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Postal delivery pricing: econometric analysis

In November 2018, the Scottish Government launched the Fairer Deliveries For All: An Action Plan which listed eight key actions to tackle the unfair and discriminatory parcel delivery charges faced by communities in remote and rural Scotland. This report is in response to action points 1 and 2.


Footnotes

1. A postcode sector combines a postcode area, a postcode district and a single character indicating the location's inward code. It is separated with the outward code (postcode area and district) with a space. Examples of postcode sectors are SW1A 0 and WC2B 8.

2. In this context, regression analysis is a statistical technique that is used to disentangle quantitatively how different drivers of delivery prices contribute to the total price. For example, the technique might identify that for a specific delivery, out of a £x delivery charge, £y can be attributed to geographic drivers, £z to the size of the item delivered, etc.

3. For example, see Scottish Affairs Committee (2017) Delivery charges in Scotland inquiry. 

https://www.parliament.uk/business/committees/committees-a-z/commons-select/scottish-affairs-committee/inquiries/parliament-2017/delivery-charges-scotland-17-19/

4. Royal Mail (2019) How we're regulated. https://www.royalmailgroup.com/en/about-us/regulation/how-were-regulated/

5. Citizens Advice Scotland (2017) The Postcode Penalty: Delivering Solutions. https://www.cas.org.uk/system/files/publications/thepostcodepenalty-deliveringsolutions.pdf

6. Ofcom (2016) Annual monitoring update on the postal market. https://www.ofcom.org.uk/__data/assets/pdf_file/0029/94961/2015-16-Annual-Report.pdf

7. MSE Forums (2018) Delivery fees in Scotland: tell MPs your stories. https://forums.moneysavingexpert.com/showthread.php?p=73806947#post73806947

8. Advertising Standards Authority and Committees of Advertising Practice (2018) CAP issues enforcement notice on parcel deliveries and surcharges. https://www.asa.org.uk/news/cap-issues-enforcement-notice-on-parcel-deliveries-and-surcharges.html

9. Advertising Standards Authority and Committees of Advertising Practice (2018) Annual Report 2018. https://www.asa.org.uk/uploads/assets/uploaded/563b3e3c-1013-4bc7-9c325d95c05eeeb7.pdf

10. The Scottish Government (2018) Fairer parcel deliveries: Action plan. https://www.gov.scot/publications/fairer-deliveries-action-plan/

11. The Scotsman (2017) MSPs condemn ‘rip-off’ parcel delivery charges for rural areas. https://www.scotsman.com/news/politics/sps-condemn-rip-off-parcel-delivery-charges-for-rural-areas-1-4632827

12. Ofcom (2016) Annual monitoring update on the postal market. https://www.ofcom.org.uk/__data/assets/pdf_file/0029/94961/2015-16-Annual-Report.pdf

13. Citizens Advice Scotland (2017) Parcel delivery operators views on rural parcel delivery in Scotland. https://www.cas.org.uk/system/files/publications/thepostcodepenaltytechnicalreport-industryinterviews.pdf

14. Ofcom (2016) Annual monitoring update on the postal market https://www.ofcom.org.uk/__data/assets/pdf_file/0029/94961/2015-16-Annual-Report.pdf

15. Citizens Advice Scotland (2017) Parcel delivery operators views on rural parcel delivery in Scotland. https://www.cas.org.uk/system/files/publications/thepostcodepenaltytechnicalreport-industryinterviews.pdf

16. The Highland Times (2019) Business Minister visits IV-AB postcode boundary for delivery charge talks. http://www.thehighlandtimes.com/news/2019/08/16/business-minister-visits-iv-ab-postcode-boundary-for-delivery-charge-talks/

17. Department of Business, Innovation and Skills (2014) Statement of principles for parcel deliveries. https://www.cas.org.uk/system/files/publications/2014%20UK%20Statement%20of%20Principles.pdf

18. The Scottish Government (2018) Fairer parcel deliveries: Action Plan. https://www.gov.scot/publications/fairer-deliveries-action-plan/

19. Drip pricing is a practice used by online retailers whereby only a part of a product’s price is advertised at the beginning of the purchase process, with additional fees, taxes or charges – which may be unavoidable – being incrementally disclosed or "dripped" at the final stages of the purchase process.

20. Post & Parcel (2018) Strong demand for Menzies Distribution Highland parcels https://postandparcel.info/99251/news/parcel/strong-demand-for-menzies-distribution-highland-parcels/

21. For this dataset, Resolver collected shipping fees for five consumer goods across 46 online retailers. They focused their analysis on postcodes for which consumers submitted complaints about unfair postal charges in addition to surrounding postcodes.

22. Tamebay (2017) Amazon takes major slice out of UK delivery market. https://tamebay.com/2017/08/amazon-takes-major-slice-uk-delivery-market.html

23. Post & Parcel (2018) Strong demand for Menzies Distribution Highland Parcels. https://postandparcel.info/99251/news/parcel/strong-demand-for-menzies-distribution-highland-parcels/

24. Details about the delivery companies’ sample can be found in the Data samples section in the Annex.

25. STD refers to the normal, less-urgent delivery option (with delivery times varying by postal operator), while ND refers to next-day delivery.

26. TNT only provides next-day, door-to-door delivery, while Menzies only provides standard door-to-door delivery. 

27. Scottish FairTrade Forum (2018) Fair Trade Market in Scotland Report 2018. http://www.scottishfairtradeforum.org.uk/assets/templates/sftf/images/Redacted%20Version%20Fair%20Trade%20Market%20Report%20April%202018.pdf

28. E-commerce News (Accessed 20th of July 2019) E-commerce in the UK. https://ecommercenews.eu/ecommerce-in-europe/ecommerce-the-united-kingdom/

29. Details about retailer sample sizes can be found in Annex A.

30. Due to the complex nature of Sainsbury’s shipping pricing policies (prices vary dramatically by day of the week, delivery time and specific hour of the day), we only collected data for whether home delivery is available or not.

31. Alma Economics’ London office is located at 24 Stoke Newington Road, N16 7XJ London, UK

32. In addition, even though fuel prices are often an important contributor to increased shipping costs to the Highlands and Islands, it may be misleading to include these in our analysis because drivers have flexibility in where they choose to fill their vehicles. For example, even though fuel costs on the islands may be higher than central Scotland, drivers may choose to fill up in Oban or Fort William before taking a ferry to the islands.

33. National Records of Scotland (Accessed 20th of June 2019) 2019-1 Scottish Postcode Directory Files. https://www.nrscotland.gov.uk/statistics-and-data/geography/our-products/scottish-postcode-directory/2019-1-scottish-postcode-directory-files

34. Although we were not able to collect information on profit margins from the interviews, our postal operators’ data suggest that different companies follow different pricing methods, as the prices and the variation of prices across parcel and area characteristics are very different among companies. 

35. Apart from Sainsbury’s for which we did not collect data for prices. More details on this are available in the Data collection section.

36. These price ranges only refer to the specific companies within our sample and there is anecdotal evidence that other delivery companies may be charging outside these price ranges. For example, see examples of surcharges in the Case studies section of this report.

37. Large parcels have high acceptance rate of delivery mainly because they are only being delivered by two delivery companies: Parcel Force, which delivers everywhere, and TNT.

38. Details about the Scottish Government three-fold classification can be found in the Scottish Government Urban Rural Classification section in the Annex

39. Large parcels have high acceptance rate of delivery mainly because they are only being delivered by two delivery companies: Parcel Force, which delivers everywhere, and TNT. 

40. Details about the Scottish Government eight-fold classification can be found in the Scottish Government Urban Rural Classification section in the Annex

41. Details about the Scottish regions can be found in the Scotland Region Classification section in the Annex

42. For details on what each category of rurality and remoteness means look at Annex C. In this specification we use the Scottish Government eight-fold Urban Rural Classification specified in Annex Table C2. 

43. The full results of this regression can be found in Annex Table D1 (column 2).

44. The full results of this regression can be found in the Annex Table D2 (column 2).

45. The full results of the specification that includes only remoteness and rurality can be found in the Annex Table D1, Regression 2. 

46. The full results of this regression can be found in the Annex Table D2, column 1.

47. The following postcodes in the Glasgow (G) postcode area are classified as rural: G53, G61, G63, G64, G65, G67, G71, G76, G77, G78, G82, G83

48. We define surcharges as the difference between actual and predicted postal charges. Even though the AB and G postcode areas include some postcodes within the Highlands and Islands region, we exclude these areas because they include many urban postcodes, meaning average differences between actual and predicted postal charges across the whole postcode area may not be representative of these rural postcodes.

49. If the value under “Surcharge” is negative, the average price quoted by delivery companies in our dataset is less than the predicted price. This may occur because some delivery routes may be cross-subsidised by others. 

50. For details on what each category of rurality and remoteness means look at Annex C. In this specification we use the Scottish Government eight-fold Urban Rural Classification specified in Annex Table C2.

51. The full results of regression 7 can be found in the Detailed Estimation Results section of the Annex, under Table 3 (column 2).

52. The full results of this regression can be found in Annex Table D4 (column 1).

53. The Scottish Government (2018) Fairer parcel deliveries: Action plan. https://www.gov.scot/publications/fairer-deliveries-action-plan/

54. Scottish Government (2019) Protecting Scotland’s Future: The Government’s Programme for Scotland 2019-2020. https://www.gov.scot/publications/protecting-scotlands-future-governments-programme-scotland-2019-20/pages/4/

55. Action 8 states the following: “We will shape UK Government action to further strengthen consumer protection to ensure fair and transparent delivery charges for Scottish consumers”.

56. Action 1 states the following: “We will develop an interactive data hub to allow users to measure the fairness of delivery pricing to improve transparency and drive behaviour change”.

57. Action 5 states the following: “We will make it easier for consumers to know and exercise their rights”.

58. Action 5 states the following: “We will make it easier for consumers to know and exercise their rights”.

59. A postcode sector combines a postcode area, a postcode district and a single character indicating the location's inward code. It is separated with the outward code (postcode area and district) with a space. Examples of postcode sectors are SW1A 0 and WC2B 8.

60. As discussed in the main text, Menzies only delivers to the Highlands and Islands or Aberdeenshire, with all other postcodes in Scotland excluded.

61. Regression 1 uses population density and the Scottish Government three-fold urban rural classification to control for rurality and remoteness, while regression 2 uses the more detailed eight-fold classification while excluding population density due to multicollinearity. Regression 3 uses island dummies to examine the impact of islands on postal charges, while regression 4 uses region dummies to examine the impact of regions (with South Western Scotland as the reference region).

62. Regression 1 uses population density and the Scottish Government three-fold urban rural classification to control for rurality and remoteness, while regression 2 uses the more detailed eight-fold classification while excluding population density due to multicollinearity. Regression 3 uses island dummies to examine the impact of islands on postal charges, while regression 4 uses region dummies to examine the impact of regions (with Eastern Scotland as the reference region).

Contact

Email: ConsumerandCompetition@gov.scot

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