International Delivery Prices: Effects on National Post and E-Commerce
Finland and Sweden are members of the Universal Postal Union (UPU), a UN agency. The UPU international agreements include rules capping the cross-border postal rates (terminal dues) that the Finnish and Swedish post can charge the foreign sending postal company for inbound mail.
These international tariffs (governed by the UPU) differ from the compensation the domestic postal operators would require in a situation without the terminal dues system in place. As surveyed in our past work for the US postal regulator, this difference in prices gives rise to several distortive effects, including financial transfers between designated postal operators around the world. It also affects the competitive outlook for e-retail activities based in countries like Finland and Sweden.
The main conclusions of our study are
- The difference between domestic shipment fees and terminal dues, combined with Finland and Sweden being net importers of letter items, results in a negative net financial transfer for the domestic postal operators in both Finland and Sweden.
- The negative financial transfer represents a significant cost component for the domestic operators: in Finland, the negative net financial transfer is equal to € 10 million, a figure comparable to 22 per cent of Posti’s annual profit. In Sweden, the negative net financial transfer is also equal to € 10 million, a figure comparable to 19 per cent of Postnord’s annual profit for Sweden.
- As is well known, (e)retail is an activity with low profit margins. Against this backdrop, the disadvantage on shipping rates stemming from terminal dues makes a significant and broad impact.
- We investigate this effect for a broad range of merchandise types for the domestic e-retailers in Finland and Sweden: the terminal dues disadvantage is even greater than the e-retailer’s expected profit margin contribution for many of our merchandise types investigated.
- Domestic e-retail activity in Finland and Sweden thus faces a significant challenge in sustaining profits, driven by the shipping disadvantage vis à vis foreign based e-retailers that can access shipping rates underpinned by the UPU terminal dues rules.
The study is commissioned by Kaupan Liitto and Svensk Handel.
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