Cross-border mail: A case of reverse liberalisation

A private operator perspective

Liberalisation is one of the keywords in the postal lexicon. Almost everyone claims to be in favour, albeit often with caveats around residual protection in order to guarantee universal service, and the need for careful management of timescales.

It is, therefore, somewhat strange that during the last few years it has become harder, not easier, to compete with national posts in the cross-border mail market.  This in an era when much is heard of the inexorable march of globalisation and the benefits of worldwide free trade.

Cross-border mail (as opposed to parcels) is in decline in most developed countries, impacted no doubt by the advent of email as a communications medium. Cross-border mail is also by no means a key revenue stream for many posts – typically 5% or a little more of total revenue. Conventional wisdom in the wider commercial world might suggest that the combination of these factors would lead to attempts to find innovative ways to stimulate the market. Conventional wisdom would also indicate that freeing up a market is a good way to kick start it.

So, what is happening to distort the normal rules of international commerce?

The case for the prosecution goes something like this.

Monopoly protection

In Europe, the first EU Directive on Postal Services, enacted in 1998, stated that post offices could maintain a monopoly in certain business sectors in order to fund the continuation of a universal postal service. Many are doing just that. The trend was reinforced by the 2002 Directive, which effectively allowed countries which had exceeded minimum requirements for domestic mail liberalisation to retain a monopoly on cross border mail. Some countries even re-introduced a monopoly on the back of this directive!

Preservation of the universal service remains the ultimate defence by national posts of their privileged status. However, it is difficult to see what this has to do with the operation of the cross-border mail market.

Legal action

Certain countries have taken legal action to inhibit, or even prevent, the activities of competitors (including other national posts) seeking to operate on their own territory.  The most notorious recent example is Canada, where Canada Post is adopting a de jure approach to stopping competition in the cross-border market, even though it has operated for years, if not decades, as a de facto open market, and brought significant inward investment to the country.

Terminal dues and REIMS

Terminal dues are a payment club between national posts. The terminal dues prices charged by posts to other posts for delivery of incoming mail rarely represent anything like the true cost of delivery, and are often significantly lower than domestic rates, despite some recent changes in the relevant UPU agreements.

In Europe it could be argued that the REIMS agreement between the major Western European posts has moved closer to relating terminal dues in Europe to real costs. Nevertheless, it has at the same time been described as a cartel by the European Commission, albeit one currently exempt from European competition regulations. Furthermore, the ten states which joined the EU in 2004 are operating under their own cartel, REIMS East.

As part of its exemption of REIMS, the EU required fair access to be given to private cross-border operators: this appears to be easier said than done, and in practice it is very difficult for other companies to gain access to REIMS on an acceptable basis.

Extra Territorial Offices of Exchange (ETOE’s)

ETOE’s are offices of exchange run by postal operators on national territory other than their own. Many posts from Europe, and from some of the undeveloped countries, had ETOE’s.

One reason was to exploit the absurdities of terminal dues (TD) systems which, as we have seen, often bear no relationship to cost. Less developed countries could (and still do) gain very cheap TD access rates into the more developed economies of Europe and North America. So, developed post or private operator A, by routeing via a less developed country’s ETOE established in developed country B, could get cheap access to the latter’s postal system. This could be seen as disgraceful arbitrage, or merely pointing out the inconsistencies implicit in the current TD arrangements.

The second and arguably more significant benefit of ETOE’s was to improve reliability and quality of service. For example, if Royal Mail was collecting traffic in the USA for delivery in Germany, it would have had to route the traffic via its own territorial office in the UK if it did not have an ETOE in the US. With an ETOE it could route direct to Germany, rather than via London.

ETOE’s therefore provided the opportunity to move mail around the world, either more cheaply and/or with better quality.

In 2004 the UPU Congress passed a resolution allowing post offices to refuse to deliver mail handled through ETOE’s. It also agreed that countries could ban the establishment of ETOE’s on their own soil.

Few would deny that there were abuses in the use of ETOE’s, but to take such an extreme position does little to enhance the free trade and commercial credentials of the UPU’s membership, and shows scant regard for freedom of choice for international mail customers.

Pricing behaviours

Private operators can point to what they describe as ‘irrational pricing’ by posts competing in the cross-border mail market. This may involve simply pricing below cost, or bundling various services together (domestic and cross-border) to create a favourable package. This is linked to continuing examples of cross subsidy between quasi-monopoly domestic services and the more competitive international arena. These are clearly unacceptable behaviours in an environment of transparency and strict rules on non-abuse of dominant positions, but such abuses are not always easy to prove.

In Europe private operators have to charge Value Added Tax. Posts for the most part (Sweden being the main exception) do not. This can make it more difficult to compete in certain sectors of the market.

The prosecution rests its case

The case for the prosecution is essentially that posts have made it more difficult for private operators to compete profitably in the cross-border mail market, by ensuring that the rules of the game (both written and unwritten) have been skewed even more to their advantage.

The Editor of World Mail Review has indicated he would be happy to give space for the defence to present its riposte in the next edition of this journal.