An Post has refused to sign a new European agreement on international postal tariffs, citing heavy losses it sustains for delivering foreign mail.
The State postal group is understood to be concerned that a new Remuneration for Exchange of International Mails (REIMS) package might expose it to greater losses for delivering post from Britain, the biggest source of international mail.
An Post is expected soon to seek a special package from its regulator, ComReg, to increase the return from its international business. This follows a move last month by the Government to saction ComReg to ensure that prices for the Irish delivery of inbound post is geared to costs.
An Post's letterpost business lost €6.7 million in 2001, indicating the system is not cost-reflective. This followed a €19.3 million loss on the international inbound part of the business, outweighing the €5.1 million profit it made on outbound international mail and its €7.5 million profit on domestic letterpost.
An Post sources argue that most of the losses are being incurred for the delivery in Ireland of British mail. These arise because the rate An Post receives for delivering international post is set as a percentage of its domestic postal tariff, which is comparatively low.
Because the full tariff is only marginally profitable, An Post loses money every time it delivers international post. The applicable percentage under the existing REIMS agreement is 73 per cent.
This is scheduled to rise to 78 per cent over five years under new arrangements agreed by 16 other postal services. An Post had anticipated that this would rise to 90 per cent under the new arrangement, potentially increasing its capacity to turn a profit from the service.
It is for this reason that the company opted out of the new agreement last week. Its decision means that the existing REIMS agreement will stand in relation to An Post's business with other postal services.
In going to ComReg, the company is seeking what would effectively be a bilateral agreement with the Britain's Royal Mail to cancel its losses from delivering inbound post from Britain.
Two major factors in this strategy are uncertain: the response of ComReg; and that of the Royal Mail. While the Government's decision to allow ComReg sanction a cost-reflective system might influence the regulator's decision, there it is not known whether the Royal Mail will engage. Other European operators are believed to make profits from the delivery of inbound international post, but the British company is itself in the throes of financial difficulty.
An additional factor in the new REIMS arrangement is that the tariff applying in April this year will be set as the applicable rate for the next five years.
This effectively cancels any benefit from potential increases to postal tariffs during that period. Sources close to An Post argue that this too is a significant factor because Irish tariffs are among the lowest in Europe.
About 20 per cent of letters delivered every day come from abroad and 10 per cent of letters posted are sent abroad. Cross-border mails in the Irish system account for 28 per cent of the overall total, compared with 7 per cent in Europe.
