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The Postcode Penalty: The Business Burden

8 Apr 2014

15,000 Scottish businesses hit by unfair delivery charges

Citizens Advice Scotland have today published new research showing the impact of unfair delivery charges on Scottish businesses.

90% of businesses who responded to a CAS survey last month reported that they are charged extra for having items delivered just because of their postcode, and 76% felt this had a substantial impact on their business. The survey report ‘Postcode Penalty – the Business Burden’ can be downloaded (link no longer available).

Citizens Advice Scotland’s Policy Manager Keith Dryburgh says,

“We have been campaigning on the issue of unfair delivery charges for the last few years. So far we have mainly concentrated on the impact it has on consumers. But we are aware that it hits businesses too, so last month we invited Scottish businesses to report their experience of the issue. Today we publish the results of that survey.

“What we have found is that businesses across Scotland are very badly hit by this problem, and it is a serious burden on them. Nearly 250 businesses responded to our survey in just a few weeks. Most were from the north and north east, but this is not just a rural issue. It affects big cities and towns and postcodes covering over half of Scotland.

“We have found in previous research that many companies base their delivery fees purely on postcodes, rather than on the actual cost of delivering an item. Mark-ups can be as much as 50%, which can be devastating to a small business which has to buy in stock. Many companies also refuse to deliver to certain areas at all, while others have pricing policies which are unclear or actually misleading.

“In our last report, ‘Postcode Penalty’ we showed that this problem affects 1 million consumers in Scotland. In today’s business version of that report we estimate that it affects 15,000 businesses in those areas too.  The report makes clear that many businesses feel their profit margins are cut significantly by these unfair charges. Many have had to change their business, cut wages or lay off staff as a result, all of which has a knock-on effect on their local economy – particularly in rural areas.

“We want to thank all the businesses who responded to our survey.  We will continue to campaign on this issue and we would urge all political parties and others to back our campaign for a fair deal for Scottish consumers and businesses. In the report we outline a number of recommendations (see below). For example, traders could alleviate this problem substantially simply by using Royal Mail, but many refuse to do so. We hope that this report will add weight to the movement for change on this issue.”  

Commenting, Royal Mail spokeswoman, Felicity MacFarlane, said:

“Royal Mail has a six days a week universal service that reaches 2.5 million customers throughout Scotland. We have a range of parcel services for items weighing up to 20 kg.  These offer customers a universal one-price-goes-anywhere service to every customer in the UK regardless of their location.

“Our sister company Parcelforce Worldwide has, as far as possible, limited the impact of these higher rural delivery costs to its customers. Parcelforce Worldwide has a single Scottish tariff for all goods being sent within mainland Scotland, and does not apply a surcharge to non-contract customers who send items to the Highlands and Islands. This is aimed at supporting customers and communities in remote areas.  

“In addition, Parcelforce Worldwide does not apply zonal surcharges for southbound goods sent from any part of Scotland including islands, in a direct effort to support businesses across the country.”

 

Key Findings of our Survey

  • Almost nine out of every ten businesses who responded reported that they regularly faced an additional surcharge for delivery due to their geographic location
  • More than three-quarters of respondents (76%) felt that the costs of ordering items online had a ‘substantial impact’ on their business
  • 80% of respondents regularly encountered misleading claims of ‘free delivery’, when in fact surcharges were imposed due to their location
  • More than three-quarters of respondents were regularly classed as ‘offshore’ or ‘remote’ when ordering items online. This included businesses whose premises were on the Scottish mainland but were considered an ‘island.’
  • Delays in items arriving was another common problem, with 69% of respondents having to contend with this issue
  • Respondents reported that the majority of suppliers do not offer delivery by Royal Mail as an option and that therefore the Universal Service Obligation does not apply to a significant number of items rural businesses order online
  • 86% of respondents would be prepared to collect items from their local Post Office if the costs of delivery would be reduced. 55% would be content for delivery to a local shop, such as a newsagent to reduce costs. But 73% said sellers were unwilling or unable to depart from their standard carrier arrangements
  • The most common reason for sellers being unable to depart from standard delivery options to achieve cheaper delivery was sellers’ exclusive arrangements with specific couriers
  • Additional delivery costs for ordering items online are estimated to have a substantial impact on more than 15,000 businesses in remote and rural Scotland
  • Business respondents face an unenviable choice of absorbing high delivery costs and cutting into their profitability, or passing on the cost to their customers and leaving themselves at a considerable disadvantage against competitors elsewhere

CAS Recommendations for Change

  • Wherever possible, retailers should offer delivery by Royal Mail.
  • If delivery by Royal Mail is not possible, retailers should give customers a clear reason why this is the case. 
  • Sellers and carriers should offer alternative points as options for delivery, working in conjunction with the Post Office and local community hubs such as shops to facilitate this.
  • Retailers should give full details of how long delivery will take as early in the shopping process as possible. Statements such as “free next day delivery” should not be used to promote the site if next day delivery is not available to certain UK consumers.
  • The universal service obligation which ensures that delivery of packages up to 20kg costs the same across the UK must be protected.
  • Delivery prices should not be based on arbitrary post codes and they should be explained simply and displayed clearly by retailers on their websites.
  • Enforcement bodies such as Trading Standards services and the Competition and Markets Authority (CMA) should ensure that retailers across the UK are aware of and complying with the Consumer Protection (Distance Selling) Regulations 2000.
  • Where one courier firm does not deliver to certain areas, retailers should shop around for alternative couriers who do.
  • Retailers and carriers should work with the CMA to ensure that options for delivery do not disadvantage consumers in remote areas.
  • The Statement of Principles for Parcel Deliveries produced by the parcel deliveries working group led by Consumer Futures and the Scottish Government, should be promoted to retailers as best practice in this area.
  • Retailers should refer to the Statement of Principles when considering their policies and practice for delivery to rural, remote and island areas.
  • Enforcement bodies should work with business groups such as the Federation of Small Businesses, Chambers of Commerce and Highlands and Islands Enterprise to ensure that business to business internet sales are conducted in such a way that Scottish businesses are not disadvantaged.

ENDS

Consumer Note – Whilst CAS' survey is now closed, if you are having problems with unfair delivery charges because of where you live you can complain to the retailer – you might find it helpful to mention the Statement of Principles for Parcel Deliveries ((link no longer available). Alternatively, you could contact your local Trading Standards – you can find information on how to report a problem on Adviceguide here (link no longer available).

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