February 8, 2017 (RARC-WP-17-003)
- Recently stakeholders have expressed an interest in understanding how other major posts’ prices are regulated and how posts manage the relationship between price regulation, profitability, and service.
- The OIG worked with WIK-Consult to provide research on how postal prices are regulated in five other countries.
- We found that in all of the five countries, price regulation has recently become more flexible in two ways – through a reduction of scope of products that fall under price regulation or allowance of higher price increases on regulated products.
The current price regulation for the U.S. Postal Service’s market dominant products includes a price cap based on the Consumer Price Index (CPI). Previous work by the U.S. Postal Service Office of Inspector General (OIG) has shown that the existing price cap is unsustainable in the current environment of declining First-Class Mail volume. The OIG asked WIK-Consult (WIK), a consulting firm with expertise in international postal regulation, to provide research on how postal prices are regulated in five countries: Australia, Canada, France, Germany, and the United Kingdom. The OIG notes several key findings from this report.
- Price regulation in these countries has not been static. In all of the five examined countries, the regulators revisited and modified price regulation to allow for greater pricing flexibility in response to changing market conditions. Changes occurred in two ways — reduction in the scope of products covered by regulation and allowance of higher price increases on regulated products. Most recently, the changes have allowed price increases that are greater than inflation.
- It appears that the combination of higher prices, efficiency gains from modernization, and growing parcel volumes have helped to stabilize the posts’ respective financial positions.
- In general, service has remained stable or declined slightly, but it is unclear what is driving this result. Price increases may have allowed the posts sufficient revenue to maintain service. However, it is also possible that service performance has been driven by better enforcement mechanisms or more achievable service goals.