U.S. Postal Service: A Look at Other Countries' Postal Reform Efforts
(Testimony, 01/25/96, GAO/T-GGD-96-60).
Various parties have called for fundamental changes in the laws and
regulations governing the U.S. Postal Service. In the past decade,
several other countries have restructured their postal administrations.
Although they are still owned by the government, these entities are now
subject to less governmental control. GAO reviewed postal reform
efforts in eight other nations: Australia, Canada, France, Germany, the
Netherlands, New Zealand, Sweden, and the United Kingdom. This testimony
discusses the experiences of other postal administrations, focusing on
three areas--universal service, the mail monopoly, and rate
setting--that will be among the most challenging for Congress to address
in any future reform of the Postal Service.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-GGD-96-60
TITLE: U.S. Postal Service: A Look at Other Countries' Postal
Reform Efforts
DATE: 01/25/96
SUBJECT: Government sponsored enterprises
Postal rates
Competition
Postal law
Foreign governments
Labor-management relations
National policies
Monopolies
Franking privileges
Mail delivery problems
IDENTIFIER: Canada
Australia
France
Germany
Netherlands
New Zealand
Sweden
United Kingdom
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Cover
================================================================ COVER
Before the Subcommittee on Post Office and Civil Service,
Senate Committee on Governmental Affairs; and the
Subcommittee on the Postal Service, House Committee on
Government Reform and Oversight
For Release
on Delivery
Expected at
9:30 a.m. EST
Thursday
January 25, 1996
U.S. POSTAL SERVICE - A LOOK AT
OTHER COUNTRIES' POSTAL REFORM
EFFORTS
Statement of Michael E. Motley
Associate Director, Government Business
Operations Issues
General Government Division
GAO/T-GGD-96-60
GAO/GGD-96-60T
(240198)
Abbreviations
=============================================================== ABBREV
U.S. POSTAL SERVICE: A LOOK AT
OTHER COUNTRIES' POSTAL REFORM
EFFORTS
============================================================ Chapter 0
SUMMARY OF STATEMENT BY
MICHAEL E. MOTLEY
ASSOCIATE DIRECTOR
GOVERNMENT BUSINESS
OPERATIONS ISSUES
-------------------------------------------------------- Chapter 0:0.1
Various parties have called for fundamental changes in the laws and
regulations governing the U.S. Postal Service. GAO believes that
three areas--universal service, the mail monopoly, and
ratemaking--will be among the most challenging for the Congress to
address in any future reform of the U.S. Postal Service.
In the past decade, a number of other countries have restructured
postal administrations from entities subject to close governmental
control to entities still owned by the government, but subject to
less governmental control. GAO looked at postal reform efforts of
eight other countries: Australia, Canada, France, Germany, the
Netherlands, New Zealand, Sweden, and the United Kingdom. The U.S.
Postal Service is much larger, having at least seven times the mail
volume, than any of the eight. Even so, other countries' experiences
in giving postal administrations greater commercial freedom are
relevant to current reform issues in the United States.
After reforms of other postal administrations, many of them have
reported significant improvements in financial performance. In all
of the other eight countries, the postal administrations provided
certain services widely to their citizens and at uniform rates before
reform and continued to provide them following reform. In some
countries, changes in universal service practices, such as access to
post office services, have been controversial. For example, after
its reform, the New Zealand Post increased a delivery fee for rural
service; this decision proved unpopular and the fee was eliminated in
1995.
All but one (Sweden) of the eight countries have monopolies over some
letter mail. In Sweden, full competition for all postal services has
been allowed since January 1994. Some of the other countries
narrowed the scope of the monopoly following postal reform. For
example, in Australia, the monopoly price threshold was reduced in
1994 from 10 times the basic stamp price to 4 times the price. In
contrast to the United States, none of the eight countries give
postal administrations exclusive access to the mail box.
Postal administrations in the other eight countries have greater
freedom than the U. S. Postal Service to set postal rates. For
example, in New Zealand, the postal administration is free to set
prices except for standard letters which are subject to a price cap
of the country's Consumer Price index minus one percent. In Canada,
only certain rates, mainly those for letter mail and some
publications, must be approved by the Canadian government.
STATEMENT
============================================================ Chapter 1
Chairman Stevens, Chairman McHugh, and Members of the Subcommittees:
We appreciate the opportunity to participate in this hearing on how
the reform experiences of other countries' postal administrations may
relate to ideas and proposals for reform of the U.S. Postal Service.
We will discuss experiences of other postal administrations that are
particularly relevant to any future decisions by Congress affecting
(1) public service obligations, such as universal service and uniform
rates; (2) the postal monopoly; and (3) regulation of postal prices.
My testimony is based primarily on our past and ongoing work relating
to the responsibility of the U.S. Postal Service to provide uniform
service to all communities in an increasingly competitive postal
environment, as well as on issues involving the postal monopoly and
postal rate setting in this country. We have also done limited work
on other countries' postal administrations. To date, we have focused
most of our attention on Canada Post. Canada's experience is
especially relevant because of its proximity to the United States and
its similarities in geographic size, business environment, and
market-oriented economic systems. I will also refer to postal
administrations in seven other countries on which we obtained data:
Australia, France, Germany, the Netherlands, New Zealand, Sweden, and
the United Kingdom. These countries, along with Canada, have been
described by Price Waterhouse in a recent study\1 as among the most
"progressive postal administrations," and most of them have undergone
reforms that changed their structure and operations in the past
decade. Our testimony relating to other countries' experiences is
based primarily on that study as well as data readily available from
the other countries' postal administrations.
While we believe that the overall experiences of other countries'
postal administrations are relevant to the current discussions of
postal reform in the United States, meaningful comparisons of the
specific operational practices followed and performance results can
be difficult. Compared to each of the eight other postal
administrations, the U.S. Postal Service has at least seven times
the mail volume, and at least twice the number of employees. All
eight postal services combined have only one-half of the U.S. Postal
Service mail volume, and just slightly more than the total number of
its employees. The U.S. Postal Service handled about 180 billion
pieces of mail in fiscal year 1995 and had over 850,000 employees in
December 1995. By comparison, Canada Post has about 6 percent of the
U.S. Postal Service's mail volume and about 6 percent of its number
of employees. I have appended to my statement two graphics that
illustrate the differences in mail volume and employment between the
U.S. Postal Service and the other eight postal administrations.
--------------------
\1 "A Strategic Review of Progressive Postal Administrations:
Competition, Commercialization, and Deregulation" (Price Waterhouse
LLP, February 1995).
OTHER COUNTRIES' EXPERIENCES
ARE RELEVANT TO POSTAL REFORM
IN THE UNITED STATES
---------------------------------------------------------- Chapter 1:1
Notwithstanding the differences in workforce size and mail volume,
other countries' experiences with granting their postal
administrations greater commercial freedom are relevant to current
consideration for granting such freedom in the United States. For
example, in 1992, we issued a report\2 describing how the competition
from both private firms and electronic communication, particularly in
the expedited-service mail and package-delivery markets, may create
the need for statutory changes. Similarly, according to Price
Waterhouse's February 1995 report, while many factors are driving
postal reform in other countries, the increase in competition in the
delivery and communications markets has, above all else, driven the
changes.
Various parties, including some Members of Congress and the
Postmaster General, have called for fundamental changes in the laws
and regulations governing the U.S. Postal Service. The Postmaster
General has said that the Postal Service needs greater freedom to set
postage rates, manage the postal workforce, and introduce new
products and services. Private delivery firms and U.S. mailers say
they want more freedom to deliver letters now protected by the
statutory monopoly. In recent hearings, Congress has been presented
with many ideas and some specific proposals for reforming and
privatizing the Postal Service.
The 1970 Postal Reorganization Act, which created the U.S. Postal
Service, was the most recent major change to the laws governing the
structure and operation of the postal administration in the United
States. Major change has occurred more recently for some foreign
postal administrations. In the past decade, a number of other
countries have restructured postal administrations from entities
subject to close governmental control to entities that are still
owned by the government, but with less governmental control over
day-to-day practices. For example, in 1981 Canada established the
Canada Post Corporation, an entity owned by the Canadian government
but freed from many government regulations. Reform of postal
administrations also took place in New Zealand in 1987, in Australia
and the Netherlands in 1989, in France in 1991, in Sweden in 1994,
and in Germany in 1995.
Following these reforms, postal administrations in many of these
countries reported significant improvements in financial performance
and service delivery. We will not discuss their performance or the
effects of postal reform. However, I will highlight a key common
feature--universal service--of the U.S. and other postal
administrations after reform. I will also highlight variances in the
characteristics of their monopolies and their ability to set postal
prices. We believe that these three areas--universal service, the
mail monopoly, and ratemaking--will be among the most challenging for
Congress to address in any future reform of the U.S. Postal Service.
--------------------
\2 U.S. Postal Service: Pricing Postal Services in a Competitive
Environment (GAO/GGD-92-49, Mar. 25, 1992).
UNIVERSAL SERVICE REMAINS A
COMMON GOAL AMONG OTHER POSTAL
ADMINISTRATIONS
---------------------------------------------------------- Chapter 1:2
The primary mission of the U.S. Postal Service, as it now exists in
law, is to provide mail delivery service to persons in all
communities and access to the mail system through post offices and
other means. The rate for First Class mail, i.e. letters "sealed
against inspection," must be uniform for delivery anywhere in the
United States. The U.S. Postal Service generally offers delivery to
both urban and rural addresses six days a week. Any consideration of
reforming the U.S. Postal Service will require a careful review of,
and no doubt much debate on, how the current universal service
mandate will be affected.
In all of the other eight countries, the postal administrations
provided certain services widely to their citizens and at uniform
rates before reform and continued to provide them following reform.
However, the definition of universal mail service varies somewhat
from country to country. Some of the countries provided the same
level of service for urban and rural customers, while some others had
different service standards for urban and rural areas. For example,
although Canada Post is required by law to maintain service that
meets the needs of Canadian citizens, the service only needs to be
similar for communities of the same size. Canadian citizens in very
remote areas in the far north may receive mail delivery less
frequently each week than those in some other areas of Canada.
In some countries, changes in universal service practices, involving
such areas as the frequency of delivery and access to post office
services, have been controversial. For example, in New Zealand,
citizens in rural communities were upset when they learned New
Zealand Post wanted to discontinue delivery services to rural
addresses. The Post then increased a long-standing rural delivery
fee for service, paid by the addressee; this decision proved
unpopular, and the fee was eliminated in 1995.\3 There continues to
be no rural delivery fee in New Zealand.
Accessibility to postal services, which includes maintenance of local
post offices in the United States, is also part of the public service
obligation of postal administrations in some other countries. The
U.S. Postal Service must follow strict legal criteria in determining
whether to close post offices. In New Zealand, the postal
administration has negotiated a written agreement with the government
that specifies the minimum number of postal retail outlets. In the
Netherlands, Dutch law specifies minimum requirements regarding the
density of post offices in urban and rural areas.
Five of the eight countries' postal administrations differ from the
U.S. Postal Service in that a majority of their postal retail
outlets are privately owned and operated, according to the February
1995 Price Waterhouse report. This group includes Australia, Canada,
the Netherlands, New Zealand, and the United Kingdom. Except for the
French postal administration, all of the eight foreign postal
administrations have some form of franchising policy for postal
retail services.
Like the U.S. Postal Service, other postal administrations have also
continued to provide certain subsidized services. For example, in
Canada, the government compensates Canada Post for providing
subsidized rates for publications, parliamentary mail, and literature
for the blind. In Sweden, the government subsidizes certain
services, such as free delivery of literature to the blind, while the
postal service subsidizes the distribution of certain newspapers and
provides discounts on association letters.
We plan to issue a report shortly on the U.S. Postal Service's role
in the international mail market, including issues that have been
raised by both the U.S. Postal Service and its major competitors,
such as Federal Express and DHL Airways. The Postal Service
participates in the Universal Postal Union, a specialized agency of
the United Nations that governs international postal services. Its
basic purpose is to help postal administrations fulfill statutory
universal service obligations on an international level. A total of
189 Universal Postal Union member countries have agreed to accept
mail from each other and to deliver the international mail to its
final destination.
--------------------
\3 New Zealand Post estimated the 1-year cost of eliminating the
rural delivery fee at between $7 and $8 million (NZ dollars).
THE SCOPE OF POSTAL MONOPOLIES
VARIES
---------------------------------------------------------- Chapter 1:3
The Postal Service has said that current universal service
obligations and related public service mandates can only be met if
its markets continue to be statutorily protected by the Private
Express Statutes that provide the Service with a monopoly over letter
mail. We plan to issue a report in the coming months that discusses
the Postal Service's monopoly in detail, including the growth since
1970 of private delivery firms that are competing and will likely
compete more strongly in the future for some of the Service's
First-Class, Priority, and Third-Class mail.
The postal monopoly is defined differently and varies widely in scope
among the eight foreign postal administrations. In this country, the
letter mail monopoly helps ensure that the Postal Service has
sufficient revenues to carry out public service mandates, including
universal service. The U.S. postal monopoly covers all letter mail,
with some key regulatory exceptions being "extremely urgent" letters
(generally next-day delivery) and outbound international letters.
Postal Service data indicates that, in fiscal year 1995, at least 80
percent of the Postal Service's total mail volume was covered by the
postal monopoly.
All but one (Sweden) of the eight countries' postal administrations
have monopolies over some aspects of the letter mail. Generally, the
letter monopolies in other countries are defined according to price,
weight, urgency of delivery, or a combination of these factors.\4 For
example, in Canada, the postal monopoly covers letters, with a
statutory exclusion for "urgent" letters transmitted by a messenger
for a fee that is at least three times Canada's regular rate of
postage. In Germany, the monopoly covers letters priced up to 10
times Germany's standard letter rate. The postal monopoly in France
covers letters and those parcels weighing less than 1 kilogram (2.2
pounds). In the United Kingdom, the monopoly is defined by price,
covering those letters and parcels with postage up to one British
pound.
Australia and New Zealand narrowed the scope of their postal
monopolies after reform. For example, in Australia, the monopoly
price threshold was reduced in 1994 from 10 times the basic stamp
price to 4 times the price. Other changes were also made, such as
reducing the weight threshold from 500 grams to 250 grams and the
excluding of outbound international mail. Australia Post reported in
its 1994 annual report that these changes "will reduce the proportion
of total business revenue from reserved services from around 60
percent to about 50 percent." It now receives a majority of its
revenues from services open to competition. Australia plans a review
of the remaining postal monopoly during 1996-1997. In New Zealand,
the monopoly price threshold was reduced in phases over 3 years, and
the government announced in November 1994 that it would introduce
legislation to completely deregulate the postal market. While no
final decision has been made, New Zealand Post officials said last
year that they had shaped their business plans to expect an open,
competitive environment.
Sweden has eliminated its postal monopoly. Full competition for all
postal and courier services, including the delivery of letters and
parcels, has been allowed in Sweden since January 1, 1994. Sweden
Post officials told us that its monopoly offered little protection of
postal revenue and enforcement was not cost-effective. The Swedish
government, not the postal administration, has the obligation to
provide universal mail service.\5
The U.S. Postal Service and some other postal administrations have
made efforts to enforce their postal monopoly. The U.S. postal
monopoly has proved difficult to enforce for a number of reasons,
including objections by both mailers and competitors to the Postal
Service's audits and other enforcement actions. We were informed by
Canada Post officials that Canada Post also finds its monopoly
difficult to enforce. They said that, while Canada Post has taken
legal action against major violators of its postal monopoly, it
prefers to use other means of persuasion to get violators to comply
with the law.
Enforcement problems can also be related to the way the postal
monopoly is defined. For example, in France, an exclusion limits the
letter mail postal monopoly to private correspondences. Since
letters are sealed against inspection, thus making it impossible to
determine whether they are private correspondences, enforcement is
difficult.
Finally, a monopoly on mail box access in the United States is
related to the Postal Service monopoly on delivery of letter mail.
By law, mail box access is restricted to the Postal Service. In
contrast, none of the eight countries we reviewed have laws that give
their postal administrations exclusive access to the mail box.\6
--------------------
\4 There are various exclusions to the postal monopoly in each
country.
\5 The Swedish government currently contracts exclusively with Sweden
Post to provide universal service but may extend this arrangement to
other competitors if they achieve sufficient scope.
\6 There may be certain types of limited access to mail boxes in some
countries. For example, in Canada, if Canada Post owns the mailbox,
it is locked, and thus only Canada Post has access to it. This also
applies to some centralized apartment mail boxes in secure buildings.
POSTAL ADMINISTRATIONS IN SOME
COUNTRIES HAVE BEEN GIVEN
GREATER FREEDOM TO SET POSTAL
RATES
---------------------------------------------------------- Chapter 1:4
We issued a report late last year on postal ratemaking\7 that updated
our 1992 report, saying that, if the Postal Service is to be more
competitive, it will need more flexibility in setting postal rates.
In our opinion, legislative changes to the 1970 Act's ratemaking
provisions may be necessary in order to give the Postal Service
greater flexibility in setting rates. In our 1992 report, we said
that Congress should reexamine the 1970 Act to (1) determine whether
volume discounting by the Postal Service would be considered a
discriminatory pricing policy and (2) clarify the extent to which
demand pricing should be considered in postal ratemaking. In our
latest report, we reiterated these points and also discussed
alternatives which Congress could consider for improving the
ratemaking process.
Postal administrations in the other eight countries appear to have
greater freedom to establish and change postal rates than does the
U.S. Postal Service. In Canada, only certain rates, mainly those
for full-price letter mail and the mailing of publications at
government-subsidized rates, must be approved by the Canadian
government. In addition, rate proposals are not subject to an
independent regulatory body as they are in the United States. In
Canada, interested parties have an opportunity to provide
information, but the rate-setting process is not public, and parties
do not have access to costing data or other information underlying
postal rates.
In Sweden, the postal administration is free to set all prices except
for the standard domestic letter; the government and the postal
administration have agreed to a price cap on the domestic letter rate
equal to the standard consumer rate of inflation. Similarly, in New
Zealand, the postal administration is free to set prices except for
standard letters, which are subject to a price cap of the country's
Consumer Price Index minus 1 percent.
The Australian postal administration sets its own prices. The
government can "disapprove" of the basic postage rate proposed by
Australia Post. In addition, Australia Post must notify an
independent authority of proposed increases in the prices of monopoly
services. The authority has only an advisory role and in the past
has instituted inquiries into proposed increases lasting up to 3
months.
--------------------
\7 U.S. Postal Service: Postal Ratemaking in Need of Change
(GAO/GGD-96-8, Nov. 15, 1995).
-------------------------------------------------------- Chapter 1:4.1
Finally, while we have focused on the three complex and interrelated
issues of universal mail service, the postal monopoly, and postal
rate setting, there are other issues that will also require
reexamination in any future reform initiative. These include, but
are not limited to, the quality of the Postal Service's labor
relations. We previously reported\8 that Congress may need to
reconsider the collective bargaining provisions of the 1970 Act if
the Postal Service and its major employee organizations are unable to
resolve some long-standing problems. As the Congress continues its
deliberations on postal reform, we believe that it is important to
examine the interrelationships of these issues and how changes
addressing them may affect postal operations and related services to
the American public and business.
This concludes my prepared statement. I would be happy to respond to
your questions.
Figure 1: Mail Volume for U.S.
Postal Service and Postal
Services in Eight Other
Countries
(See figure in printed
edition.)
Source: U.S. Postal Service, foreign postal administrations,
February 1995 Price Waterhouse report: "A Strategic Review of
Progressive Postal Administrations."
Figure 2: Employment of U.S.
Postal Service and Postal
Services in Eight Other
Countries
(See figure in printed
edition.)
Source: U.S. Postal Service, foreign postal administrations,
February 1995 Price Waterhouse report: "A Strategic Review of
Progressive Postal Administrations."
--------------------
\8 U.S. Postal Service: Labor-Management Problems Persist on the
Workroom Floor (GAO/GGD-94-201 A and B, Sept. 29, 1994).
*** End of document. ***