Why is it cheaper to post a book from overseas than within Australia? Australia Post, the Royal Mail and the cost of shipping books

The Australian book community is well aware of the growing importance of international online retailers such as Amazon and UK-based the Book Depository (which could soon become one company if a proposed acquisition by Amazon gets the green light from regulators in the UK).  The industry knows that the number of Australian consumers buying books from these retailers is increasing and know the key reason for this is price.

One topic that invariably pops up in conversations about the Book Depository in particular is free shipping. The online bookseller has been offering free shipping to Australia (and other territories) since it was founded in 2004. Recently, many of these conversations have included a reference to a ‘special deal’ that the Book Depository allegedly has with the UK postal service, Royal Mail. On May 29 this year, Melissa Fyfe wrote in the Age that the Book Depository ‘can ship books internationally for free because of a discount deal it has with the Royal Mail’, but offered no further details about the arrangement.  On one hand, some say the British Government offered the Book Depository concessions for setting up its business in an underprivileged area, while on the other, there are suggestions that the retailer enjoys free postage as a way of encouraging British exports. Some members of the local industry have taken this a step further and claimed that Australia Post is ‘subsidising’ the Book Depository as the organisation delivers millions of parcels that the retailer now ships into our country on behalf of Royal Mail.

But is there any truth in these claims? Here at BOOKSELLER+PUBLISHER, we decided to look closer at the issue. Here is what we found.

BOOKSELLER+PUBLISHER asked both the Book Depository and Royal Mail about the relationship between the two companies. A spokesperson for Amazon, which is currently handling media enquiries for the Book Depository as a result of its proposed acquisition, declined to comment about the matter. Similarly, a spokesperson for Royal Mail told BOOKSELLER+PUBLISHER that the organisation ‘do[es] not comment on individual customers’.

A spokesperson for the Royal Mail told the Sydney Morning Herald in July, however, that the accusations are false, claiming that while Royal Mail’s costs are low compared to other national postal services, ‘it did not enter special arrangements with any one organisation’.

Instead, it seems to be the case that if the Book Depository receives any kind of ‘deal’ from Royal Mail, it is a volume-based discount. Indeed, the Book Depository’s managing director Kieron Smith said in 2009 that the retailer is ‘a volume-led business, and we can get very good deals with couriers as we are shipping upwards of 130,000 products per week’. A quick look at Royal Mail’s website shows that they do offer cheaper rates for businesses which spend in excess of £5000 per annum on overseas postage.

But there is another part to this equation, and that is Australia Post. What is the relationship between Australia Post, the Book Depository and Royal Mail?

A spokesperson for the Department of Broadband, Communications and the Digital Economy told BOOKSELLER+PUBLISHER that the organisation ‘does not have any special arrangements with the Book Depository, Amazon or Royal Mail on the delivery of books or parcels in Australia’. ‘The cost of shipping a package to Australia is a matter between the Book Depository and Amazon and the relevant postal administration,’ said the spokesperson.

Reflecting the idea of a volume-based discount, the spokesperson said that ‘the Book Depository and other companies may have been able to negotiate cheaper rates from Royal Mail based on the volume of parcels that they ship, or by using off-peak services. The Book Depository and other retailers appear to bundle the cost of shipping into the price they offer for their products.’

Australia Post, however, is required to deliver parcels sent through Royal Mail (and other international postal services) within Australia as a member of the Universal Postal Union (UPU). In return for delivering these parcels, Australia Post receives a payment from the Royal Mail, said the spokesperson. It makes sense then that if parcels coming into Australia are increasing because of retailers like the Book Depository, Australia Post is spending more money on delivering parcels for Royal Mail. The questions then becomes, are the payments received by Australia Post for delivering these parcels covering the costs of delivery?

The department spokesperson told BOOKSELLER+PUBLISHER that in the period 2008-09, ‘both international inward and outward bound parcels fully covered their costs and were a potential source of subsidy to other areas of Australia Post’. The spokesperson added, however, that the payments made to Australia Post from other postal administrators for the delivery of parcels within Australia are denominated in a basket of international currencies. ‘When the Australian dollar is high, the value of these terminal due payments in Australian dollars is reduced,’ said the spokesperson. ‘Conversely, the higher dollar means that Australia Post pays less to other postal operators to have Australian parcels delivered internationally.’

Price Waterhouse Coopers (PwC) also examined the cost of postage within Australia in a research report commissioned by the Book Industry Strategy Group. According to PwC, there is a substantial difference between the unit costs charged by Australia Post and Royal Mail, which means that UK businesses are able to post parcels to Australia at a much cheaper rate than what it costs for parcels to be delivered within Australia by Australia Post. More specifically, based on exchange rates in May 2011:

‘a business in the UK posting 100 parcels (500 grams) to Australia could enjoy a unit postal cost of $3.04. In contrast, a business in Australia posting the same volume and weight of parcels within Australia would pay an estimated until postal cost of $5.75 – 89 percent more than the business in the UK pays for delivery to Australia’.

PwC said there is ‘little publicly available data that helps explain’ this variance. A possible explanation may be the relative size of the UK compared to Australia, or the relative distribution of British and Australian population centres. ‘There may be other reasons … but they are not apparent to us at this time,’ wrote the researchers.

Australia Post was more forthcoming with information in its recent submission to the Productivity Commission’s public inquiry into the economic structure and performance of the Australian retail industry. Part of the submission is worth quoting at length:

‘The [Universal Postal Union’s] payments arrangement are complex, subject to price floors and caps, and do not properly reflect the true processing costs of many destination postal administrations, including Australia Post. Under the UPU’s payment arrangements, Australia Post gets paid the same amount for the processing of inbound international mail irrespective of its actual costs of delivery. As a result, the pricing of international parcels destined for Australia by origin postal administrations may be lower than it should actually be if properly costed and based on sound commercial practice.

‘In the case of Australia Post, the payments it receives under the UPU’s terminal dues systems …  is well below the cost of delivery within Australia. Being a net importer, this means that Australia Post incurs a substantial loss on the processing of such mail. For example, in the financial years 2010-2012, Australia Post estimates that it will make a loss of A$1.06 per inbound international airmail packet (parcels less than 2 kilograms) on a volume of approximately 39.7 million articles.’

That’s more than $42 million over two years. And a long way from 2008-09, when the costs of delivering international mail were covered. A department spokesperson told BOOKSELLER+PUBLISHER that there are two reasons for the difference: the strength of the local currency, and the increase in Australians shopping online.

‘Terminal dues payments are based on Special Drawing Rights (SDR) which relate to a basket of currencies,’ said the spokesperson. ‘The appreciation of the Australian dollar has led to lower payments for inbound parcels since the value of an SDR in Australian dollars has fallen significantly. Inbound parcel growth of 56 percent in 2010-2011 has also increased its costs at the mail gateways.’

Do you know more? Email bookseller.publisher@thorpe.com.au with any information you would like to share. 

14 thoughts on “Why is it cheaper to post a book from overseas than within Australia? Australia Post, the Royal Mail and the cost of shipping books

  1. I challenged AusPost on their cost of sending parcels compared to that of NZ Post. NZ Post pretty much charges half of what AusPost does, and has a very granular charging scheme (based on the gram), rather than block based. Some of the savings come from not paying for 500g when the parcel weighs 252g (much like per second phone charging). If NZ can manage it, surely Australia can?

    The excuse I received was that the cost of living was lower in NZ. I can’t fathom how that matters as there carriage on both sides of the Tasman and air travel (which is tied to US$ fuel prices).

    About 10y ago NZ Post actually reduced the price for a letter because they were making too much money, and the government thought it served the public interest more to lower the price of postage.

    Perhaps Australia Post charges more because they are inefficient, and have too many overheads. Maybe if they slimmed down they could manage Saturday deliveries too, just like NZ.

  2. Dave – There is one major difference between NZ/UK and Aust that is our Size and Population spread. As for standard letters it’s the same deal but with electronic mail now used we deliver less mail to people but to more homes spread over larger distances. Aust Post makes a loss on there standard letters service due to the above reasons but has to deliver them due to there community service obligation.

  3. Excellently researched and prepared article, Eloise. There is no doubt that in the global market that we live in today the archaic model that the Universal Postal Union agreement offers is a burden for Australia Post and subsequently Australians. The numbers are only going to get bigger. I have to agree with Dave’s comments above that Australia Post has probably got too many overheads. Then again, how many century old monopolies around the world couldn’t attest to that. In saying that, Booktopia uses Australia Post to deliver our parcels Australia-wide. We send 20,000 products to Australians each week. OK a bit less than The Book Depository’s 130,000. But 99% of our parcels are going to Australians. We believe in Australia Post, they should be the future for Aussie businesses and in particular online retailers. We should remove ourselves from the UPU for parcel delivery. It is not serving us any more. Australian companies use courier companies to ship overseas, they offer better value, tracking and Australia Post are not chasing and trying to improve their overseas postal service. They are focusing on home turf. I will read with interest any other comments to this article. Regards, Tony Nash. CEO at Booktopia.com.au

  4. In the UK, international customers are not required to pay VAT (GST) on sales. There are not different prices on these websites for international customers so I assumed that they were recouping the cost of postage from this. 20% of the price would go a long way towards shipping, plus the Royal Mail shipping rates are a lot cheaper than Australia Post anyway.

  5. Oh cool! I’ve bought many books from the UK via online auction because postage from the UK is so low in general, usually around $4..

  6. As a commercial user of AP I am well aware that it is doing its best to cut costs by losing parcels, and letters, on a regular basis.
    Locally the lowest cost non-english speaking overseas students are used by contractors to deliver parcels. Such critical positions should be open only to competent citizens who accept responsibilty for their actions, or lack of.
    I have noticed that the Book Depository is not giving as big a discount now but claiming free postage – now you see it, now you don’t.
    The postage prices for single book export are insane and past the point where I consider exports a viable business. All very well for those bulk exporting but not much good for individual orders.
    Another point is – how come it takes less than half the time to get a book from the UK than it does accross Australia?
    Re costs. Perhaps parcels are bulked over the channel to less restrictive countries where for a quick flick of containers at the airport they are on a new cheap flight. Perhaps we could look at a deal with Timor or Indonesia to do such instead of subsidising them with foreign aid.
    In all this there is no doubt more to this rorting than the small business is seeing or hearing.

  7. It’s time that Australia Post looked at “Bookpost” special rates for internal deliveries for all Australian booksellers and publishers (and not just Booktopia and their 20,000 per week business), so that we can meet the challenge of Book Depository et al, and the effective subsidy that Australia Post’s international agreements give to importers.

    And dropping the GST on books would be the other ingredient if the government is serious about having a viable book industry in this country.

    They love to talk about level playing fields, but the UK and Australian governments via their taxing and postal authorities are giving an enormous leg-up to British publishers and booksellers, and making sure the cringeing colonials are denied a cultural industry of any significance. And they do so behind obfuscation and denial.

    When are Australian governments going to stand up for Australian business?

  8. I am just about to sign my contract with Australia Post for the next year and wonder how I will be able to cover the increased costs. Customers are happy to tell us that our $5 flat rate is so expensive compared to Book Depository. The price of our books is also lower this year so we have to sell more to make the same.
    All the Retail Productivity commission could offer retailers was 24 hour trading. Great for a small business owner who is already working 6 days a week. When the report came out I decided to make a position redundant which is 20% of our workforce as I don’t envision a great Christmas ahead for booksellers. I had hoped that GST would be imposed on all or most imports-silly me. There was just nothing constructive offered to retailers especially small ones.
    I for one hope that the Book Depository sale goes through as I believe that Amazon will then charge postage. Or is that another silly notion?

  9. Of course, Book Depository does charge postage, it’s just that it’s “hidden” in a single price that the consumer sees. Nerdy people who know about these things have shown that the price charged by BD varies depending on the IP address of of the consumer.

  10. Anyone who has ever used the U.S Mail or the Royal Mail could be excused for thinking that Austalia Post’s astronomical prices are just another form of government taxation.

  11. It’s not only about money. The Book Depository is also more efficient than many local suppliers. I once ordered a bunch of books as gifts for friends I was visiting in Queensland. Because it was only 10 days before I was leaving (and because the Australian price was only a few dollars different) I decided to go with the local product. Book Depository usually takes a week to 10 days and I didn’t want to risk it.
    The books I ordered from my local supplier arrived 2 weeks after I’d ordered them, which was too late for me. I won’t be using them again.
    Another time I had a book on order with a local supplier for months, without receiving it. After several follow-ups on my part, they finally responded that they couldn’t get the book I wanted. I went on line and the book depository had it on my doorstep in a week.

  12. Thanks for your article. I have seen a lot of information regarding Australia and Book Dep issue but this is best source of it.

  13. Thanks for your report and to all the comments above. I landed here because was researching for my diatribe against AustraliaNOpost for not delivering the paperback the Sender had paid postage on but putting a card in my box saying Please Collect from PO.

    They did this recently for the US magazine I subscribe to, and now for this paperback from UK, which they told me was too large for my mailbox (NO), oh OK it was too large for the postie motorbike – NO – weighed on their scales while we argued it was less than 500 grams. Many working Australians cannot, during trading hours, get to the PO which handles their home mail.
    Right now I am Posst Off.

  14. We all should probably make a test to see if the ip thing is right…like take a single book and check the price from different locations.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>