Annual Report

Facing the challenge of a forced increase in international postage

Mounting pressure for a substantial increase in postal charges for international letter mail services is looming in the face of proposed changes to the current terminal dues system in 2010.

This is the system by which payments are made to destination postal administrations for delivery of letters, and is administered by the UPU. Reciprocity was the historic governing principle, based on the premise that every letter sent would prompt a reply and so bring about a natural balance between inward and outward flows. This “gentlemen's agreement” meant postal administrations did not charge one another for handling mail, with the result that originating administrations were not required to share revenue generated by senders.

Unequal pace of economic development among countries brought about differences in volume growth until increasing imbalances led to the creation of the terminal dues system by the 1969 Tokyo Congress. The first such system was based on a single rate per kilogram for mail sent to any country. The actual amount paid by each postal administration was calculated on actual weight of mail volume or was established through sampling exercises.

Today, however, the terminal dues rate is set artificially low to support developing countries, but as more postal administrations, especially in Europe's industrialised countries, have become corporatised or privatised, the UPU has come under pressure to devise a system by which full costs are covered for services provided. This has led to a new UPU proposal to link terminal dues to individual levels of domestic postage.

Impact on Hong Kong

According to latest UPU research, domestic postage for an industrialised country is about three times higher than that of a developing nation. As an example, domestic postage for sending a 20g letter in Japan is more than HK$5, compared with just HK$1.40 in Hong Kong. This is mainly due to the fact that domestic postal services in most industrialised countries are commercial enterprises, while governments in the majority of developing countries subsidise such services.

If the proposal for rigid linkage of terminal dues to domestic postage were to be implemented, Hongkong Post would face much higher charges for outbound mail. A substantial increase in postage for our international letter mail service would have to be introduced to cover the much higher costs as a result.

Managing the threat

With this in mind, Hongkong Post has been working closely with China Post and other Asia Pacific operators to lobby vigorously for a limit to any increase in terminal dues. A final decision will be taken after a vote at the Universal Postal Congress, which is due to take place in Nairobi in 2008.