system still faces the same chal- nity post offices where consumers can make trans lenges other countries do, such as how to maintain actions, and another 1,000 franchised post offices. revenue in an age of declining postal use; how to non-postal businesses, and postal revenue has ensure universal service to a growing and more continuedBrazilians useto comprise their post a diminishingoffices for a hostshare of of the dispersed population; and how to stay competitive national postal operator’s revenue. In total, amongst new market entries. Correios offers over 100 products and services.2 These include offerings provided through contracts In fact, it has emerged as a popular model for other with other government agencies, including national postal operators to study and emulate. - How did Brazil become such a highly-regarded ment applications and permits, as well as arrange- postal operator? What lessons does Corrieos’ mentselectronic with voting, private textbook companies. distribution and govern management offer other providers looking to replicate its popularity? There are many aspects of Correios that set it apart from posts in other countries. To start with, Cor- reios consistently ranks as one of the most reliable POSTAL MONOPOLY public institutions in Brazil, with an approval rating Brazil’s national postal operator maintains a hovering around 82 percent3 (one of the highest monopoly on letter mail and smaller parcels. This among all government posts), for which its manage- ment has been widely recognized for both reliability support its requirement to provide universal service and innovation.4 acrossmonopoly the isvast regarded country. as a financing mechanism to

1 Correios, Brazilian 2 Posts, Infrastructure of the 21st Century? , http://www.correios.com.br/english/the-brazil-post/history-and-facts. 3 AndreaJose Anson, Novais, Joelle Empresa Toledano, Brasileira Laia Bosch de Correios and Justin e Telegrafos Caron Postal Economics in Developing Countries: 4 Correios, (Universal Inovation Postal Council, Bern, 2008). 5 (October 5, 2011). , http://www.correios.com.br/english/the-brazil-post/history-and-facts/inovationICTs, New Services and Transformation of the Post (2010). 6 Angola, Belarus, Columbia,Postal Costa Statistics Rica, FYROM(Republic and Status and Structure of Macedonia), (2012). Montenegro, Panama, Saint Lucia, Serbia, and . 7Universal ICTs, new Postal services Union, and transformation of the Post, op cit. 8 PostalUniversal Statistics Postal and Union, Status and Structure, op cit. Brazil’s Diverse (and Popular) Postal Services 3

Delivery targets established by the federal govern- ment require Correios to deliver 95 percent of isBrazil’s regulated network by the of Brazilianpost offices central are connected bank. to the - Internet and offer financial services. Banco Postal mentsletters applywithin to five printed, working non-urgent days, and materials. 90 percent The Correios banking partnership was intended to within two working days. Similar service require provide, through its retail network, basic banking - services to consumers without access to any formal ery companies be assessed a fee of 0.5 percent of itsStanding revenues regulations to help support require the that universal private deliv service the time. The undertaking is a widely-regarded requirement. But the fee is applied unevenly, and it successfinancial story network, because a key it goalshows for that the “digitalgovernment and at is unclear which private companies are required to physical networks such as information and commu- pay. successfully combined and provide both with POSTAL BANKING nications technology (ICTs) and Posts can be increased‘win-win’ scenarios,utilization including of and access improved to ICTs.” efficiency,12 It is not uncommon today for postal operators to competitiveness and profitability for Posts, and diversify their revenue streams by incorporating banking businesses into their service portfolio. In and cooperation from key stakeholders, including 2002, Correios entered a 10-year partnership with threeA project government of this scope agencies required (Correios, significant the Ministry input - of Communications and the Central Bank) and a cial services and enable the government to foster Bradesco, a national private bank, to provide finan private bank. It was determined that to succeed, the million adults did not have a bank account and were that were integrated and interactive, with a focus consideredfinancial inclusion. “unbankable”. At that This time, was an estimatedlargely due 45 to onventure being must, customer-friendly; first, offer real-time and second, financial ensure services the initial system focused on rural areas and citizens branches were located in the developed southern with limited economic means with little or no access andthe fact eastern that partsapproximately of Brazil, which75 percent has all of ofall the bank major cities.9 competition with consumer banks for customers whoto formal already financial had access channels to banking so as not services. to be in13 direct By 2009, the banking situation had improved Correios’ leadership recognized early on that adding banking products through the postal network could servicessignificantly to 8.8 for million the northern of these and “unbanked” western parts residents of Brazil, with 6,021 post offices providing financial increase the value of its network, share some of the costs of maintaining universal service and help to 700,000 loans were made between 2002 and 2009, lessen the impact of future declines in basic mail with postalover 1.2 banking million becoming transactions an important made daily. player Over volumes. In addition to a healthy mail market, and in the microcredit market.10 a fairly literate population (over 90 percent), Brazil boasts the highest number of Internet users in Latin The partnership with Bradesco ended in 2011 when America, over 35 percent.14 Correios held a new competition for its fast-grow- But there was a still a digital divide, and the govern- contract to state-owned Banco do Brasil, which ment understood that investing in the integration beganing postal running banking the postalbusiness. banking It awarded network a five-year in January 2012.11

9 Central Intelligence Agency, The World Factbook of the physical, electronic and financial networks 10 ICTs, new services and transformation of the Post, op cit. 11 Policy, https://www.cia.gov/library/publications/the-world-factbook/geos/br.html. Innovations to Improve Access to Financial Services: The Case of Brazil (Center for Global Development, Updated February 2012). 12 Ibid.Marcio I. Nakane and Bruna de Paula Rocha, 13 Ibid. 14 The World Factbook, op cit. 4 Studies on the Changing Postal Marketplace: Volume 2

in municipalities where no banking services were nationwide services through Correios’ network and currently available. Bradesco was also responsible reachwould the significantly underserved enhance populations. the ability15 to distribute for transporting money. Likewise, customers of both banks would have access to the two networks via POLICY GOALS - post offices and automated teller machines. Fur suchthermore, as checking Banco Postalaccounts, would which offer gave a wider it a competi range of- economic inclusion. In 1999, just prior to the Banco financialtive edge. products Today the than correspondent other correspondent network offeredbanks, The banking model reflects Brazil’s larger goal- of lished, through the Ministry of Communications, a still dominates the volume of transactions, at over bankingPostal project, correspondent the Brazilian system government to educate estab the public 75through percent. Banco18 Postal is extensive, but bill payment on electronic banking processes and products. This opened the door for consumer and government The hardest part of implementation was the banks to enter into agreements with shops, super- markets, etc. Based in rural areas, the program was customers faced a learning curve, while postal employeesretraining of needed postal to employees. be educated Banco about Postal’s retail rural results were directly related to the model used for postalimplemented, banking tested, and the modified selection and of refined.Bradesco The as the began by keeping the banking products simple, easy original banking partner.16 tobanking understand, products with and affordable processes. and Banco transparent Postal fees

and rates. With the help of IBM, it was decided to Correios management decided its partner bank should be selected via a competitive, public eachtrain region.two employees,19 a clerk and a back office agent, the fees each would pay Correios for each type of for each branch and have a financial manager for transactiontender-bidding in each process. group Proposals and for the were interest based (by on percentage) it would pay on accounts. Finally, each MEASURING SUCCESS bidder had to propose a “down payment” fee that was applied to the cost of developing the Banco Various data points continue to show positive 17 in poorer municipalities and banking for those who PostalBradesco, system one component.of the largest consumer banks in hadresults, been especially considered with “unbankable”. regards to financial Indeed, inclusionthose Brazil, won the initial bid and became the banking living in the poorest 50 percent of municipalities, - which represents 29 percent of the population, - stoodpartner. how Bradesco the respective could appreciate networks complementedCorreios’ effi deposits.21 cient network and excellent reputation and under account for over 50 percent of all Banco Postal In 2002, 1,750 municipalities had no banking ser- mostlyeach other: urban Correios’ areas. 5,300 offices in mostly rural areas and Bradesco’s approximately 3,300 outlets in providedvices; by 2005,access Banco to over Postal 14 million had covered customers 96 percent and contract, according to which Bradesco was required hadof these. provided By 2009, more over than 6,000 1.93 millionBanco Postal loans, branchesan in- Bradesco and Correios entered into a non-exclusive credible stimulus for local small and medium-sized enterprises.21 to give priority to connecting Banco Postal outlets 15 ICTs, new services and transformation of the Post, op cit. 16 Ibid. 17 Ibid. 18 Correspondent Banking in Brazil, -

19 Ibid.Olympia A. De Castro, http://www.ifmr.co.in/blog/2010/07/28/correspondent-banking-in-bra 20zil/ (IMFR Capital, July 28,Development 2010). Strategies for the Postal Sector: An Economic Perspective (2014). 21ICTs, new services and transformation of the Post, op cit. , Brazil’s Diverse (and Popular) Postal Services 5

The use of Correios’ network, along with the estab- and services Correios has added since the creation

- lishment of Banco Postal, has helped to maintain of Banco Postal. It underscores how Correios is profitability and strengthen Correios’ universal ser more than just a post office for rural communities vice. Post offices slated to close continue to operate and helps to explain its high brand rating. The at a profit with income earned from Banco Postal expanded offerings and revenue have empowered services. At other outlets, Banco Postal revenues Correios to invest further in technology to maximize exceedFigure postal 1. revenues. Services Figure Distributed 1 shows Through products the ECT Network profits and strengthen the network. Product/service Coverage/description ICT added 22 value Postal added value Economic/social benefits

Election Voting

5,561 municipalities Real time voting Trusted sites More voter participation 115 million voters Reduced fraud Voter verification Improved accountability 250,000 machines Electronic voting Locale customized Increased social inclusion box – flexibility Reduced rural isolation Medicine

Distribution Nationwide Track/trace Extended network Rural areas reached

Data gathering Controlled Improved national health Information sharing distribution Schoolbook

Distribution 120 million books/year Track/trace Predictable shipping Higher education levels 136,000 schools Data gathering “Last mile” delivery Greater competitiveness 32 million students Customized by locale Address database

management 46 million addresses Automated Added-­‐value product Information for mass updating offering for mailers advertisers Information for security, E-­‐Government taxes

Applications, permits, Online Access On-­‐site certification Travel/waiting time legal documents, social of government saved security verification documents Two-­‐way communication E-­‐Commerce Accessible government

CorreiosNet: online Track/trace Door to door Economic activity growth shopping Designed for Internet-­‐ collection and Stimulation of SMEs Listing of SMEs on based businesses delivery website Secure handling Exporta Facil Overnight delivery

Simplified process for Track/trace Nationwide shipping Improved exports

exports below Expedited customs Support for SMEs

US $50,000 International financial All municipalities Fully automated in Comprehensive Lowest price and remittances – VIE (6,050 post offices) Brazil national coverage exchange “spread” UPU based – Money laundering Established Strong support for SME 20 countries control coordinated relationships with and rural economic Eurogiro – with national other postal growth 22 countries authorities operators Reduction of illegal Electronic money remittance market orders – 20 countries Digital

certification All the benefits of the Date and time stamping, Combined with Proof that the content of traditional paper-­‐based digital identity capture, traditional postal an electronic message has for electronic content products not been altered documents verification/encryption Increased and simplified Acronyms: ICT (Information and Communications Technology); SME (Small and Medium Sized Enterprises);document UPU verification(Universal Postal Union).

22 ICTs, new22 services and transformation of the Post, op cit. ICTs, new services and transformation of the Post, op cit. 7

6 Studies on the Changing Postal Marketplace: Volume 2

OTHER PRODUCTS AND SERVICES - ties.24 owners to run new post offices in these municipali Correios’ outlets offer Brazilians a wide range of products and services, many through contractual arrangements with other federal government and - These new rules also expand Correios’ scope to private entities (see Figure 1). These arrangements nized by the government, but which can be identi- allow for delivery to addresses not officially recog provide convenient options for consumers while - fied as an address. If a building meets the minimum tion of revenue sources as mail volume continues to appropriately numbered along a named street -- standards -- suitable sign for identification and decline.offering the postal operator a valuable diversifica even without recognition from the public authori-

deliveries to residences with limited or inadequate ties, Correios will still deliver the parcel/letter. Also, where Brazil’s postal operator has taken a pioneer- access can still be attempted through single-point 25 ingOne role. area Currently,to take note the of coverage is E-Government is only for services, transac - tions with the federal government. However, there communityPRIORITIES mailboxes. FOR BRAZIL’S and local municipalities, as most interactions, such asare licenses, opportunities fees and to tickets,expand andthis utilityto include services, state are POSTAL SERVICE through the local governments. pledged “loud and clear” that privatization of the RECENT REFORMS nationalBrazil’s Communications postal operator would Minister, not Paul happen Bernardo, in 2011.

In early 2012, the Brazilian Ministry of Communica- outside Correios to help the agency focus within tions issued new regulations to strengthen the uni- Bernardo expressed a desire to utilize advisors from versal access requirements for the country’s postal would require a change to postal regulations.26 service. Even though Correios is considered to have priority areas. Such activity is not permitted and a dense network and one of the most comprehen- With the success and popularity of its present part- sive in the world, it needed to reach more people nerships, there is strong support within the postal living in rural and remote areas. such opportunities. In the coming decade, Correios believesadministration georeferencing for continuing and mobility to explore services and expand are at its services and imposed delivery targets including the technological forefront and are imperatives for 95Correios percent was of mandated letters to toarrive expand within the coveragefive working of improving its business processes and better stream- days.23 In terms of universal access, Correios lining its operations.27 municipalities (even though Correios was repre- Currently, Correios has two labs that are focused on sentedcommitted in 99 to percent having ofa post the municipalities,office in all 5,565 it still left developing mobile solutions for both employees and 46 with no presence). Though most of these goals consumers. According to Antonio Luis Fuschino, appear to have been met, Correios still has more to do and is working on innovative solutions to ensure these standards are met, including seeking franchise opportunitiesVice President for for new Technology services and and Infrastructure, improve custom - in an effort to increase operational efficiency, create 23 -

24Ibid.“Brazil’s postal service set targets to improve universal access,” http://postandparcel.info/44626/news/companies/brazils-post al-service-set-targets-to-improve-universal-access/25Ibid. (Jan 3, 2012). 26 -

27James Cartledge, “Brazil’s Post Office Will Not Be Privatized, Minister Pledges,” http://postandparcel.info/37261/news/bra http://www.bnamericas.com/news/telecommunications/geolocation-mobility-services-are-priorities-for-brazils-postal-servicezil%E2%80%99s-post-office-will-not-be-privatised-minister-pledges/ (March 30, 2011). - berPedro 9, 2013). Ozores, “Geolocation, mobility services are priorities for Brazil’s postal service,” (Octo Brazil’s Diverse (and Popular) Postal Services 7

with smartphones to instantly update the status of are still in the early development stage but show deliverieser perception, into thethe firstsystem. priority Every is employeeto provide with workers a foreign firms can elect not to deliver to. All of these smartphone has an app with a list of houses located customer service. Correios’ commitment to improve efficiency and currently have smartphones, and plans included deliveringwithin their an territory. additional Several 55,000 thousand by the end employees of the operator allowed to deliver letters, post cards, 28 telegrams,Since Correios and ispackages a monopoly that andcontain by law any the of theonly previous items, foreign operators compete directly firstThroughout quarter Brazil’s2014. highly urbanized areas, 79 33 percent of customers receive home delivery, while the other 21 percent have to collect basic mail from withover theSedex, last Correios’decade, the express infrastructure delivery company.has not kept a postal establishment. With a high concentration of paceThough and Brazil transportation has experienced throughout economic the country growth can mail volumes in these areas (83 percent of the mail be problematic. According to the National Confed- is distributed to just 20 percent of its states), there eration of Transportation, 69 percent of Brazilian is a robust addressing system -- over 46 million roads are in bad condition, with most of these being addresses, one of the most comprehensive in the in the northern and northeastern parts of the coun- world.29 This allows Correios to utilize advanced try.34 Bad roads, high costs of rails, and the satura- and less costly processing procedures to maintain tion of aerospace, along with poor airport quality of service. The postal operator is working infrastructure make for bigger headaches for towards having a geolocation reference for each of the zip codes within a worker’s service area, creat- Inexpress addition, delivery Corrieos and managementlogistics companies. has recently dealt

Thising a is“Flexible done in Postalpartnership District”. with the federal data 30 Correios is also fundingwith Postal system Union to membersa new management striking in agency, 13 Brazilian claim - statesing that over it means the transfer new fees of Brazilfor workers. Post’s healthcare To date, the toolsprocessing to abate agency incomplete Serpro. and possibly inaccurate courts have generally backed Corrieos, however, addressingexploring implementing data. This effort geocoding is in conjunction quality indicator with how big a mark this leaves on the brand’s popularity other government agencies that rely on the accuracy and to worker morale has yet to be assessed. The of an address including epidemic surveillance and strike has caused delivery delays and Correios has crime analysis.31 transferred workers in from other areas to

- weekends to help deal with the backlog, delivering aroundfor striking 4.3 millionstaff, as letters well as and organized parcels. extra shifts on inOther scheduling improvements deliveries underway and collections, revolve aroundto reduce bet ter interactivity with customers, such as efficiencies In 2013, Brazil’s Ministry of Communications asked It is estimated the operator spends 700 million reais expenditures on second and third delivery32 This attempts. is also to for offering free, secure email service for all Brazil- help mitigate robberies. Correios is required by law ianCorreios citizens. management35 The agency to examine had recently possible phased options out (USto deliver $318 million)everywhere, on these even attempts. high crime areas, which

28Ibid. its CorreiosNet email service. A Correios official 29 Council for Trade in Services (August 2010). 30 op cit. 31ClodoveuPostal and Davis Jr., FredericoServices, WTO, Foneseca and Karla Borges, A Flexible Addressing System for Approximate Geocoding (undated). 32Ozores, op cit. 33 34Ozores, 35 http://www.correios.com.br/english/the-brazil-post/history-and-facts. Brazil Tech Despoluir, http://www.cntdespoluir.org.br/Paginas/Inicio.aspx. 36Ibid.Angela Mari, “Brazilian Postal System Talks About ‘Anti-Snooping’ Email System,” http://www.zdnet.com/brazilian- postal-service-talks-about-anti-snooping-email-system-7000020257/ (September 4, 2013). Brazil’s Diverse (and Popular) Postal Services 8

noted that partnerships to scale up information equal treatment for private-sector providers and technology operations would be necessary, and that partners. This applies to both the selection and his agency was studying the costs and infrastructure contracting processes as well as to ensuring that requirements for a system that could be required access to facilities of the government monopoly do to offer email services to a population of more than not result in unfair advantages for partners. The 100 million people.36 services maintains that the regulatory regime of present arrangement for the provision of financial

CONCLUSION the postal operator pursue further partnerships Brazil’s central bank is a vital component. Should There are several lessons to be drawn from processes to ensure equal treatment among Correios and the Brazilian postal sector. A key point providerswith private will companies, be essential. establishing verifiable to emerge is the need for a cohesive policy and regu- latory environment to track and measure the needs of the population and encourage postal enterprises is not easily achieved, and must start with a strong - foundationThe Banco Postalof infrastructure partnership and shows capability. that success When a to expand and leverage their strengths to offer bet promising opportunity was recognized, the project was carefully planned and implemented with the Despiteter and moreevidence diversified of strong, services. positive consumer atti- support and commitment of the top management. tudes about Correios, the absence of an independent postal regulator stands as an impediment to great- Appropriate attention appears to have been paid to selecting the right technology to ensure success. Building and growing the strategy has been carefully frequencyer success. of Verified delivery data in rural on service regions, performance a standard metricis limited in mostin Brazil. large, For developing example, nations,information was onun - available for Brazil. builtexecuted around and competitive has focused tariffs on differentiating and incentives, from and properthe competition. training and Strategic support partnerships was understood have beento be Another dilemma posed by the absence of an inde- paramount. pendent regulatory authority supervising Correios’ operations is the lack of confident safeguards of

Jessica Ciccone Adams

Lexington Institute Adjunct Scholar has more than 20 years of experience in privatemanagement equity consulting high tech andand energy.knowledge management, holding positions at McKinsey & Company, Standard Chartered Bank, and Applied Materials. She has experience across several industries including banking,