Postage costs and the Australian book industry: a history

Thursday, 17 July 2014 Books+Publishing

The Australian Booksellers Association (ABA) believes the biggest threat to bookshops and other local retailers is postage costs. It offers this example: ‘It costs in excess of ten times more to post one book from Mosman to Penrith than it does to post the exact same book from the UK to Sydney. This is not only damaging local retailing but it is also crippling an Australian institution.’

In 2011, Books+Publishing published a post on the subject, ‘Why is it cheaper to post a book from overseas than within Australia?’. Some of the contributing factors we reported were: the ability of organisations such as the Book Depository to negotiate a volume-based discount from Royal Mail; fluctuations in the Australian dollar; and ‘a substantial difference between the unit costs charged by Australia Post and Royal Mail’.

‘Australia Post … is required to deliver parcels sent through Royal Mail (and other international postal services) within Australia as a member of the Universal Postal Union (UPU). In return for delivering these parcels, Australia Post receives a payment from the Royal Mail,’ a spokesperson for the Department of Broadband, Communications and the Digital Economy told Books+Publishing at the time. ‘It makes sense then that if parcels coming into Australia are increasing because of retailers like the Book Depository, Australia Post is spending more money on delivering parcels for Royal Mail. The questions then becomes, are the payments received by Australia Post for delivering these parcels covering the costs of delivery?’

The book industry investigates
The Book Industry Strategy Group’s (BISG) report to government, which was published in 2011, goes into further detail on the cost of parcels mailed to Australia from overseas countries such as the UK.

‘Under the rules of the UPU, international package postal rates are determined by the rate charged for a 20g first class priority letter within the destination country,’ explains the BISG report. Australia has a flat letter rate of $0.60, while many other countries, including the UK, have a first class postal rate for letters that results in higher rates for parcels sent to those countries.

PricewaterhouseCoopers, quoted in the BISG report, estimates that UK companies may pay Royal Mail about $3.04 for each 500 gram parcel sent to Australia, as a volume discount for posting 100 parcels (but companies such as Amazon and Book Depository may have a higher volume discount). Royal Mail then effectively passes on 60 cents of that amount to Australia Post, which is forced under international postal union obligations to deliver these parcels and cover the remaining cost of delivery.

‘Australia Post now concedes that delivering parcels from the United Kingdom is a loss-making activity, which suggests that higher prices on their domestic services are in part compensation for its losses of approximately $1.72 per parcel from the United Kingdom,’ said the BISG report.

Australia Post had previously applied to the UPU to register a first class postal rate for letters of $2.60, but the UPU rejected the request. Registering a first class postal rate would close the gap on Australia Post’s delivery cost of overseas mail by moving the cost onto overseas companies.

The BISG report includes a recommendation that ‘the Government initiate negotiations with the Universal Postal Union (UPU) to secure amendment of the appropriate postal treaties to provide more equitable and competitive pricing for print post delivery, where Australia is currently severely disadvantaged’.

The government responds
The former Federal Labor Government formally responded to the BISG recommendations in 2012. It supported the recommendation ‘in principle’ that the government enter into negotiations with the UPU to amend postal treaties. It noted that ‘effecting this recommendation will require renegotiation of Australia’s terminal dues rate which is set by rules established through the Universal Postal Union Convention and Acts’.

‘The rates of payment to Australia Post for inward parcels are set using a formula linked to the domestic standard letter postage rate [of 60 cents],’ said the government. The government said that the Department of Broadband, Communications and the Digital Economy is currently talking to members of the union ‘to agree [to] a different letter postage rate to be used for terminal dues’ but with 192 countries as members of the union, ‘negotiations are complex’. ‘Potential options outside of the union treaty arrangements are also being investigated by Australia’s designated operator, Australia Post,’ said the government.

Calls for a first class mail rate
The ABA has called on the current Federal Coalition Government to establish a first class mail rate in Australia to increase postage costs for overseas retailers sending parcels to Australia. In an open letter to the federal Minister for Communications Malcolm Turnbull, the ABA said:

‘In Australia there is no First Class Mail rate. This has been exploited by many overseas retailers, in particular The Book Depository (an Amazon-owned company). With no First Class Mail rate overseas companies are able to post goods under 400 grams to Australia at the cost of a local stamp. The Book Depository has used this to send orders in individual parcels and to provide free freight to customers in Australia. Under international postal union obligations Australia Post is then forced to deliver overseas parcels at their own cost. These costs have been passed onto Australian businesses and Australian consumers.

‘Free post coupled with a strong Australian dollar has meant that overseas purchases have skyrocketed. Not only that, but Australia Post’s costs have also gone through the roof. Parcel post costs have dramatically increased which means Australian businesses are in effect subsidising their overseas competitors. And now jobs and services are being cut back. Four years ago Australia Post was one of the most profitable government-owned enterprises. Now it is in dire straits.

‘If a first class mail rate was established in Australia overseas retailers would not be able to offer free freight to Australia and the volume of overseas post would decrease to more viable levels. This would reduce Australia Post’s costs and save jobs across the Australian economy.’

This article was written by Books+Publishing’s Andrew Wrathall and originally published in the Fancy Goods blog.

Category: Fancy Goods