Experts divided over floor price for parcels in courier industry

 

There is a minimum price for sending documents but no such price for parcels at present.

PETALING JAYA: Experts are divided as to whether a floor price for parcels will make the courier business more sustainable.

While a group representing 25 courier companies and a federation of trade unions believe it may be the way forward in light of shrinking profit margins, two economists argue such a move will only hurt consumers’ pockets.

On Jan 1, 2015, industry regulators Malaysian Communications and Multimedia Commission (MCMC) implemented a minimum price policy of RM5 for each letter weighing less than 500gm for courier companies. It said the move would curb unhealthy competition among industry players.

However, there is no such minimum price for parcels.

Competition in the courier business has never been tougher thanks to the e-commerce boom, and the ensuing price war has seen companies struggle to cover costs and pay a fair wage – evident by a recent strike in Ipoh which saw workers toss parcels around at a hub.

Association of Malaysian Express Carriers (AMEC) president Teong Teck Lean said the incident was directly linked to the dominance of e-commerce giants which are able to force downward pressure on prices from their courier partners.

Teong said “some form of regulation” is needed so the industry can operate in a sustainable manner. “Otherwise, there won’t be any meaningful service and the whole industry will be disruptive,” he told FMT.

“It’s good to have some sort of base price, but you need to give the consumer a certain level of service. We need that (floor price) to ensure commissions will be sufficient.

“This is something we (AMEC) cannot decide but, somehow, it needs to be done.”

Teong, who is also the managing director and group CEO of GD Express Carrier Bhd (GDex), was quick to point out that any talk about a base price has to be centred around consumer protection, which he said should be the industry’s “top priority”.

The deputy president of the Malaysian Trades Union Congress, Mohd Effendy Abdul Ghani, also agreed with the idea of a floor price for parcels, especially since one already exists for documents and letters.

“There must be a floor price to allow the government to regulate the industry better,” he said. “At present, companies can manipulate prices and reduce commissions for workers.”

However, economist Carmelo Ferlito wanted to see more of a free market approach, stating that the sector should be as loosely regulated as possible.

Not only would this provide new players easier access to the market, he said, a courier industry with fewer restrictions would also allow for more effective job creation in the gig economy.

“Obviously, there is a ‘courier bubble’ created by the movement restrictions, and this will burst when those restrictions come to an end,” Ferlito, who heads the Center for Market Education, said.

He said market forces should be allowed to restructure the industry once the Covid-19 pandemic ends.

“With a floor price, if the market price is below that floor, then you push down demand. By doing this, you do not allow competitors to enter the market. In the end, the net loser will be the customer in terms of quality and quantity of service provided.”

In October, MCMC announced a two-year moratorium on new courier service licences, saying it was to allow the government and the postal and courier industry time to formulate new plans to strengthen the sector.

MCMC also said the move was in line with a call by AMEC, whose members include courier giants such as Pos Malaysia, DHL and FedEx.

Nazari Ismail, of Universiti Malaya’s Business Strategy and Policy Department, attributed the surge of players in the logistics and courier industry to bank loans which companies use to establish, grow and compete against one another.

He said that cutting costs is necessary as they need to turn profits and service their loans, and the best way to do this is to “make workers work harder and minimise wages”.

“This is happening in all industries, not only the courier business. A minimum price will not benefit the consumers. Only the banks will continue to earn huge profits.

“Businesses managers are paid to manage businesses, so they have to balance the advantages and disadvantages of their strategies.

“Don’t penalise the consumers so that the banks can continue to make money,” he said. - FMT