GENEVA— In an Extraordinary Congress, the Universal Postal Union has agreed to a proposal that will give the U.S. the right to raise shipping rates on international packages under 4.4 pounds coming into the country, and end a break that gave businesses outside the U.S. a big advantage over domestic companies in moving small-item packages.
The extraordinary congress followed a U.S. threat to withdraw from the UPU if it refused to change regulations that favored international over domestic shippers and helped counterfeit and even illegal goods enter the country.
As reported in the March 5, 2018, issue of HOMEWORLD BUSINESS®, the rate international exporters pay for delivery of small packages using the U.S. Postal Service in the American leg of their journey, called terminal dues, has been substantially less than that paid by domestic shippers of the same-weight goods over the similar and even lesser distances within the U.S.
Next year, the postal service can begin setting new rates for inbound small-packages to address the difference, the UPU resolved.
“USPS can raise delivery rates for inbound postal goods to about 70% domestic rates on July 1,” said Jim Campbell, a consultant and attorney who has worked with shipping companies and written extensively about terminal dues and the UPU.
The practical effect of the change is that foreign shippers will pay substantially the same rates as those in the U.S. for postal delivery to American consumers. If necessary, the rate can escalate to 80% in the coming years.
Other countries can raise rates for domestic delivery of items flowing into their postal systems over five years beginning in 2021.
The U.S. is the world’s prime target for international package shipments for items under 4.4 pounds, or two kilos, and the volume has increased substantively since e-commerce began to take off 20 years ago. The result has been not only competitive unfairness, many U.S. home furnishings and housewares producers maintain, but also easy access to the American market for counterfeit small goods largely based in China. They have leveraged the better rates to undersell the domestic makers of the legitimate original merchandise, profiting handsomely at the same time.
Jayme Smaldone, CEO of Mighty Mug, kicked off a process that led to the UPU rule change when he penned an op/ed piece for the Wall Street Journal detailing the problem and the effect it had on his business. As he brought attention to the rate disparity, which exists under regulations originally developed to facilitate the transmission of letters and documents, the International Housewares Association and other industry organizations, as well as the U.S. Commerce Department and shipping companies such as the United Parcel Service, began to confront the issue, which was taken up by U.S. Representative Kenny Marchant, Senator Bill Cassidy and the Trump administration.
Craig Brightup, IHA Washington representative, said the version of the regulation the U.S. delegation to the UPU Congress got adopted was the best of several that emerged at the Extraordinary Congress held in Geneva. He said the business backers encouraged the delegation to work for the best of the packages, and it won approval.
“This is a very positive development. Kudos to Jayme Smaldone for doing the Wall Street Journal op/ed,” Brightup said. He added that the decision represented a “big win” for the IHA as well, considering the work the organization put in and the benefits that will accrue to its members.
In considering the UPU decision, Smaldone told HomeWorld Business, “I think it’s great. I think it’s about as good a deal as they could get at the negotiating table.”
Smaldone said that leveling the playing field in terms of shipping was satisfying, but he noted that the biggest win may ultimately be shutting off a conduit for international product counterfeiting.
“The deal reached in Geneva is a massive win for brands as well as for companies or inventors with IP,” he said, or intellectual property. “The distortions caused by the terminal dues system allowed for Chinese shipments traveling from 8,000 miles away to arrive at U.S. doorsteps for a fraction of what domestic shippers pay. The new rates will bring foreign shippers on par, or very close to, what we pay, thus reducing any competitive advantage they may have had. I anticipate a massive dropoff in counterfeit goods, especially goods that have a retail of $50 or under.”
Smaldone added that the new rates change the calculations overseas counterfeiters use to determine if and where they will move fake goods.
“I am confident that these new rates will have a profound effect on reducing counterfeits, while also making domestic shippers more competitive. It’s a pretty simple concept: Chinese shippers, getting near-free shipping rates, could offer free shipping on everything. Now they will have to charge the consumer significant shipping or raise their retails by 25% to 40% to cover the cost of shipping,” he said.
The only potential concern now would be the Chinese government subsidizing shipments of small goods to the U.S. Many observers believe it has been doing so in a limited way, but Beijing would have to assume a big additional commitment to swing the advantage back to the Chinese manufacturers shipping small packages to the U.S.
“While not impossible, I find it a pretty unrealistic idea that the Chinese government is going to apply upwards of $500 million to ship goods into the U.S., and potentially billions when you factor in the new rates around the world, simply so that they can continue to ship cheap goods here,” Smaldone said. “It doesn’t seem financially logical or sustainable. China has taken advantage of this odd subsidy, as any country would have, but all along they must have known this was a pretty amazing deal for them that wouldn’t last forever. Now that it’s over, my guess is that they are saying ‘that was a great run’ and will move on to find other ways to compete.”
Smaldone had his own kudos to the administration in Washington for pushing the UPU regulations change.
“To get a vote through the UPU, which is a true democracy where each country has one vote, regardless of their economic size, takes a mandate,” he said. “Getting terminal dues reform passed is confirmation that the system was incredibly broken, and everyone knew it.”