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Mail, Courier and Parcel Services INDUSTRY COMMISSION MAIL, COURIER AND PARCEL SERVICES Report No. 28 30 October 1992 Australian Government Publishing Service Canberra © Commonwealth of Australia 1992 ISBN 0 644 25927 2 This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Australian Government Publishing Service. Requests and cerning reproduction and rights should be addressed to the Manager, Commonwealth Information Services, Australian Government Publishing Service, GPO BOX 84, Canberra ACT 2601. Printed by R. M. LANSDOWNE, Commonwealth Government Printer, Canberra INDUSTRY COMMISSION 30 October 1992 The Honourable J S Dawkins M P Treasurer Parliament House CANBERRA ACT 2600 Dear Treasurer In accordance with Section 7 of the Industry Commission Act 1989, we submit to you the report on Mail, Courier and Parcel Services. Yours sincerely Keith J. Horton-Stephens James A. Hoggett Presiding Commissioner Associate Commissioner COMMISSIONER Benjamin Offices, Chan Street, Belconnen ACT Australia PO BOX, Belconnen ACT 2616 Telephone: 06 264 1144 Facsimile: 06 253 1662 TERMS OF REFERENCE Industry Commission Act 1989 I, RALPH WILLIS, in pursuance of Section 7 of the Industry Commission Act 1989 hereby: 1. refer public and private mail, courier and parcel services (including electronic services) for inquiry and report within twelve months of the date of receipt of this reference; 2. specify that the Commission report on institutional, regulatory or other arrangements subject to influence by governments in Australia that inhibit efficient resource use, and advise on courses of action that could remove such inhibitions and facilitate improved efficiency; 3. without limiting the scope of the reference, request that the Commission give priority to areas where the greatest efficiency gains are in prospect and areas where early action is practicable, having regard to: (a) the obligation to Australia Post to provide a letter service as specified in Section 27 of the Australian Postal Corporation Act 1989, and the present and likely future costs of providing a reasonable service as efficiently as practicable; (b) the scope for, and extent of, competition in the carious segments of the mail, courier and parcels industry; (c) whether there are places or groups that do not receive adequate access to mail, courier and parcel services, and options for servicing their needs; and 4. specify that the Commission is to have regard to the established economic, social and environmental objectives of governments. RALPH WILLIS 30 October 1991 TERMS OF V REFERENCE CONTENTS PAGE TERMS OF REFERENCE v ABBREVIATIONS x OVERVIEW AND RECOMMENDATIONS xi 1. INTRODUCTION 1.1 The terms of reference 1 1.2 Recent developments in the provision of services 1 1.3 The Commission’s approach 2 1.4 Participants’ views of the principal issues 2 1.5 Conduct of the inquiry 5 1.6 Structure of the report 5 2. CHARACTERISTICS OF THE MAIL, COURIER AND PARCEL MARKETS 2.1 Industry structure 7 2.2 Directed messages 12 2.3 Broadcast messages 18 2.4 Parcels and small freight 20 2.5 International mail 22 3. STRUCTURE AND ACTIVITIES OF AUSTRALIA POST 3.1 Recent reforms to Australia Post 25 3.2 Corporate structure and accountability of Australia Post 26 3.3 Australia Post and the corporate model 35 3.4 Range of services provided 36 3.5 Service delivery by Australia Post 40 4. PERFORMANCE OF AUSTRALIA POST 4.1 Costs of providing services 43 4.2 Pricing principles and practices 52 4.3 Pricing of services 56 4.4 Performance indicators 68 4.5 Investment appraisal 86 4.6 Summary 87 CONTENTS VII 5. COMMUNITY SERVICES 5.1 Introduction 89 5.2 Community service obligations 89 5.3 Other obligations of Australia Post that impinge on CSOs 92 5.4 Perceived obligations of Australia Post 93 5.5 Other community services performed by Australia Post 100 5.6 Costs of fulfilling the letter community service obligations 102 5.7 Reasonable access to the letter service 105 5.8 Funding options 122 5.9 Summary 128 6. INTERNATIONAL MAIL 6.1 Introduction 129 6.2 International mail and Australia’s obligations 129 6.3 The Universal Postal union and terminal dues 131 6.4 Postage rates for outgoing international mail 136 6.5 Increasing competition for international services 137 6.6 Administrative aspects of international mail 143 6.7 Summary 144 7. COMPETITION AND REGULATION 7.1 Reserved services 147 7.2 Competition in the provision of letter services 149 7.3 Impact of the reserved services 157 7.4 Natural monopoly and the reserved services 169 7.5 Pro-competitive regulation 174 7.6 Competition in parcel services 178 7.7 Competition in city courier services 181 7.8 Labour costs 182 7.9 Summary 185 8. PROVIDING LETTER SERVICES IN A FULLY COMPETITIVE ENVIRONMENT 8.1 Factor affecting the extent of competition 187 8.2 Potential market structure for letter services 188 8.3 Operation of the potential letter networks: some effects of competition 199 8.4 Development of private letter service networks 202 8.5 Impact on Australia Post 203 8.6 Inter-connection and regulation of networks 204 8.7 Summary 205 VIII MAIL,COURIER AND PARCEL SERVICES 9. OPTIONS FOR REFORMING THE LETTER SERVICE 9.1 Introduction 207 9.2 Option 1 - Contracts with private letter service providers: no reserved services 208 9.3 Option 2 - Contract with Australia Post: no reserved services 213 9.4 Option 3 – Maintain Australia Post’s obligations: reduced reserved services protection 216 9.5 Advantages of Option 2 over Option 3 225 9.6 Effects of implementing Option 2 or Option 3 : claimed losses of profitability of Australia Post 227 9.7 Ownership of Australia Post 231 9.8 Summary and recommendations 231 9.9 Timetable for implementing recommendations 233 APPENDICES A Public participation in the inquiry 239 B Previous government inquiries / reports into mail, courier and parcel services 249 C Role of Post Office Agents 259 D Industrial relations and work practices in Australia Post 271 E The impact of technology on the reserved services 285 F Developments in, and reform of, postal systems in other countries 297 REFERENCES 331 CONTENTS IX ABBREVIATIONS ABS Australian Bureau of Statistics ACS Australian Customs Services ADMA Australian Direct marketing Association AOTC The Australian and Overseas Telecommunications Corporation AP Australia Post APTU Australian postal and Telecommunications corporation ATO Australian Taxation Office AUSDOC Australian Document Exchange Pty Ltd AUSTEL Australian Telecommunications Authority CPI Consumer Price Index CSO Community Service Obligation CTTA Courier and Taxi Truck Association CWU Communication Workers’ Union (previously APTU) DOTAC Department of Transport and Communications EC European Community GBE Government Business Enterprise GDP Gross Domestic Productivity IAC Industries Assistance Commission IC Industry Commission MMUA Major Mail Users of Australia Pty Ltd POAA Post Office Agents Association PSA Price Surveillance Authority RASS Remote Air Services Subsidy Scheme TFP Total Factor Productivity The Act Australian Postal Corporation Act 1989 TPA Trade Practices Act 1974 TPC Trade Practices Commissions TWU Transport Workers Union UBR Urban Base Rate UK United Kingdom UPU Universal Postal Union US United States X MAIL, COURIER AND PARCEL SERVICES OVERVIEW AND RECOMMENDATIONS Mail, courier, and parcel services provide essential links for the transfer of written communication and parcels around Australia. This is a diverse and rapidly changing sector of the economy. The development of communications technology has the greatest potential to provide substitutes for Australia Post’s letter service. Although these choices are expanding rapidly, especially electronic means of communication, it will be many years before their coverage is comprehensive enough to provide a complete alternative to the letter service. There is substantial government regulation of the letter service. The Commonwealth Government has, with some exceptions, reserved to Australia Post the exclusive right to carry letters. This limited monopoly has been considered necessary so that Australia Post can meet the Commonwealth Government’s social objective that all people in Australia have reasonable access to a letter service on an equitable basis and at a uniform rate of postage for standard letters. There is substantial private involvement in providing mail services through mailing houses, document exchanges, and letterbox distribution networks. The courier and parcel services industry is operated largely by the private sector and is characterised by dynamic growth and few government imposed impediments. Most concerns about the efficiency of all these private sector activities stem from the fact they are affected by Australia Post’s operations. This report therefore examines closely the role and activities of Australia Post. It looks at options to improve the efficiency and quality of services provided by public and private sector operators. Australia is not the only country reviewing the provision of mail, courier, and parcel services. In a changing postal environment, the United Kingdom, Sweden, Canada, New Zealand, and the European Community are re-assessing the need for government involvement in, and regulation of, postal services. The terms of reference direct the Commission to identify those reforms which offer the greatest efficiency gains and those where early action is practicable. Changes which can be implemented within the existing legislative framework are typically those where early action is practicable. It is possible to implement these changes now. They would allow Australia Post to take maximum OVERVIEW AND XI RECOMMENDATIONS advantage of reform to date. However, in order to achieve greater gains, it is necessary to push the reform process further and change the legislative framework within which the industry operates. Only then will the full benefits of a dynamic, flexible, and innovative industry be realised. Australia Post’s performance Since the 1988 reforms, which required all Commonwealth Government business enterprises to operate on a commercial basis, the performance of Australia Post has improved significantly.
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