The US threat to withdraw from the Universal Postal Union (UPU) agreement on postal rates by 2020 has sent a wake-up call through the 192 member, 145-year old United Nations postal body and indeed beyond, into the e-commerce realm.
Typical of the current US regime’s divisive posture, the announcement drew very polarised praise and condemnation.
To date, the Trump Administration’s proposal – arguably caught up in Trump’s Twitterific campaign against what he sees as unfair trade practices benefiting China – has garnered only about 15 per cent, or 30 of the forum’s 192 members, in support.
In a nutshell what the US is proposing is that it will withdraw from the UPU unless countries are allowed to self-declare rates on international packages weighing up to 2.0 kg.
So what is this all about? The UPU is made up of postal representatives from 192 countries. Every four years, they set ‘terminal dues’, which are the fees that countries pay each other for the international delivery of letters and small packages.
“The terminal dues system’s goals were to provide posts with some compensation for their delivery of inbound international mail and to support a single worldwide postal network. As a result, it funded improvements to the postal infrastructure in developing countries,” according to the US Postal Service (USPS) Office of Inspector General.
What this means in practice is: Let’s say I were to mail a parcel from Singapore to the US through the postal system. I would drop off the package, fill out the declaration, pay the postage and off it would go (in mail bags aboard aircraft). Once it arrives in the US, the USPS would then be responsible for delivering my package with no further charge.
Target and transition
Therein lies the rub. The UPU classifies countries in a two-tier system, in which industrialised countries are ‘target’ countries and developing countries are ‘transition’ countries. Currently, there are 41 target countries, 36 ‘new’ target countries, and 144 transition countries.
But even as recently as the end of 2015, developed countries such as China and Brazil were still considered ‘transition’ countries by the UPU. That means the USPS, as similarly other developed countries are, still effectively still subsidising these postal services that probably don’t really have the need for subsidies anymore. And to make matters worse, these ‘terminal dues’ are not sufficient to cover the costs of final mile delivery. Bearing all this in mind, the complaint appears quite valid.
This issue probably would have not surfaced for many years had it not been for the meteoric rise of e-commerce. Absolutely things changed with intensive lobbying by FedEx, UPS and probably also Amazon, who highlighted that nearly 60 per cent of light-weight parcels from China, according to estimates, contain low-cost e-commerce products from Chinese companies and e-commerce platforms.
This makes it harder for not only small businesses in the US to compete with Chinese companies – because astoundingly they can ship from China to end-consumer, cheaper than a US company shipping New York to Los Angeles, for instance – but for Amazon as well, as it both brings in goods from China via its supply chain and also competes with players like Alibaba.
According to a recent New York Times report, the price of shipping a 2.0 kg package from China to the US is about USD 5.0. This compares to US companies who can expect to pay 2-4 times that figure to ship New York-Los Angeles. And if these companies ship to China from the US, they will pay significantly more.
Implications of a change
Trump’s dramatic warning that the US will withdraw from the UPU agreement, of course sparked negotiations on alternatives, which led to the alternative presented by the US to allow countries to self-declare the terminal dues.
The rise in cost associated with air mail will certainly have some spin-off effects. FedEx and UPS will clearly see a boost to their bottom line, while at the same time the USPS probably will see a decline, but this will be offset by savings on last mile losses they currently are plauged by.
Hong Kong may well come out of this as the key beneficiary should mail become less competitive, with companies like Hong Kong Air Cargo Terminals Limited (Hactl) who run feeder services from mainland China to its terminal handling operation in Hong Kong potentially set to see higher handling volumes.
And of course once the Cainiao e-commerce logistics facility is up and running it in Hong Kong, it will be a whole new story, again.
But, for anybody thinking airmail out of Hong Kong could be an alternative, think again. Hong Kong is considered a ‘target’ country, meaning it doesn’t benefit from subsidised rates as a developed economy.
And so, while it’s near impossible to logically argue against the US’ desire to rectify this clear imbalance, really the problem is in the ‘how’, not the ‘why’.
This unilateral ultimatum – so typical of the US in this current Trump environment – is not only 100 per cent in opposition to the multilateral intent of the UPU, it would also open a global can of worms that would threaten the very foundation of universal global mail service.
A much simpler solution – that would leave an otherwise relatively well-functioning and important global multilateral institution intact – would be to fine-tune the terminal dues system. In particular, how countries are assessed on the basis of their economic development. And with the fast pace of change in today’s world, the UPU might want to consider more frequent updates of its assessments.
But then again, one suspects that the US, under Mr Trump at least, has no real interest in upholding multilateralism and the UPU is simply a low-hanging fruit that when combined with his China trade fixation, makes this a no-brainer for the Prez.