An Economic Perspective on Terminal Dues

They are defined by a set of minimum and maximum dimensions and weights. Small letters (P) are defined by the characteristics; Minimum dimensions: 90 × 140 mm, Maximum dimensions: 165 × 245 mm, Maximum weight: 100 g, Maximum thickness: 5 mm. Large letters (G) are characterized as items that cannot be classified as small letters; Minimum dimensions: 90 × 140 mm, Maximum dimensions: 165 × 245 mm, Maximum weight: 100 g, Maximum thickness: 5 mm. Bulky letters or small packets (E) (a non-standard envelope or parcel up to 2 kg) are characterized as items classified neither as small letters nor as large letters; Minimum dimensions: 90 × 140 mm, Maximum dimensions: 900 mm length, width and depth combined, with the greatest dimension not exceeding 900 mm, Maximum weight: 2 kg (5 kg for items containing books or pamphlets), cf. UPU (2015).

For letter post flows where postal operators have negotiated bilateral agreements, terminal dues are still relevant as they work as a fall-back option in the negotiations. I.e. the bilaterally negotiated rates are usually not very different from the terminal dues. Terminal dues under the REIMS V agreement are not publicly available, but under REIMS II, terminal dues were set at 80 % of the domestic price for a single-piece priority letter, i.e. not very different from the uncapped UPU rates.

E-commerce deliveries are to a large extent sent by letter post (as “bulky letters” or “small packets”) see for example UPU (2013, p. 17, 2014c).

According to UPU (2014b, p. 196), 43 % of total international letter post flows (measured in kg) were intra Western Europe and 15 % were between Western Europe and North America.

The transitional system concerns only developing countries. It represents a fixed rate by UPU. We took this into account in our estimation but did not detail it as it has only a marginal impact. For more explanations on the current UPU system, ie, transitional system and target system, see UPU (2015) and Campbell (2016, pp. 4–10).

We define the counterfactual rate as 70 % of the domestic postage rates for end-to-end delivery of single-piece letters of three formats (small letters, large letters, and small packets), see appendix for more explanations.

This growth rate is based on aggregate estimates of bulky letters from the UPU’s IPK studies and a study made by the OIG specifically on the growth of e-letters from Asia into the US. See UPU ( 2014d) and Office of Inspector General (2014a).

This will lead to different estimate depending on the scenario considered for the development of the letter post after 2014. Campbell (2015, p. 320) made a set of additional assumptions, including (i) letters decline from 59 to 49 %; (ii) an increase in worldwide small packets from 25 to 37 %; (iii) an increase of 50 % per year of small packets from the whole of Asia; (iv) a 15 % increase in small packets from industrialized countries; (v) a 20 % increase in flats (large letters) from the whole of Asia; (vi) a 5 % decrease for letters and 3 % for flats in industrialized countries.

However, datasets differ between this paper and our previous report. Despite these different datasets, our estimates remain close for year 2014 financial transfers.

70 % of the domestic postage rates is also used by the UPU as the benchmark when calculating terminal dues before adjusting for caps and floors and by Campbell (2015, p. 324) to estimate distortions from terminal dues.

Much of our data is collected from documents, publications, and databases from the Universal Postal Union, for example UPU (2015).

SDRs or Special Drawing Rights, is a monetary unit defined by the International Monetary Fund. One SDR is equal to approximately 1.24 EUR. See IMF (2016, April 29th).

Details on the numerical estimation are available from the authors.

Estimated impacts for each country are available from authors.

The ratios used are based on information from previous years regarding the relationship between domestic and cross-border mail volumes. Where this information is not available, a ratio is constructed based on assumptions regarding the similarity of countries (i.e. countries of similar size can be expected to have the same ratio between domestic and cross-border flows).

Data for inter-regional mail flows are available in UPU (2014b).

Factors such as distance, international relations, and a common language can be important for the mail exchange between certain countries. With respect to the growing share of cross-border e-commerce, for example, we often observe larger online trade between countries that share a common language or culture (e.g., Germany and Austria, the United States and Canada). For the case of the United States, we have tried to compensate for this by adjusting bilateral flows between the US and Canada based on publicly available information about cross-border mail flows between these countries.

Information about global cross-border letter post volumes is available in UPU (2014a).

See UPU (2012) for a complete description of the methodology.

The data are provided by UPU (2016b).

This adjustment factor is the same as used by the UPU for the calculation of uncapped terminal dues for operators in the target system. According to the 25th congress document describing the base for the current terminal dues system, “Domestic tariffs, exclusive of VAT and other taxes, will be used as a reference for calculating TD rates. The percentage of domestic tariffs retained for use is 70 %. This figure results from the inbound mail handling cost, calculated based on information from the cost study” UPU (2012).

The database from 2008 is the most recent source available containing such a comprehensive and granular overview of domestic tariffs.