As the post that handles almost half of the world’s mail volume, the U.S. Postal Service knows a thing or two about mail. But that doesn’t mean it can’t learn something from other posts.
Although the Postal Service differs in many respects from other posts, many of the regulatory challenges are the same. Recently, in conjunction with expert consultant WIK-Consult, we studied how five other major posts regulate their postage prices. Our white paper, Lessons in Price Regulation from International Posts, looked at how Australia, Canada, France, Germany, and the United Kingdom manage the relationship between price regulation, profitability, and service.
The five posts were chosen carefully: They all have high volumes of mail and large geographic regions but their price regulation differs in some way from the Postal Service’s approach, which under current law includes a price cap based on the Consumer Price Index (CPI) on market dominant products.
Two of the countries (Australia and Canada) have some form of price regulation that is not a price cap. Germany has a price cap formula, while France has a forward-looking cap that uses forecasted cost and revenue information. The United Kingdom has a limited “safeguard cap,” which sets a very high ceiling — one that will most likely never be reached — to ensure that consumers will never be subject to outrageously high rates.
Some of the paper’s key findings:
- Price regulation in these countries has not been static. In all five, the regulators revisited and modified regulation to allow for greater pricing flexibility in response to changing market conditions.
- It appears the combination of higher prices, efficiency gains from modernization, and growing parcel volumes have helped stabilize posts’ respective financial positions.
- In general, posts have been able to maintain service, but it’s unclear what is driving this result.
What can all of this tell us? That, perhaps, we should keep these similar challenges – and key differences – around price regulation for market dominant products in mind as the U.S. continues to debate regulation of the Postal Service?