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Air CargoMaritimeNewsParcelRegulation

U.S. to leave global postal union next month barring last-minute action; exit could send global parcel rates soaring

Barring an eleventh-hour agreement, the U.S. Postal Service (USPS) will leave the Universal Postal Union (UPU) on October 17, ending 144 years of U.S. involvement in the international body that governs the exchange of mail and postal parcels between countries, and perhaps fundamentally changing the landscape of global air shipping.

Members of the 192-member United Nations body will gather on September 25 and 26 in Geneva, Switzerland in only the third “extraordinary Congress” in UPU history. The key agenda item will be to vote on what UPU is calling the “possible revision of small packet remuneration rates,” which is the core issue to determine the future of U.S. involvement. 

The U.S. State Department, which is the lead negotiator for the U.S. in UPU, has submitted a proposal that would allow the U.S. to “self-declare” international postage pricing and to decide on subsidy levels, if any. Unless the UPU agrees to the proposal by a September 30 deadline, the U.S. will leave the Union 17 days later and, over time, begin a framework of bilateral negotiations with individual postal authorities. The self-declare regime would begin in 2020.

The practical effect of the exit of the U.S. would be a rate increase of at least 300 percent on postal parcel traffic to the U.S. from heavy net exporting countries as rates kept artificially low for decades begin to normalize, according to Matthew White, a strategist for iDrive Logistics, a consultancy working with customers to prepare contingency plans for the possible U.S. exit. U.S.-based international shippers will also pay more, at least over the short-term, because USPS will cancel negotiated service agreements (NSA) covering international shipments if the withdrawal takes place, White said. 

Private sector parcel carriers may see a huge bump in business due to new-found pricing competitiveness, while high-volume traffic may migrate to cheaper ocean shipping services because of the large price increases, White predicted. The future of the UPU, which was founded in 1876, might be at risk if the U.S. leaves the multilateral regime and migrates to a self-declare structure and bilateral relationships, according to White.

President Trump telegraphed the departure in an August 2018 memorandum, saying that certain “current international postal practices in the UPU do not align with United States economic and national security interests.” President Trump’s memorandum raised concerns with two practices. One is the inability of foreign postal services to furnish advance electronic shipment data, which U.S. Customs and Border Protection (CBP) needs to improve its ability to flag and detect high-risk shipments, as well as facilitate import flows. 

The other, and more politically charged, issue is with the UPU’s 50-year-old “terminal dues” structure, which are the funds paid to the postal authority of the destination country by the authority of the origin country. The 1969 UPU Congress adopted the current terminal dues system, which governs cross-border delivery of packages and letters weighing less than 4.85 pounds. Instead of basing terminal dues on the actual handling costs incurred by the destination country’s operator, the UPU established a “country classification” system factoring in different stages of member states’ economic development and the many variations in their mail volumes, tariffs and cost levels. As a result, developing countries enjoyed relatively low shipping rates into the U.S. Meanwhile, the U.S., with its highly advanced market, would typically pay more.

The Trump Administration has argued that the terminal dues regime has led to significant price distortions that have left the U.S. at a competitive disadvantage for decades. For example, a 4.4-pound parcel shipped from China to the U.S. could cost less than a domestic shipment shipped between, say, New York and Detroit, according to those who have followed the issue.

What’s more, the terminal dues system was formed when China was very much a developing country with little, if any, economic influence on the world stage. Over the decades, China has grown into the world’s second-largest economy but continues to pay postal rates associated with that of a developing country, the Administration has argued.

The Administration has not singled out China as a factor behind its threat to exit the UPU. However, it can be deduced that, in light of the escalating trade turmoil between the two countries, its actions were meant to send another in a series of messages about China’s alleged gaming of the global trade system. Changing the status quo by adopting a self-declare approach, or leaving the UPU entirely and negotiating on a bilateral level, would level the playing field between the two countries, according to supporters of the Administration’s efforts.

In a 2015 report, the USPS’ Inspector General found that the low terminal dues for China “benefit China Post and Chinese online retailers in the lightweight, low-value package segment at the expense of [USPS] and American retailers.” This report estimated that the terminal dues structure cost USPS approximately $300 million from 2010 to 2014. According to the Postal Regulatory Commission, the independent agency that rules on postal rate proposals, the loss to USPS attributable to terminal dues reached $134.5 million in fiscal year 2016 and $170 million in fiscal year 2017.

Chinese companies ship many low-cost, low-value shipments to the U.S. via the postal infrastructure. Beijing may retaliate if it views the U.S. action as another step in ratcheting up the broad trade dispute, White said.

The USPS did not respond to a request for comment. In a June 19 memorandum announcing the possible departure, Giselle Valera, USPS’ executive director of continuity of global operations, said the quasi-governmental agency “fully supports the objectives of the Administration to secure a more balanced and fair remuneration system for small packets containing goods.”

USPS wants to establish agreements with foreign posts to continue exchanging mail if the U.S. exits, Valera wrote, adding that “it intends to use commercial logistics partners for deliveries abroad.”

The Administration is within its rights to withdraw from the UPU, according to Eliot Kim a Juris Doctorate candidate at Harvard Law School. Writing in October 2018 in “Lawfare,” Kim said Article 12 of the UPU Constitution explicitly allows any member state to withdraw from the organization with one year’s notice. In addition, the administration can act without Congressional approval, Kim said, citing language in the landmark 2006 Postal Accountability and Enhancement Act that gives the Secretary of State “power to conclude treaties, conventions and amendments related to postal services and other international delivery services,” Kim wrote.

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Mark Solomon

Formerly the Executive Editor at DC Velocity, Mark Solomon joined FreightWaves as Managing Editor of Freight Markets. Solomon began his journalistic career in 1982 at Traffic World magazine, ran his own public relations firm (Media Based Solutions) from 1994 to 2008, and has been at DC Velocity since then. Over the course of his career, Solomon has covered nearly the whole gamut of the transportation and logistics industry, including trucking, railroads, maritime, 3PLs, and regulatory issues. Solomon witnessed and narrated the rise of Amazon and XPO Logistics and the shift of the U.S. Postal Service from a mail-focused service to parcel, as well as the exponential, e-commerce-driven growth of warehouse square footage and omnichannel fulfillment.

47 Comments

  1. FINALLY,
    You know its cheaper to mail a package to your self from China then if you mailed it from your house to yourself.
    This will help slow down fake crap being sold on ebay and amazon.

    1. EVERYTHING mailed to the US is gonna be more expensive, not just from China. Unless everything you buy is made in the US (not realistic) you ARE gonna end up paying more. Typical Trump throwing a tantrum over China and ruining it for everybody.

      1. Getting rid of subsidies is always a good thing. It is correct to remove these pricing schemes because subsidizing the parcel rates for entire economies does distort prices which, while they are benefiting US consumers currently, there are always unintended consequences to government market manipulations.

    2. The sooner we are out of this the better. It will mainly stop China and countries like China from getting a free ride other countries like the UK already pay a fair price for thier shipping. Ebay and compaines like them will be the ones crying. Small US companies will finally have a chance to compete as of right now China can ship to the US cheaper than I can ship an item to Texas, that is an unfair advantage. US tax payers should not pay for China’s Mail. And if I try to ship something into China good luck and shipping and imort tax is sky high, they protect their country from imports.

  2. Shipping single items from overseas shouldn’t be cheaper than shipping a pallet of them from China to USA, then selling them individually from here.

    Think of the waste if instead of buying a candy bar from a box of 50 at the grocery store, 50 different people ordered them individually and had them shipped to their house.

    I sell on ebay/amazon and can’t compete with sellers than can sell virtually the same product including shipping for 60% less than it costs me to ship it.

    Yes, my stuff comes from overseas, but i dont actually order it from there. Ever buy a TV or something and there was an extra cord in the box you didn’t need? Businesses throw away thousands of these brand new cords. I have several hundred brand new hdmi cables i’m trying to sell for $5 a pair with free shipping. I make about 75 cents if they sell. But no one buys them because they can get a similar cable from china for $1.

    If you buy the cables from me, i might go to a local store and buy a coffee, maybe a shirt, or take my g/f out to dinner and provide income for the local businesses.

    But if you buy the cable from china, these people get their hours cut, lose some tips, etc. The post office pays more than 20 cents to deal with the china package (how much china probably pays the usa to deliver it) and the next time you send a letter, you subsidize the cost of that other person’s cheap hdmi cable.

  3. Stamps.com has a reseller solution called Globalpost that can ship internationally without having a usps contract. We’re using it now taking advantage of consolidators.

  4. The U.S. Postal service is a joke. It’s a P.O.S. operation so much bureaucracy and red tape you could give the 100 time more money and they wouldn’t still run efficiently. What a bunch of morons. The postmaster can do anything short of shooting a customer and they get away with it. They answer to NO ONE not even the justice system. All lawyers know they will tie you up in court and hold it their indefinitely. They have a unlimited budget for legal issues. They throw away mail. They try to intimidate. They are disgusting the whole system should be shut down. Start over with new people. This story alone show how screwed up they are at least since 1969.

  5. The lowest First Class Package Service is $2.66 even it is empty less than 1 Oz . How every the oversea package order is $1, Local physical or online stores have not business, no matter how hard they are working, how good the services are.

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