Postal delivery pricing: econometric analysis

3. Stakeholder consultation

Interviews

Box 3: List of interview participants

Umbrella bodies and national organisations

• Caithness Chamber of Commerce
• Citizens Advice Scotland
• Committees of Advertising Practice
• Competition and Markets Authority
• Federation of Small Businesses
• Highlands and Islands Enterprise
• Interactive Media in Retail Group
• Ofcom
• Resolver
• Scottish Grocers Federation
• Scottish Rural Action
• Trading Standards Scotland

Members of Parliament and Members of the Scottish Parliament

• Alasdair Allan MSP
• Drew Hendry MP
• Richard Lochhead MSP
• Liam McArthur MSP
• Michael Russell MSP

Delivery companies

• DPD
• Caledonian MacBrayne

Retailers

• eBay

To gain a better understanding on the nature and prevalence of unfair delivery charges in remote and rural areas in Scotland, we conducted interviews with key stakeholders, including umbrella bodies, national organisations, MSPs, delivery companies and retailers. The Scottish Government, based on its established relations with the sector, advised us on organisations and companies that would be useful to contact. Our team conducted a total of 21 semi-structured interviews – the box below presents the participating bodies and individuals.

Box 4: List of bodies that were invited to interviews but did not participate

Umbrella bodies and national organisations

• Advice Direct Scotland
• Scottish Retail Consortium

Delivery companies

• Menzies Distribution
• Hermes
• DX
• UPS

The interviews with delivery companies and/or retailers were important for collecting information on the following topics:

• How do companies decide on profit margins, and is this is added to the product price, the delivery quote or both (in the case of retailers)?
• Does the delivery price reflect the quote given by the couriers/delivery companies or is an extra mark-up added to it?
• How do delivery companies determine the cost of any particular delivery?
• How prices are calculated by couriers or other delivery companies?
• Do couriers/delivery companies use the same pricing software (with different mark-ups)?
• What are operators’ views on the issues examined in this project? Do they think it’s more expensive to deliver to remote areas in Scotland or generally remote areas? What are the main additional costs for these areas? How do they price deliveries in those areas, if they deliver at all? How do they approach islands and remote areas (ferries/planes)?
• Have companies ever heard any complaints from their customers regarding delivery charges to remote/rural areas?
• What are delivery companies’ existing policies, including contractual and legal obligations?

Interviews with key stakeholders, other than delivery companies and retailers, aimed to cover their views, experiences and knowledge on the topics above as well as examples of excessive surcharging, consumers’ complaints and any information on trends in surcharging and potential solutions.  

Case studies

This section focuses on examples of excessive delivery charging, unfair refusal of delivery, and cases where new conditions were imposed after an order is placed and paid. It reports statistics based on reported consumer complaints and discusses in more detail specific cases. Our team reviewed a total of 596 complaints, obtained through the following sources:

• Interviews with key stakeholders – the Highland Council (81 examples), Trading Standards Scotland and Caithness Chamber of Commerce (6 examples), Advice Direct Scotland (3 examples from the new consumeradvice.scot website); and 
• Consumer complaints databases from MSPs – Richard Lochhead MSP (488 examples), Michael Russell MSP (15 examples) and Liam McArthur MSP (3 examples).  

Misleading advertising

As Chart 1 shows, 65% of the complaints reported focused on misleading advertising concerning deliveries in Scotland. This spans a range of cases, including: (1.) companies advertising free UK delivery but later applying charges to consumers who lived in remote areas in Scotland; and (2.) companies advertising mainland UK delivery but subsequently refusing to deliver to certain parts of the country. For example, a consumer in Cowal tried to buy a Wi-Fi router from a telecommunications company that claimed to offer free UK delivery. However, at checkout the customer had to pay £12.00 in delivery charges. Another consumer in Ardentinny tried to buy flowers from an online retailer that was also advertising free delivery across the country. When it came to placing the order, the customer was receiving error messages but there was no explanation about what was causing the error. After spending a considerable time on the phone with the customer service team of the retailer, he found out that delivery to their area was not possible. 

Box 5: In detail – misleading advertising and delay in delivery

In 2017, an Islay resident ordered a sofa from a retail company that normally charges £59.00 for delivery. After placing the order, the customer received a call from a customer team member of the retail company who advised her that as she was based on Islay, the delivery charge would be £260.00. The customer decided to use a local courier on Islay as they charged a substantially lower rate, at £120.00. However, when informing the retailer about her decision the company said that this would slow down the order process and, therefore, the customer would no longer be able to get the sofa in time for Christmas – even though delivery in time for Christmas was part of the retailer’s advertising campaigning.

Given the customer’s eagerness to get the sofa by Christmas she ended up paying the £260 charge. Yet, the retailer didn’t deliver the order in time for Christmas despite saying it would arrive on the 21st December. Following the failure to deliver on the designated day, the customer called the company to find out the reason behind the delay. The retailer told her that the order had arrived in Glasgow and that the courier responsible for the delivery would be in touch. When the customer asked for the delivery charge to be reimbursed the company said that this was not possible due to it being an external cost and instead offered her back £90.00 in compensation. Later, it appeared that the retailer had used two couriers to get the sofa from Glasgow to Islay.

There are also cases of surcharges being imposed even after the order has been placed and the client has paid for the product. For example, the next day after a consumer had placed an order and paid for it, they received an email saying that there was a delivery charge for the particular postcode (although the client was initially informed that the 2-3 working days delivery option was free) and it was £9.90. Upon later inspection of the website, the increased costs were outlined on the traders’ website, but the process of purchase was still not entirely clear, and the additional cost was brought to the consumer’s attention after the order was finalised.

Drip pricing and surcharges

Twenty nine per cent of the 593 complaints filed by consumers concerned drip pricing and surcharges.^[19] For example, an Islay resident tried to buy a compost bin from a retailer who advertised free delivery. However, a week after she placed the order, she received an email asking her to pay £57.60. The customer cancelled the order and reported the incident to her constituency MP. When he raised the issue with the company, they said that due to GDPR regulations they were unable to discuss the case without permission from the customer. A similar case involved a resident of Mull who tried to buy a 65’’ TV and incurred delivery charges totalling £230.00 –amounting to 30% of the total item cost. When the customer contacted the company regarding the surcharge, they claimed that this was due to the need to use a specialist courier given the nature of the product. A third consumer in Islay who purchased a product from a third-party via an e-commerce platform was asked to pay £36.70 for delivery for a product worth £28.50. Finally, a client on the Isle of Skye was asked to pay £135 extra for delivery, while being initially informed that the cost would only be £35. As the additional cost was very high the client decided to use their own courier, who charged them only £16 for the delivery. 

Box 6: In detail – drip pricing and surcharges

A resident of the Isle of Bute who runs a small online business saw the delivery charges from an important supplier increasing significantly. The business owner always faced higher delivery charges than her mainland competitors but recognised the additional costs involved when delivering to Bute and was willing to accept a higher charge for deliveries to her area.

However, a few months ago one of her suppliers advised that they would have to pass on the increase in delivery costs from a parcel operator. Prior to the increase she was paying delivery with a "Scottish Surcharge" of £13.50 and £2.70 for VAT, which equates to a total of £16.20 per box. This would now jump to £22.00 plus £4.40 for VAT plus £26.40 "per 10kg" box plus 74p per kg after that.

Following the update by her supplier the lady undertook her own research which showed that Bute, despite being relatively close to Glasgow, appears to be included in the same category as all Scottish Islands, the Isle of Man and the Channel Islands. More importantly she found that it would be considerably cheaper to send a parcel between 30 - 31kg abroad. The cost to send a 31kg parcel to Northern Ireland is £13.50, while the charge for sending a 30kg parcel to France, Netherlands, Germany, Belgium and Luxembourg is £18.50. Lastly, sending the same parcel to Denmark, Austria and Switzerland would cost her £21.50.

Failure and delay in delivery

Five per cent of the incidences of unfair delivery charges and practices in our sample involved refusal or delay in delivery. For example, one resident in Caithness ordered a watch from Switzerland. While it took 24 hours for the product to arrive to Inverness, the parcel remained for 48 hours in the Inverness depot before it was delivered. Similarly, a consumer in Orkney purchased a dishwasher from a third-party on an e-commerce online platform claiming free UK-wide delivery. After the customer paid for the product, he received an email stating that the company does not deliver large items to his area. Another customer from Lochgilphead was refused delivery of a laptop battery after entering his address.

Substandard services

Two per cent of complaints reported incidents related to the provision of substandard services to remote and rural areas in Scotland. A Bute constituent bought a café kitchen from a catering company who assured all equipment would be under warranty. When the customer contacted the company about the dishwasher he purchased, he was advised that warranties did not cover islands. Likewise, a Mull constituent who tried to order from a retailer of dairy products found that some products were unavailable for delivery to islands. This is because most of the constituency postcodes sit within a 3-day delivery timeframe. Yet, a 3-4-day delivery timeframe for their chilled products is not acceptable from a food quality and safety perspective.

Proposed solutions

This section provides an overview of solutions suggested by stakeholders during interviews to address unfair delivery charges in remote and rural areas of Scotland.

Use local providers

A number of interviewees stressed the need to use local providers, especially for the “last-mile”. Local providers are familiar with local geographical particularities and can therefore provide a better service, ensuring that issues such as mistakes in postcode categorisation are avoided. The recent introduction of the Highland Parcels delivery service by Menzies Distribution is one example of a local solution that provides fairer parcel delivery pricing; the company introduced a service that allows residents in the Highlands and Islands to send any parcel for a single flat fee of £4.99.^[20]

Educate the parties involved about the geographical particularities

Stakeholders emphasised the importance of ensuring that retailers are aware of the geographical particularities of the region as well as the availability of alternatives for delivery. For example, Parcelforce and Royal Mail deliver UK-wide at the same cost.

Pick-up and drop-off services (PUDO)

Many participants underlined the importance of introducing more pick-up and drop-off points. Whereas this option makes economic sense for parcel operators – they can make multiple deliveries in one premise – consumer views varied; while some stakeholders argued that PUDO services provide increased convenience for some consumers – especially in islands where it is common for a resident to pick-up several parcels from a PUDO point and then deliver it to neighbouring residents – other argued that it takes time and money to drive to a central point to collect their parcels.

Government pressure

The majority of stakeholders stressed the need for the UK Government to intensify its efforts to tackle the issue of unfair delivery charges in Scotland. A number of interviewees mentioned that it is important for companies that do not meet existing standards – such as adherence to the Enforcement Notice on Advertised Delivery Restrictions and Surcharges for online and distance sellers, published by the ASA in April 2018 – to be penalised.