News & Research

Universal Postal Service in Major Economies - June 2015

Universal Postal Service
in Major Economies

--- New Edition Updated June 2015 ---

(To download a printer-friendly PDF of this report, please click here.)

Executive Summary

"We're operating in a dynamic, digital world where community expectations and customer behavior are changing rapidly," Australia Post's CEO Ahmed Fahour observed in a noteworthy speech in August 2014. "Simply continuing to do what we have done in the past will not allow us to be a community service in the future." 

Such sweeping determinations would have seemed somewhat fantastical within postal or mailing communities fifty years ago, but today they represent sentiments that are quite common among the leadership of national postal operators around the world.

Faced with a changing global marketplace with new technologies and enhanced world-wide connectivity, postal operators are adapting their business models. Where this often uneven evolution has been successful, it is characterized by three primary strategies: 1) liberalization, 2) diversification of revenue sources and 3) rethinking universal service requirements. These three best practices have allowed the world's largest national posts to remain both relevant and fiscally solvent despite declining service demands and global economic recession. 

Declining mail volume, independent of economic growth, has driven changes in business models. Mail volumes have dropped at an annual rate of 5 percent since achieving their peak in 2007. The United States Postal Service has observed a 38 percent reduction in single-piece first class mail, its highest-profit offering, over the past five years, forcing lawmakers and the Service's management to reconsider its business plans and look at universal service obligations from a different perspective.

This report outlines major dynamics and strategies characterizing universal service across the world's largest postal markets, comprising 96 percent of global postal revenues, and 70 percent of domestic mail volume, with an emphasis on how they can be expected to impact consumers. 

Every national post faces unique demands, obligations and challenges -- and so there is no "silver bullet" for restoring postal financial stability. Some countries are enacting tighter regulations and fees in response to changing mail trends, while others are relaxing regulations and fees. But as this report demonstrates, the experience of other national posts can inform decisions going forward, so that countries can build on past successes and avoid missteps.

The three aforementioned best practices shine through as noteworthy trends across this global case study:  

Liberalization, where postal markets are opened to outside competition, is an overall trend underway in 13 of the 20 countries examined in this study. The goal of opening markets to outside competition is to lower costs for consumers, while improving service quality. Independent postal regulators have developed different rules and methodologies for allowing competition, and for establishing and monitoring service quality. For example, the European Union's 2008 Third Directive offered sweeping changes designed to open postal markets broadly -- to which states have responded in various ways. The United States, on the other hand, has not made its mail monopoly available to the private sector, but it has effectively liberalized significant portions of its mail stream through establishing "worksharing" arrangements.

Worksharing, or offering third parties discounts for mail preparation and transportation, has driven down the cost of doing business, to the observable benefit to consumers in terms of cost and service quality. More broadly, if worksharing were included under the liberalized category, the percent of worldwide postal revenue from non-liberalized posts falls to just 15 percent.  

Revenue Generation Flexibility, derived from alternative sources, has been another predominant trend among postal operators. Such non-mail revenue sources include offering banking and insurance services, logistics, internet, and parcel deliveries. Banking and insurance activities have generated the majority of alternative postal revenue, followed by parcel delivery.

Relaxation of the Universal Service Obligation has been another dominant trend of posts and regulators, providing posts flexibility in delivery infrastructure and standards. For reference, Appendix C contains a list of successful practices by posts to re-define the universal service obligation in an acceptable manner to consumers, while reducing costs. Certain countries have implemented universal service funds to help subsidize their posts' universal service obligations, but only 10 of 20 major national posts examined here have taken such actions. These tend to be the smaller countries and operators of those studied. Of these, at the time this report was published, available evidence indicated that most had not actually begun to collect payments for the fund. In all but four countries examined (Brazil, China, India and Turkey), universal service funds were created following liberalization, established as short-term mechanisms to support the implementation of liberalized market conditions, particularly the higher cost of delivery to certain locations by the designated operator responsible for the obligation.

Table of Contents

1. United States
2. China
3. Spain
4. Germany
5. France
6. Japan
7. Brazil
8. United Kingdom
9. Italy
10. Turkey
11. Portugal
12. Argentina
13. Chile
14. India
15. Australia
16. Canada
17. Netherlands
18. New Zealand
19. Sweden
20. Switzerland
Appendix A: Summary of Major National Postal Systems
Appendix B: The European Union Experience
Appendix C: Practices That Redefine Universal Service Obligations
End Notes

(To download a printer-friendly PDF of this report, please click here.)
Download attachment(s): Universal Postal Service in Major Economies - June 2015 Edition -- FINAL.pdf

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