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Air CargoMaritimeNewsParcelTrucking Regulation

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. I’m not convinced that resolving a dispute with China over shipping rates necessitates blowing up an agreement that covers the entire world, which (for my part) is why I find this so alarming…

    1. Spoken like a true coward. There will be no issue with working out postal rates with developed countries. Those postal rates are already in balance. It is making the system rigged in China’s favor become accountable. Good for Pres. Trump. I’m glad we finally have a man of action in the White House. KAG 2020

      1. bro u don’t really know what any of you just said means, this is just bad all around. good job for being the one person that thinks this is good.

        1. He’s not the only one. Why should the second, and growing, economy in the world receive subsidized shipping rates in Western nations?

        2. He is not alone. I will benefit from this withdraw. I sell USB cables on ebay. Do you have any idea how hard that is being in the USA. The Chinese sell these cables on the dirt cheap subsidized by us.

    2. Why are we subsidizing the world? Let them pay their fair share!! NATO members don’t pay their CONTRACTED SHARE of defense costs, Drug companies sell drugs WAY WAY cheaper to other countries while I am paying FIFTEEN THOUSAND DOLLARS A MONTH for ONE pill. Why are AMERICAN taxpayers subsidizing drug research for the rest of the world who pay cheap drug prices while we are @$$-raped on the cost of our meds? The list goes on and on! Our “leaders” before President Trump have allowed us to be robbed blind and stupid for DECADES. The party’s OVER for the international freeloading deadbeats. We the people are FN tired of supporting the world. Force them to start paying their fair share–it’s WAY past time. Enough is enough!

      1. So, you support Medicare for All, then?

        What is Trump doing about healthcare prices other than undermining the systems meant to help Americans afford them? 2 million kicked off healthcare last year alone.

        The genie of globalism isn’t going back in the bottle, you know. We can be isolationist and the world will just pass us by.

        1. Your “medicare” was performed by stealing more money from Americans rather than keeping the money they already have at bay.

          America is the strongest economy in the world. It’s money reserves can fund the healthcare of most of Europe. There’s no reason to hike taxes for medicare, just stop letting the world fuck the U.S over

  2. Good. China has been a leach for too long. And people are confusing this with Chinese trade as a whole. IE, shipping chinese goods over by any other means won’t be affected. It just means the little one off items that are shipped in little packages by mail that will be affected. Shopify drop shippers will have to see if their model will still work, but otherwise it is a win, win for the U.S. Keep crushing it Trump. KAG 2020

  3. MUCH BETTER FOR INDIAN BUSINESS ORGANIZATIONS BECAUSE OF CHEAPER PRICES OF POSTAL SERVICES RATES CHINESE PRODUCTS WERE PUSHED IN INDIA. NOW PRICES OF INDIGENOUS PRODUCTS IN INDIA WOULD DEFINITELY BECOME MORE COMPETITIVE & COST EFFECTIVE.

  4. This is a generally good and informative article on the Trump Administration’s commendable efforts to reform an international agreement that U.S. Administrations going back to President Reagan have correctly criticized as unfair and economically distortive.
    Unfortunately, however, the article quotes as a fact an apparently alarming assertion that “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.” The truth is less alarming but more complicated.
    Pursuant to Administration policy and U.S. law, whether or not the U.S. leaves the UPU, USPS will introduce “self-declared rates” for the delivery of inbound “small packets” (not “postal parcel traffic”) — i.e., packages of goods weighing less than 4.4 lbs. — in 2020. These rates will replace both the “terminal dues” (charges for local delivery by the destination post office) and “air conveyance dues” (charges for long distance air transportation in the destination country) provided in the current UPU Convention.
    So what? No one knows what the new self-declared rates will be since USPs refuses to make them public. However, the plausible guess is that they will be about 70% of retail domestic rates for First Class Package Service and Priority Mail. Since the self-declared rates must cover both local delivery and long distance transportation, the current guessing is that USPS will base the new rates on zone 5 domestic rates. If you do the math, this implies that self-declared rates will be about 150% (not 300%) higher than UPU terminal dues alone, or something less than this if you take into account air conveyance dues as well. Compared to UPU terminal dues, this is around $2.50 more for a package under 1 lb and around $4.25 for a 2 lb package (again, this increase covers air transportation costs as well as the local delivery costs covered by terminal dues). All is this rough, but it very likely in the ball park. How much of this USPS price increase will be passed on to foreign merchants who are mailing goods to the U.S. is anyone’s guess.
    This increase in inbound delivery rates is necessary to eliminate the preference for foreign mailers, compared to American mailers, that is built in the UPU system. This forced USPS subsidy in favor foreign mailers hurts US merchants and raises rates on domestic first class mailers by well over a half billion dollars a year.
    Although USPS rates for delivery of inbound small packets will increase to more equitable levels in 2020, rates for delivery of inbound documents, parcel post, and EMS are unlikely to change significantly — again, whether the U.S. remains in the UPU or not.

  5. Wow. As someone who buys a lot of imported merchandise, this is utter shit. I can’t wait to pay 3x the shipping price because some talentless bureaucrat fucks decided that we can’t have nice things anymore. Whoop-de-doo, I’m sure my vote counts in this situation. Kill them all.

    1. Your reading comprehension skills need some serious work if THAT is what you took from this article. Also, you should not have slept though Economics 101 Why are we subsidizing the world? Let them pay their fair share!! NATO members don’t pay their CONTRACTED SHARE of defense costs, Drug companies sell drugs WAY WAY cheaper to other countries while I am paying FIFTEEN THOUSAND DOLLARS A MONTH for ONE pill. Why are AMERICAN taxpayers subsidizing drug research for the rest of the world who pay cheap drug prices while we are @$$-raped on the cost of our meds? The list goes on and on! Our “leaders” before President Trump have allowed us to be robbed blind and stupid for DECADES. The party’s OVER for the international freeloading deadbeats. We the people are FN tired of supporting the world. Force them to start paying their fair share–it’s WAY past time. Enough is enough!

      1. Why don’t you stick with ordering stuff that is MADE IN THE USA and leave it to other people to decide whether we want to “subsidize” people of the other nations in the world by buying products not made in the u.s. Guess what, when you buy products made in other countries, you are subsidizing them. Oh wait, who cares. As for why you are paying $15,000 a month for a pill that cost a whopping 5 cents is because of pure criminal price gouging because it only cost maybe 1 cent a pill in shipping even if not subsidized considering they don’t ship pills across the world one pill at a time and even then it wouldn’t ever cost more than $5 for the pill and $25 for S&H for an enveloped package. Oh and geez, $15,000 is still awfully high. So if you are paying that much, you are a fucking idiot purchasing the pill from the hospital itself instead of running it through a normal prescription drug outlet any of the places that is normally found.

        What used to be $3-$5 to ship from China to U.S. or likewise in Europe to U.S., it is going to cost $10-$15 or more in shipping even for an item that costs only $10 to $20. This is basically to an attempt to stop people from buying their electronic gadgets and toys from Banggood and Hobby King and other items where the items ships directly from where its manufactured (China is where 3/4 of the electronic devices are manufactured).

        Trump wants to promote this MADE IN THE USA stuff in order to drive up the cost of items so that only the rich can have things like computers and smart phones and the regular person who is already pay oppressed since the 1970s will not be able to because a computer entirely made in the U.S. is going to cost $10,000 for one that cost right now…. $1,000 because the human labor cost for American workers at minimum wage is 10 times the labor wage. You wonder why our money don’t have the value it had….. here is why: going on strikes, as you get pay increased 10%, working 10-15% less work hours or days (more vacation time) and producing 20-25% less per worker. Your productivity dropped instead of inventing and implementing improvement in production levels. The other part of the problem is CIA printing money for buying up cocaine and somehow are in the business of distribution of cocaine in the U.S. like other drugs. Wow…. now that’s a real shocker but there’s a bit of truth to that but if you asked them to verify the truth, they’ll tell you “We can do that but then we will have to kill you.” The truth will set you free has a more grim meaning when it comes to the CIA.

        S&H prices are going to cost more because all it really is intended to do is disrupt the purchasing of buying a single item overseas instead of from some U.S. source…. in an attempt to force oversea companies using U.S. vendors or establish U.S. warehouses to reduce the cost because a shipping of bulk volume to a warehouse will tend to be at a better price point then individual items.

        U.S. already has the technology in place to track international shipment data. All it takes is ONE 75 MHz Pentium computer per country to provide that data. Don’t you think their whole statement is FULL OF SHIT !!!!

        I can do this with 5 Commodore 64 computers… each equipped with a 1541 Ultimate II/II+, just for U.S. alone. All I need to do is query a central database server running on a single i5 or i7 computer for each country for the information they need. The speed of the transmission of records would be faster with faster computers than the C64. They don’t need an IBM Summit which a single one of them will be able to process the entire planet’s shipping & traffic data… especially if you trim down fat data like image data and OCR text to actual ASCII text and where needed, use RLE.

        All they need to do is directly feed the requisite data to that supercomputer and U.S. can fetch what it needs for national security purposes.

        Oh right, it isn’t a big surprise that this whole scheme is concocted by the same freakin’ idiot who wants to create a new branch of the arm’s forces to fight off an intergalactic space faring extraterrestial species that are technologically 1000 or more years ahead of us….. and if not extraterrestial…… to militarily keep the 6 individuals, in space right now, in check.

        Wow….. we need a new branch of the armed forces for 6 humans.

        The former being a perceived threat, which would likely be able to one shot and destroy the planet Earth from as far away as Alpha Centauri…. long before our Space Farce can even get to them. The latter being total overkill to keep 6 astronauts from being a threat against the U.S.

        How about getting your lips off the ass of a double-ended a-hole moron because everything he says is b.s. and he’s an environmental pollution danger anytime he speaks not to mention a walking global security risk because he is too stupid to responsibly perform the duties and tasks of the Office of President of any nation let alone a world leader that is also the #1 Nuclear, Biological, and Chemical weapons super power. We have the most irresponsible person over the Executive branch of the U.S. that is ultimately in charge of the weapons that can and will kill absolutely all life on this planet if deployed.

        Wake the f— up. We need responsible leadership and leadership change. Sucking up to an a-hole that will instigate World War III. Yes…. that’s right…. 3 in Roman Numerals. The war that will end all wars but at the cost of all life. Congratulations, you killed us all if you don’t replace this sh– head with responsible leadership. We still have time to make change but the time is running low before we are at the point of no return.

      2. Not that guy but I import things from Japan myself. The shipping rates are already anywhere from $30-60+ a shipment or more. Do you think it’s fair to tack on another 300% on top of that? Of course it isn’t. I don’t agree with countries like China being able to ship things dirt cheap but if this is going to totally wreck my hobby i’m going to be PISSED. It’s one of the few things bringing me happiness and I won’t forgive anyone who takes that away. You better believe it’ll change who I vote for next election.

        I’m just hoping that because prices from US and Japan are already “fair” it won’t go up much.

      3. Conservative Tea doesn’t understand International Economics 301 (He dropped out after the first semester). Capitalism does not have borders. It is open to anyone who wants to participate in Capitalism. It is why we fought two global wars and the cold war. Open markets. You seem to believe in a Fascist form of economy. Closed economic systems, price fixing and huge subsidies to protected markets. You believe that economics is a zero sum game. Free markets will produce more development than closed ones. That is a proven fact. Should have stayed in college. The U.S . wil l not be able to send any products abroad unless they have an agreement with that country. It is yet another tariff placed on the taxpayers of this country to no benefit, go ask the real family farmers under Trump.

  6. Trump is intent on doing as much damage to our country as he can, before we throw his ass out. JT, phone home. Putin misses you.

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