Postal delivery pricing: econometric analysis

Executive Summary 

Many people in Scotland currently face high postal delivery fees, long delivery times or outright refusal of service, especially in remote and rural areas. The Scottish Government has undertaken a range of actions to bring together key stakeholders, promote good practice in the parcel delivery sector and increase awareness of cases of unfair delivery pricing. It has also published an action plan detailing measures that need to be taken to effectively tackle the underlying causes that lead to discrimination against consumers in remote and rural areas in the country.

As part of these initiatives, the Scottish Government has commissioned Alma Economics to conduct an econometric analysis as a first step towards benchmarking when and where delivery charges are fair and unfair in Scotland.

Defining ‘fairness’ is a challenging undertaking. For this report, our team sought to provide an answer as to whether postal charges could be deemed unfair by using an econometric model to predict postal charges based on underlying geographic and parcel characteristics. The model allowed us to estimate the relative impact of each of these characteristics and the resulting postal charge.

Our approach generates new findings that strengthen the evidence base on postal delivery charges in remote and rural areas in Scotland. This evidence is valuable for realising actions 1 and 2 of the Scottish Government’s action plan, namely the development of an interactive data hub to allow users to measure the fairness of delivery pricing to improve transparency and drive behavior change, and the development of the Scottish Parcel Delivery Map to better understand consumer experiences and target interventions.

This report presents results from our analysis, using 24,364 pricing quotes from six major delivery companies and 6,771 pricing quotes from seven national online retailers across all 1,029 postcode sectors in Scotland.^[1] Shipping quotes were requested for small, medium and large parcel sizes as well a range of bulky consumer products.

We used an econometric model to estimate average prices and delivery availability after controlling for geographic and package characteristics that may influence how companies set their delivery policies. A second econometric model then considered the probability of refusal of delivery, again after controlling for geographic and package characteristics.

Descriptive statistics highlight that individuals in remote rural areas pay substantially higher prices than individuals in urban areas. The most prominent differences in prices and delivery probability are for next-day door-to-door deliveries where the price for islands is almost double than in the rest of the country and 75% more expensive in remote rural Scotland. According to the findings, the Highlands and Islands face the highest delivery prices on average among all regions and the lowest delivery probability. Similarly, surcharges are concentrated in the councils of Moray, Argyll and Bute, Highland, Na h-Eileanan Siar, Orkney Islands and Shetland Islands.

The results of the econometric analysis are consistent with the findings from descriptive statistics. Postcodes in the Highlands and Islands face 21% higher postal charges on average compared to South Western Scotland and are 31% less likely to have access to home delivery services from online retailers compared to Eastern Scotland. Similarly, the councils of Na h-Eileanan Siar and the Shetland and Orkney Islands face average surcharges of at least 25% compared to Glasgow and have virtually no access to home delivery.

Overall, our results suggest that remoteness plays a more important role than rurality in explaining prices and the availability of delivery. However, when remoteness, rurality and council areas are explored together in the model, rurality and remoteness of a postcode sector seem to have a smaller impact on delivery charges than the wider council area. Finally, based on the predictions of our model, excessive charges are more prevalent in next-day, door-to-door delivery and across remote and rural areas.

Besides the quantitative analysis, this work also involved a qualitative component, with our team undertaking an extensive stakeholder consultation. We conducted 21 semi-structured interviews with postal operators, retailers, business associations, organisations and MPs which provided us with different insights into unfair delivery pricing and practices. Stakeholders also proposed solutions for improving consumer fairness, including the use of local providers, the introduction of pick-up and drop-off services, educating national couriers about the geographic particularities of Scotland as well exercising increased pressure on the UK Government. 

As part of the consultation, we analysed data on consumer complaints and reviewed cases of deliberate delivery surcharges. Our analysis suggests that the most common types of consumer complaints were about misleading advertising, drip pricing, failure or delay in delivery and substandard services.

Based on the quantitative findings and the stakeholder consultations the report concludes with policy recommendations and suggestions for further research. Policy recommendations include initiatives that improve information and transparency for consumers, ongoing monitoring to ensure that retailers and couriers comply with advertising and trading standards, the introductions of pick-up and drop-off services as well as carrot and stick approaches aiming to promote good practice among businesses.

This is a topic that would benefit from further research over time. Options include scaling up the data collection exercise and the repetition of the research at regular intervals. Additional research about the concept of fairness, the structure of the postal and retail market as well as the granularity of postcodes would also improve the evidence base on delivery charges in remote and rural areas in Scotland and allow the Scottish Government to formulate targeted interventions.