Information

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.


6. Next steps

Policy recommendations

Government pressure

Consumer fairness – including addressing unfair delivery charges – is a priority for the Scottish Government. This is demonstrated by the detailed action plan for fairer deliveries as well as by the Government’s latest Programme for Scotland (2019-2020) which highlights the continued efforts to reduce unjust delivery pricing and practices.[53, 54] Though the Scottish Government has proved its commitment to effectively tackle issues related to unfair deliveries in remote and rural areas in Scotland, more needs to be done by the UK Government. The Scottish Government should exercise additional pressure to the UK Government to ensure that additional actions are taken e.g. sector-wide regulations or softer measures aiming to improve transparency and increase consumer fairness – this suggestion is consistent with action 8 of the action plan.[55]

Improve information and transparency in the sector

An overarching aim of the Scottish Government should be improving information dissemination and transparency in the sector. By providing consumers and businesses in Scotland with quality information about delivery charges and policies that are considered fair, consumers will be able to make more informed decisions. This is important, as our findings highlight that there are significant differences in the prices charged by different delivery companies. This recommendation is directly related to action 1 of the Scottish Government’s action plan about creating an interactive data hub to allow users to measure the fairness of delivery pricing to improve transparency and drive behaviour change.[56]

As outlined by action 5 of the action plan, the Scottish Government should seek to provide better information about channels consumers can use to make complaints or request advice and support for dealing with delivery charges and practices they believe to be unfair.[57] In June 2018 a one-stop shop website (www.deliverylaw.uk) was launched aiming to provide consumers and businesses with support and advice about misleading delivery charge advertising. Given that such initiatives can provide consumers with valuable information the Scottish Government should promote these solutions by using multiple channels (e.g. governmental websites, social media and post). By adopting a multi-channel approach, it will be able to target more effectively different demographics across the country.

Pick-up and drop-off services (PUDO)

The introduction of more pick-up and drop-off points can provide consumers in remote and rural areas with more choice. This proposition is welcomed by postal operators as it is one that makes economic sense for businesses – it allows couriers to make multiple deliveries in one premise. Yet, there are some drawbacks to PUDOs, namely fuel and time costs consumers would have to incur to reach a PUDO point – given that in remote areas a corner shop or supermarket may be located far away from a person’s residence. Though more PUDOs should be introduced in rural and remote areas of the country it must be noted that this proposition alone cannot provide a complete solution to the problem of excessive delivery charges.

Rigorous monitoring and compliance controls

It is important that enforcement bodies ensure that monitoring and compliance controls remain rigorous after the initial period when an enforcement notice or new standards are introduced. For example, following the Enforcement notice on Advertised Delivery Restrictions and Surcharges issued by the ASA in 2018, a large number of retailers that were contacted by the Authority were willing to make changes to comply with the new standards. To ensure that new players entering the market as well as existing players are aware of and comply with standards, authorities (e.g. the ASA and the Competition and Markets Authority) should continue to perform pre-planned controls but also to respond to salient cases.

Enforcement bodies such as Trading Standards Scotland, the Society of Chief Officers of Trading Standards in Scotland (SCOTSS) and the ASA should also work together with business associations, chambers of commerce, enterprise networks and MPs to improve information exchange between bodies – e.g. report on case studies about consumer experiences in specific areas and types of unfair practices they have experienced. This way, authorities will be able to identify whether any immediate actions are necessary and, therefore, formulate better and more targeted interventions and monitoring processes.

Carrot and stick approaches

In line with action 3 of the action plan, it would be key to recognise and promote retailers and delivery companies with good practices across Scotland.[58] For example, the Scottish Government could introduce a scheme that protects consumer and businesses from unfair delivery practices and charges. The scheme would set out good practice guidance and principles for fair deliveries. Retailers and postal operators would have the option to voluntarily sign-up to the scheme. Participating companies could be mentioned in the Scottish Government’s data hub as well as on the webpages of local and regional consumer and business associations.

Similarly, it would be important to penalise companies that continuously violate standards and enforcement notices and are unwilling to cooperate with authorities. Penalising these companies would set an example about unacceptable and intolerable practices and would, therefore, incentivise other companies to comply with trading and advertising standards.

Suggestions for further research

This section provides suggestions for further research that can improve the evidence base about unfair delivery pricing and practices in Scotland. 

  • Increase the scale of data collection

Due to limited time, our team collected information relating to six postal operators and seven retailers. In future research, it would be worth to try to collect data for a bigger number of companies in the postal and retail sector as well as different types of products and parcel sizes – this would further improve the representativeness of the sample and the quality of the results.

  • Provide ongoing monitoring

Another key suggestion would be to repeat the present exercise in regular intervals in the future. Providing recurring monitoring would allow the Scottish Government to keep up to date with quality evidence and effectively track developments related to unfair delivery charges in remote and rural areas in Scotland.

  • Further investigation into the postal and retail market

As highlighted earlier in this report, there is often a lack of transparency about price calculation among retailers and postal operators. It would be worth carrying out additional research to determine how prices are calculated within this market, with a focus on exploring additional factors that result in surcharges. An example is the investigation of exclusive contracts between retailers and couriers – a factor that reportedly reduces consumer choice and increases the costs incurred by customers.

  • Research into the granularity of postcodes

Further research should shed light into the granularity of postcode sectors, particularly those that exhibit a high degree of heterogeneity. This can help improve the accuracy of postcode software tools as well as inform other approaches used by couriers when determining the cost of a delivery in a specific area.

  • Further investigation into how fairness should be defined

Defining “fairness” is a very challenging undertaking. In this report our approach was to identify which postcodes face postal charges that could be deemed unfair by using our linear model to predict postal charges based on underlying geographic and parcel characteristics. The model allowed us to estimate the relative impact of each of these characteristics and the resulting postal charge. Yet, the differences between actual postal charges and postal charges predicted by our model cannot be used as conclusive evidence about whether a specific postal charge is unfair or not, partly due to the fact that what constitutes an “unfair” charge involves a value judgement. 

Contact

Email: ConsumerandCompetition@gov.scot

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