FAQ: Postal Remuneration Systems

04.02.2019 - Learn more about the remuneration systems applied to international postal exchanges with these answers to frequently asked questions.

Q: Does the UPU determine the cost a customer pays to post an item internationally?

A: The UPU and the international agreements it oversees do not set the prices that a retailer or shopper pays to a postal operator for the international delivery of postal items, including e-commerce items. This is a matter for the postal operator and its customer and, where domestic postage prices are controlled by a government, the government concerned.

The UPU is only concerned with the setting and settlement of the costs of delivery between the postal operator of a sending country and the postal operator of the destination country, known as the final leg or “last mile” of delivery. These costs represent a carefully negotiated outcome between the governments of the UPU's 192 member countries and seek a balance between market-based evidence and various principles such as affordability, cost coverage and levels of development. These costs represent only one element in the total value of the postal supply chain.

Q: Why is it sometimes more expensive to send an item between two cities in the same country than it is for someone in one country to send an item to another country?

A: The postal process entails three main logistics segments: collection (leg 1), transport (leg 2) and delivery (leg 3).

The domestic mail process of a country comprises all three legs as they all take place in that country’s territory. Therefore, any tariff setting for domestic postal items typically takes into account the costs of all three legs, plus a mark-up. Operators also take other factors, such as the postal market environment and applicable regulatory frameworks, into consideration when determining their domestic prices. The UPU has no control nor influence over such factors.

In the international mail process, the country of origin (sending country) assumes the costs of leg 1 (collection) and leg 2 (transport). Therefore, the destination country should only be reimbursed by the sending country of the costs incurred in providing the service corresponding to leg 3 (delivery). It is important to stress that the remuneration rates that are agreed on by UPU member countries only cover the cost of leg 3 in the destination country, whereas the international tariffs set by the sending country should take into account the costs of all three legs, plus a mark-up. Therefore, domestic and international tariffs cannot be compared on a 1:1 basis. In addition, the domestic tariffs in the destination country can differ considerably from the international tariffs for like items in the sending country because of disparities in the operating efficiencies of the concerned postal operators and the regulatory frameworks for setting prices in both countries.

Q: Do “industrialized” countries pay a higher rate than “developing” countries?

A: Not quite.

UPU member countries decided to move away from the binary distinction between “developing” and “industrialized” countries in 2008 as the economic and postal development of countries is more complex than just these two categories alone. UPU member countries agreed a new country classification in 2008 that, initially, categorized them into six groups of countries of similar economic and postal development. The country classification system has been updated and evolved over time, so that it currently provides for four groups, with  industrialized countries placed in Group I (also referred to as the Target System) and the least developed countries in Group IV. The UPU’s remuneration rules are tailored to the differences in the economic and postal development of UPU member countries, but ultimately seek to achieve the gradual transition of all countries into a single Target System. The end objective is to ensure that the same remuneration system rules apply to all UPU member countries.   

Q: How does the UPU work to develop, improve and modernize these remuneration systems?

A: The UPU’s remuneration systems are constantly evolving. These systems are reviewed regularly at the UPU’s quadrennial Universal Postal Congress, an occasion where all 192 members are called together to take decisions affecting the global postal sector.

Though remuneration is a sensitive topic that generates lively debate during each Congress, it is also a prime example of multilateralism and cooperation, as countries work together to find a compromise. The 2018 Extraordinary Congress was no different: after discussion and a working session outside of the meeting hall to amend a proposal on the implementation of the Integrated Remuneration Plan (IRP), countries were able to agree on a compromise proposal.

Member countries approved the IRP, which sets out a roadmap for modernizing and rationalizing the different remuneration systems currently used to compensate designated postal operators for processing and delivering inbound international postal items (letters, small packets, parcels and EMS items). The goal is to propose an Integrated Remuneration System (IRS) to the 2020 Congress. The UPU’s councils will carry out studies and market impact analysis and hold regional and global round tables to seek input on proposals.

Q: Can remuneration rates be changed between Congresses?

A: This is a rare circumstance, but it is possible if deemed necessary by the UPU’s member countries. At its second session in October, responding to a call from the United States supported by other UPU members, the Council of Administration (CA) decided that a review of the rates of small packets (postal items containing goods) is urgently needed. In accordance with that decision, work on the remuneration of small packets in both the Postal Operations Council (POC) and CA has been expedited. Proposals will be brought to the POC and CA for endorsement at their first session in April 2019, with a view to submitting those proposals to all UPU members for decision in-between Congresses, in the course of 2019, and for implementation in 2020.