Australia Post losing millions on international shipping, Productivity Commission submission reveals

Australia Post has finally weighed into the debate on internet retailing, complaining to the Productivity Commission that it is losing money on parcels sent by overseas retailers due to international pricing arrangements.

The submission comes as the Productivity Commission continues to compile over 120 comments from industry bodies and businesses into a draft report that is due to be released within weeks, and could inform the Government’s position on whether a tax for online sales is viable.

The complaints from AusPost also come months after players in the postage industry forecast that prices will rise as more mail is processed overseas before coming into Australia.

The submission from Australia Post complains that it is has proven to be a “major player” in the consumer parcels market, and that it wants to address “certain issues” relating to the pricing of parcel services and the ability to track parcels being shipped.

The submission states that AusPost is “not privy to the basis on which parcel rates are determined by overseas retailers, postal administrators or other carriers”.

“It is therefore unknown whether subsidies are involved and whether there is a longer term strategy by these players to provide parcel service at a loss in order to grow market share.”

“In these circumstances, any conclusions drawn when comparing parcel rates in different countries is more than likely to be inconclusive.”

But AusPost also points out that international letter and parcel posts are organised under a number of treaties by the Universal Postal Union.

“These treaties… provide for and dictate the basis on which a destination postal administration receives payments from an origin postal administration for processing and delivering incoming international mail sent by the origin postal administration.”

Because these payment arrangements are complex, Australia Post gets paid the same amount of processing inbound international mail regardless of its origin. And as a result, pricing of international parcels “may be lower than it should actually be if costed and based on sound commercial practice”.

AusPost says that because many retailers absorb shipping fees into retail prices (particularly those retailers that offer free shipping), it is difficult to determine a proper price.

And more importantly, payments AusPost receives under the terminal dues system from the UPU is “well below the cost of delivery”. In the financial years 2010-12, it estimates that it will make a loss of $1.06 per inbound international airmail packet “on a volume of approximately 39.7 million articles”.

This equates to a loss of over $42 million over both years.

AusPost also defends itself against accusations it is slower than other postal services, saying that it “typically offers its customers faster delivery for all services and cheaper prices in Australian dollars for comparable services”.

It also says that investing in its distribution network has helped it deliver more mail on time.

The AusPost submission, not all of which has been published online, comes at the tail end of the Commission’s investigation into the retail industry which has now lasted more than seven months.

The Commission is due to release its draft report next month, and could spell out for the Government whether a tax for online sales is viable or necessary. Many retailers have complained the shift to online retailing is hurting their bottom line and forcing down prices.