Postal Crisis Averted by Deal to Avoid U.S. Withdrawal from UPU

Great news everyone!  A potential crisis has been averted before the holiday season.  Post offices all over the United States will be open for business and ready to help you with your international shipping needs, from certified mail and priority mail to sending goods in medium flat rate boxes.  Despite the U.S. threat to leave the Universal Postal Union, USPS rates will be unaffected in 2019, however US postal rates may change next year.

In October 2018, the Trump administration gave notice to the Universal Postal Union, the United Nation’s postal agency that sets the pricing of international mail the United States would be withdrawing from the worldwide organization in October 2019, unless changes were made to make postal rates more equitable.  A special gathering of UPU member nations was held this week in Switzerland and an agreement was reached, satisfying the U.S. demand.  According to the compromise reached this week at the Universal Postal Union conference, the United States will be able to set its own inbound postage rates in July 2020.  This change will help facilitate more equitable postal rates globally and prevent an American pull-out from the global organization.  At only the third-ever Extraordinary Congress of the Universal Postal Union (UPU), numerous options were presented to the group of 192 member nations and the members voted unanimously to reform its fee structure.

Member countries are classified into various postal rates, depending upon their economic and postal system development. The UPU renumeration system governs the rules for compensation to the national postal operators that deliver mail from abroad. The primary issue at this rare gathering was “terminal dues”, rates that UPU member nations pay to each other to deliver mail within their respective country borders.  The current terminal dues structure was established in the 1960s.  At that time, terminal dues took into consideration a country’s current economic development standing.  A reduced rate structure was approved for countries with under-developed economies.  The intention was to help less developed countries build up their economies by aiding them in promoting trade.  At that time China, and some other nations had economies much smaller than they are today.  The 1960s terminal dues rate is a significantly subsidized rate in comparison to that of the U.S. rate.  

The Chinese economy has blossomed in the past fifty years and is now one of the largest in the world. 

The lower rate for China is significant to the American business community, which today is impacted by the rampant use of e-commerce.  The discrepancy between the Chinese and American terminal dues rates means that it can often be less expensive to send a small package from China to the United States than it would be for Americans to ship packages within the borders of the U.S.  As global e-commerce exploded these past few years, this financial imbalance has been exacerbated.  This has provided Chinese shippers with an advantage against their American counterparts.

In this week’s Extraordinary Congress of the UPU, discussions were held about various options, including the “preferred US” option.  This option would have immediately enabled the establishment of self-declared rates for reimbursement.  This option was rejected by UPU members on Tuesday.  During the three-day meeting, another option was adopted, one which establishes a rate for inbound shipments that are at a threshold of approximately 70 percent of domestic rates starting in mid-2020.  Other countries will be permitted to move forward to establish their own fees in 2021 and may choose to implement the new rate structure over a five-year period to make the transition easier for all concerned.

Adoption of this option was made in exchange for an annual $40 million contribution to the UPU’s “voluntary fund” which provides coverage for pensions and security for the 200 full-time employees of the UPU, three of whom are American.  Part of this money will be used to help advance security measures against the shipping of illegal goods, including drugs such as fentanyl.

According to the American trade advisor, Peter Navarro, currently the United States Postal Service has been subsidizing $300-$500 million, delivering imported goods, including those from China.  The new deal allows current inbound shipments to potentially be much lower that that of domestic shipments.  Because of this, some industry experts believe that the new rate sets up domestic shippers and businesses at a disadvantage.  Countries will declare their postage rates and exporting countries will need to factor in that cost.  The postage cost will then be transferred to the shipper, resulting in higher prices for shipping for end-customers.

January 2021

High volume importers will be able to impose “self-declared rates” for the delivery of foreign mail and packages

Most of the rate changes would be applicable to letters and small packages under 4.4 pounds sent internationally.  In addition, it will also capture absentee ballots, military mail, retail catalogs, trade journals and light e-commerce shipments.

Next, the USPS will need to finalize rates under the new system and other nations will follow suit.  Some consumers will see costs rise.

It is likely that American consumers will experience higher outbound costs for package shipping.  With respect to inbound packages, foreign companies will factor in that cost and may decide to charge delivery fees.  Costs will be transferred to the person sending the item so end consumers will end up paying a higher price.  Major players in the industry including Amazon, eBay, Etsy and Alibaba have voiced concerns about the impact.  The industry is concerned that the change in postal rates may result in consumers deciding to purchase more from dollar and discount stores.  There also is concern that shipping volume may increase for express carriers including FedEx, UPS, and DHL and that commercial air carriers may experience reduced cargo space required for USPS deliveries.

Countries receiving mail from the United States will also be allowed to charge reciprocal rates for the delivery of U.S. mail and shipments within their respective borders.  Additional details regarding the arrangements still need to be finalized.  If an agreement had not been reached between the 192 member nations, the United States would have disengaged from the Universal Postal Union, resulting in major changes to international shipping, including both American inbound and outbound shipments.

For more information regarding how shipping rates may increase, please continue reading here.

Conclusion

A rare meeting of the Universal Postal Union, only the fourth in the 145-year history of the organization, produced an agreement that will permit the establishment of postal rates by individual nations, making the system more equitable for developed countries and growing economies.  UPU member nations are classified into differing postal rates for international mailing based on the economic and postal system development.  This impacts national postal rates, such as USPS rates for international mailing. 

This will alleviate the imbalance between American and Chinese rates and reduce the cost advantage by shippers in China.