Rise in parcal rates and the effect on local businesses

1240/5(2090)

QUESTIONS TO BE ASKED OF THE PRESIDENT OF THE COMMITTEE FOR POSTAL ADMINISTRATION ON TUESDAY, 20th APRIL 2004 BY DEPUTY G.C.L. BAUDAINS OF ST. CLEMENT

Question 1

Postal rates generally were increased on 6th April 2004, with the largest increases affecting parcels. Would the President outline what considerations the Committee gave to the effect these increases would have on local business and account for the fact that local letter rates are more expensive than UK internal rates?

Answer

The Postal Committee is mindful of the impact that any increase has on local business but was also aware that the increases to charges levied by Royal Mail were unavoidable and had to be addressed immediately. Jersey Post is developing and progressing a number of initiatives to help local businesses, in particular it is working to identify ways in which Jersey Post can reduce or avoid costs by work sharing or changes and enhancement to the original production of the mail items. Wherever these savings can be realised, the benefits are passed on.

The Committee also felt it preferable, and made efforts to ensure all increases were introduced at the same time to avoid business customers incurring additional cost and inconvenience associated with changing their posting meters and associated equipment several times within a short period of time.

With regard generally to letter rates being more expensive than in the UK, one could be forgiven for assuming that short local distances might result in lower rates than on the mainland. To fully appreciate the economics involved one must consider the elements that are involved in mail services.

1. Overheadsincluding the operation of a sub-post office networkin the Parishes.
2. Collection.
3. Sortation.
4. Transportation withinpostal jurisdiction (not relevantin Jersey local to local).
5. Door to door delivery.

By far the most labour intensive and therefore expensive element is 5 - Door to door delivery, whereas 4 - Transportation within postal jurisdiction, starts to become more significant at increasing weights.

Jersey local to local price for the initial weight step for letter post covering items up to 60g is more expensive than in the UK but is still amongst the lowest in Europe (as detailed in the attached tables in Appendix A), and at higher weight steps above 60g Jersey becomes lower priced than the UK. This variance reflects the fact that the basic cost of providing any service, particularly one as labour and resource intensive as the postal service, is unavoidably higher in Jersey than in the UK.

Efficient and reliable postal services are crucial to any economy and my Committee believes that the long term provision of such services is best assured by Jersey Post carefully matching its charging structures for each service on a cost plus basis so as to ensure reasonable profitability for its shareholders (The Jersey Public) whilst at the same time wisely investing in its future technological infrastructure such as sortation automation and all the while also being subject to the strictest scrutiny from an independent regulator once incorporated as well as being open to competition as appropriate.

Question 2

Would the President explain the rationale behind the increases in parcel rates and in particular explain why -

( a ) 50gm registered post to the UK is now £6 but only £4.70 to Australia and £3.75 from the UK to Jersey?

( b ) there is no compensation available with recorded delivery to the UK?

( c ) costs for compensation Special Delivery have risen in many cases by over 100 per cent, for example

500gm with £2,500 compensation to U.K. which has risen from £5.30 to £12.00?

( d ) a 3kg parcel to the U.K. has risen from £4.25 to £11.20 (164 per cent increase) and a 1kg parcel to

Ireland has risen from £4.40 to £17.50 (398 per cent increase)?

Answer

(a) Unfortunately Deputy Baudains is not making reasonable comparisons, and appears to be confusing different types of service.

H  istory Approximately 18 months ago Royal Mail carried out a review of their enhanced mail services

portfolio. The result as it affected Jersey Customers was as follows -

Old Service    A  ct i o n N e w S e r v ic e  

Recorded Delivery UK/Jersey'  R e - b randed S ig n e d F or' International Recorded' R e - b ra n d e d In t e r n at i onal Signed For' Registered Mail UK/Jersey'  R e - b r a nded P r o o f o f Delivery' Special Delivery UK/Jersey' N o ch a nge S p e c i a l D elivery'

Features of each service -

Signed For   - P r o o f of posting and signature on delivery

Intnl Signed For - P r o o f of posting and signature on delivery, compensation up to £30

Proof of Delivery - E n h a nced Signed For' with copy of receipt signature returned to sender Special  Delivery - G u a ranteed  next  working  day  delivery,  tracked  and  traced, proof  of

posting, signature on delivery incl. time, compensation £250 (upgrades available to £2,500)

Cost comparisons for a 50gm letter.

S p e c ia l Delivery is a guaranteed next working day delivery service offering a money back guarantee

(subject  to  reasonable  exemptions  such  as  bad  weather,  detention  by  UK  customs,  etc.).  Special Delivery includes compensation against loss or damage of up to £250 with further options for insurance of either £1,000 or £2,500. Special Delivery also offers full track and trace capabilities throughout the journey and a confirmation of delivery which can be confirmed either by telephone or on the internet.

W h y i s the Jersey to UK Special Delivery Service more expensive than the equivalent UK to Jersey price

for the same service?

A c c o r ding to Jersey Post's extensive cost research the correct price for this service is £6.00 – it is very

labour intensive at every stage of the process. Royal Mail's price in our opinion must therefore be driven by one or a number of the following:-

1 . d o wnward price pressure from the UK Regulator wanting better quality of service before allowing

a price increase;

2 . p o litical/marketing considerations having just withdrawn the old Standard Parcels' service (see

answer to question 2(d).) resulting in substantial parcel price increases. (Parcel services to some degree overlap with Special Delivery);

3 . l ac k of true cost comparison information leading to a loss making service being subsidised by other

services; and

4 . a b ove 2 Kilo Jersey prices are much cheaper than the UK i.e. Are Royal Mail using Optical' low

weight low entry price marketing to encourage use of higher weight band mailings at enhanced profit margin?

( b ) at the moment if customers require a compensation payable service they would have the option to use

Special Delivery. However the question of the lack of compensation for the Signed For' service does appear to be an anomaly and will be discussed at the next opportunity by my Committee.

( c ) the Postal Committee and the Finance and Economics Committee believe that it is not appropriate for

Jersey Post to lose money providing the Special Delivery service for low weight items. The pricing strategy is representative of the costs associated with provision of the service, a principle referred to in my answer to question 1 and question 2(a).

( d ) from the beginning of April, ParcelForce, Royal Mail's parcels division, have withdrawn the standard

UK economy parcel service. It has been replaced by a fully tracked and traced delivery time assured service, which is provided at a much higher cost to Jersey Post.

In th e case of International parcels and as a result of careful analysis by Jersey Post the new rates reflect

the costs of conveyance and final delivery in the country of final destination.

In t h e specific case of the Republic of Ireland it appears that in the past Jersey Post has been providing

this parcel service at a significant loss. I have been unable to ascertain the exact reason for this other than to confirm that in general past prices have been based on the old Royal Mail system of pricing. The new parcel prices for the Republic of Ireland are now in keeping with the average of other destinations in Europe.

T h i s a nalysis and new approach to pricing has highlighted several anomalies in the previous pricing

structure, so much so that now over half of all International destinations have lower costs than before and many are at their lowest since 1995, there are many more winners (including some of our most popular destinations) than losers as can be seen from Appendix B.

LOCAL LETTER RATES – Comparison to local letter rates in other countries. The following table compares postage rates for an item at 20g.

Comparison @ 0-20g (in £)

£0.60 £0.50 £0.40 £0.30 £0.20

£0.10 £0.00

UK

Italy

Spain

Jersey Ireland Finland Austria Greece France

Portugal Belgium Sweden

Guernsey Denmark Germany

Luxembourg Netherlands

However, a far more appropriate comparison is to compare postage at the 50-60g level as the average Jersey item sent falls into this weight bracket (so this is a more honest comparison to make).

The following table compares postage rates for an item at 50-60g.

Com parison @ 50-60g (in £)

£1.20 £1.00 £0.80 £0.60

£0.40 £0.20 £0.00

UK

Italy

Spain

Jersey Ireland Finland Austria France

Greece

Portugal Belgium Sweden

Guernsey Denmark Germany

Luxembourg Netherlands

Based on April 2004 Price s.

The following table is a sample of destinations from over 100 (this representing the majority of destinations) where the new parcels rates (from 6th April 2004) for the most popular weight items are as low or lower than at any time since 1995.

Examples of impact of new 2004 rates compared to prevous published parcel rates (STANDARD AIR PARCEL).

Rate since 1995 5kg

Algeria £38.80 Australia £48.00 Austria £22.20 Bahamas £26.50 Bahrain £38.80 Canary Islands £22.20 Czech Republic £22.20 Egypt £38.80 Falkland Islands £38.80

Fiji £48.00 Ghana £38.80 India £38.80 Italy £22.20 Morocco £38.80 Pakistan £38.80 Saudi Arabia £38.80 Seychelles £38.80 Slovak Republic £22.20 Solomon Islands £48.00 South Africa £38.80 Spain £22.20 Syria £38.80 Tunisia £38.80 United Arab Emirates £38.80 Western Samoa £48.00

New Rate Variance

5kg £ % £26.42 -£12.38 -31.91% £38.44 -£9.56 -19.92% £22.22 £0.02 0.09% £26.22 -£0.28 -1.06% £26.42 -£12.38 -31.91% £22.22 £0.02 0.09% £22.22 £0.02 0.09% £26.42 -£12.38 -31.91% £38.44 -£0.36 -0.93% £45.70 -£2.30 -4.79% £34.12 -£4.68 -12.06% £34.12 -£4.68 -12.06% £22.22 £0.02 0.09% £26.42 -£12.38 -31.91% £34.12 -£4.68 -12.06% £26.22 -£12.58 -32.42% £38.44 -£0.36 -0.93% £22.22 £0.02 0.09% £38.44 -£9.56 -19.92% £34.12 -£4.68 -12.06% £22.22 £0.02 0.09% £26.42 -£12.38 -31.91% £26.42 -£12.38 -31.91% £26.42 -£12.38 -31.91% £45.70 -£2.30 -4.79%

Rate since 1995 New Rate 10kg 10kg

£70.80 £36.32 £88.00 £67.74 £35.20 £28.12 £46.50 £41.12 £70.80 £36.32 £35.20 £28.12 £35.20 £28.12 £70.80 £36.32 £70.80 £67.74 £88.00 £80.20 £70.80 £58.02 £70.80 £58.02 £35.20 £28.12 £70.80 £36.32 £70.80 £58.02 £70.80 £41.12 £70.80 £67.74 £35.20 £28.12 £88.00 £67.74 £70.80 £58.02 £35.20 £28.12 £70.80 £36.32 £70.80 £36.32 £70.80 £36.32 £88.00 £80.20

Variance

£ %

-£34.48 -48.70% -£20.26 -23.02% -£7.08 -20.11% -£5.38 -11.57% -£34.48 -48.70% -£7.08 -20.11% -£7.08 -20.11% -£34.48 -48.70% -£3.06 -4.32% -£7.80 -8.86% -£12.78 -18.05% -£12.78 -18.05% -£7.08 -20.11% -£34.48 -48.70% -£12.78 -18.05% -£29.68 -41.92% -£3.06 -4.32% -£7.08 -20.11% -£20.26 -23.02% -£12.78 -18.05% -£7.08 -20.11% -£34.48 -48.70% -£34.48 -48.70% -£34.48 -48.70% -£7.80 -8.86%

The following table is a sample of the most popular destinations from the remaining destinations where the new parcels rates (from 6th April 2004) will have increased.

Rate since 1995 Increased Rates 5kg Belgium £16.10 Canada £26.50 France £16.10 Germany £16.10 Holland (Netherlands) £16.10 Hong Kong £27.20 Hungary £22.20 Irish Republic £10.00 Madeira £22.20 Portugal £22.20 Sweden £22.20 USA £26.50

New Rate Variance

5kg £ % £29.52 £13.42 83.35% £34.12 £7.62 28.75% £22.22 £6.12 38.01% £22.22 £6.12 38.01% £22.22 £6.12 38.01% £34.12 £6.92 25.44% £29.52 £7.32 32.97% £22.22 £12.22 122.20% £26.42 £4.22 19.01% £26.42 £4.22 19.01% £29.52 £7.32 32.97% £34.12 £7.62 28.75%

Rate since 1995 New Rate 10kg 10kg

£24.10 £36.92 £46.50 £58.02 £24.10 £28.12 £24.10 £28.12 £24.10 £28.12 £45.20 £58.02 £35.20 £36.92 £22.20 £28.12 £35.20 £36.32 £35.20 £36.32 £35.20 £36.92 £46.50 £58.02

Variance

£ %

£12.82 53.20% £11.52 24.77% £4.02 16.68% £4.02 16.68% £4.02 16.68% £12.82 28.36% £1.72 4.89% £5.92 26.67% £1.12 3.18% £1.12 3.18% £1.72 4.89% £11.52 24.77%

Note: The above comparisons have been based on the most popular weight of parcels (the vast majority of which are between 5 and 10kg)

International Standard Parcel Key Information.

All Zones where new rates are lower than 1995

Weight OLD ZONE NEW ZONE lower

AUSTRALIA 7 F ALL GUYANA 5 D ALL ISRAEL 5 D ALL JAMAICA 5 D ALL KIRIBATI 7 F ALL LIBERIA 5 D ALL MONTSERRAT 4 D ALL SOLOMON ISLANDS 7 F ALL ST CHRISTOPHER (ST KITTS) & NEVIS 4 D ALL ST LUCIA 4 D ALL

TONGA 7 F ALL TURKS & CAICOS ISLANDS 4 D ALL TUVALU 7 F ALL

AFGHANISTAN 5 E +5kg ALGERIA 5 C +5kg ANGOLA 5 E +5kg ANGUILLA 4 D +5kg ANTIGUA & BARBUDA 4 D +5kg ARGENTINA 5 F +5kg ARUBA 5 E +5kg AUSTRIA 3 A +5kg BAHAMAS 4 D +5kg BAHRAIN 5 C +5kg BANGLADESH 5 E +5kg BARBADOS 4 D +5kg BENIN 5 C +5kg BERMUDA 4 D +5kg BHUTAN 5 F +5kg BOLIVIA 5 F +5kg BOTSWANA 5 F +5kg BRITISH VIRGIN ISLANDS 4 D +5kg BURKINA FASO 5 E +5kg CAMEROON 5 E +5kg CANARY ISLANDS 3 A +5kg COLOMBIA 5 F +5kg CROATIA 3 A +5kg CURACAO 5 E +5kg CZECH REPUBLIC 3 A +5kg DEM REP OF CONGO (Formerly Zaire) 5 E +5kg DJIBOUTI 5 E +5kg DOMINICA 4 D +5kg DOMINICAN REPUBLIC 4 D +5kg ECUADOR 5 E +5kg EGYPT 5 C +5kg ERITREA 5 E +5kg ETHEOPIA 5 E +5kg FALKLAND ISLANDS 5 F +5kg FIJI 7 G +5kg FRENCH POLYNESIA 7 G +5kg GAMBIA 5 E +5kg GAZA & KHAN YUNIS 5 C +5kg GHANA 5 E +5kg GRENADA 4 D +5kg GUINEA 5 E +5kg GUINEA BISSAU 5 E +5kg HAITI 4 D +5kg INDIA 5 E +5kg IRAN 5 E +5kg IRAQ (Currently Suspended) 5 F +5kg ITALY 3 A +5kg IVORY COAST (Cote d'Ivoire) 5 E +5kg JORDAN 5 C +5kg

KENYA 5 E +5kg KUWAIT 5 C +5kg LEBANON 5 C +5kg LESOTHO 5 E +5kg MACEDONIA (Former Yugoslav Rep. of) 3 A +5kg MADAGASCAR 5 E +5kg MALAWI 5 E +5kg MALDIVES 5 E +5kg MAURITANIA 5 E +5kg MAURITIUS 5 F +5kg MOROCCO 5 C +5kg MOZAMBIQUE 5 F +5kg NAMIBIA 5 E +5kg NEPAL 5 E +5kg NEW CALEDONIA 7 G +5kg NIGERIA 5 E +5kg OMAN 5 C +5kg PAKISTAN 5 E +5kg PARAGUAY 5 F +5kg PERU 5 F +5kg QATAR 5 C +5kg REUNION ISLAND 5 E +5kg SAUDI ARABIA 5 D +5kg SENEGAL 5 E +5kg SEYCHELLES 5 F +5kg SIERRA LEONE 5 E +5kg SLOVAK REPUBLIC 3 A +5kg SLOVENIA 3 A +5kg SOMALIA 5 F +5kg SOUTH AFRICA 5 E +5kg SPAIN 3 A +5kg SRI LANKA 5 E +5kg SUDAN 5 D +5kg SURINAM 5 E +5kg SWAZILAND 5 E +5kg SYRIA 5 C +5kg TANZANIA 5 E +5kg TOGO 5 E +5kg TOKELAU ISLANDS 7 G +5kg TRINIDAD & TOBAGO 5 D +5kg TRISTAN DA CUNHA 5 E +5kg TUNISIA 5 C +5kg UGANDA 5 E +5kg UNITED ARAB EMIRATES 5 C +5kg URUGUAY 5 F +5kg VATICAN STATE CITY 3 A +5kg VENEZUELA 5 E +5kg WALLIS & FUTUNA ISLANDS 7 G +5kg WESTERN SAMOA 7 G +5kg YEMEN 5 E +5kg ZAMBIA 5 F +5kg ZIMBABWE 5 F +5kg BOSNIA HERZEGOVINA 3 B +12kg BULGARIA 3 B +12kg ESTONIA 3 B +12kg GIBRALTAR 3 B +12kg HUNGARY 3 B +12kg LATVIA 3 B +12kg LITHUANIA 3 B +12kg NORWAY 3 B +12kg POLAND 3 B +12kg SWEDEN 3 B +12kg

DENMARK 2 A +18kg FRANCE 2 A +18kg GERMANY 2 A +18kg LUXEMBOURG 2 A +18kg NETHERLANDS (HOLLAND) 2 A +18kg SWITZERLAND 2 A +18kg