Editor’s note: The US should withdraw from the Universal Postal Union because the agreement forces us to subsidize shipping costs for Chinese imports so mail delivery is cheaper from Shanghai to Kansas City than from Georgia to Kansas City.
An obscure, century-old global pact is at risk of losing its most important signatory—a shift that could increase the prices consumers pay for holiday shipping, yet prove a bonanza for parcel shippers that compete with the U.S. Postal Service.
[Al Root | September 23, 2019 | Barron’s]
The mail isn’t always sexy. But the debate over the UPU and how it sets international mail rates has roped in President Donald Trump, China, U.S. manufacturers, Amazon.com (ticker: AMZN), FedEx (FDX) and even Stamps.com (STMP).
The UPU, founded in 1874, has 192 member countries that make sure mail gets picked up, sorted, and delivered across borders. That might not sound like a recipe for drama.
But the president said in August 2018 that the U.S. will leave the UPU effective Oct. 1 if rates paid by foreign countries for delivering small packages aren’t raised. The move is consistent with other parts of the president’s trade policy, intended to win better terms for U.S. businesses.
The U.S. Postal Service loses tens of millions of dollars a year delivering packages from overseas because rates, set by the UPU, don’t fully cover costs.
“The Postal Service fully supports the objectives of the administration to secure a more balanced and fair remuneration system for small packets containing goods,” said a USPS spokesperson. “No matter the outcome with the UPU, the Postal Service is committed to remaining in the international mailing business.”
The post office supports the president’s action, but the National Association of Letter Carriers, or NALC, disagrees. Chief of staff Jim Sauber says negotiating postal rates bilaterally with 191 other countries would be nearly impossible. He believes the U.S. can stay in the union while negotiating changes.
The heart of America’s problem with the UPU is China. Still designated as a developing nation, China receives favorable rates for international shipping. The volume of goods shipped from China has grown as its economy has exploded, and that cost advantage has become a significant competitive issue for U.S. small business.
China’s mail service sends Canada Post “a warehouse five stories high of small packets” ordered from Alibaba Group Holding (BABA), said one Canadian postal worker. “They send three times that per month to the U.S.”
Shipping costs have to be low for it to make business sense to send small, low-value items to the U.S. from China. That is one reason the National Association of Manufacturers supports leaving the UPU. NAM CEO Jay Timmons welcomed Trump’s announcement last year.
Those benefiting from lower shipping costs feel differently. The International Mailers Advisory Group—an organization that includes e-commerce companies such as Amazon—wants the U.S. to stick with the union. Amazon didn’t respond to a request for comment.
Sauber acknowledges the China problem, but believes the solution is to negotiate with China on a bilateral basis. China might deserve to pay higher rates, but other countries have legitimate claim to subsidies, he said.
“We don’t charge U.S. rural customers more for mail,” he said “It’s a network.”
What’s at stake for companies is the $2.7 billion in international sales generated by the Postal Service. United Parcel Service (UPS) and FedEx would be happy to handle more international shipments, but commercial rates are higher than what the post office charges. They could win business if postal rates rise.
UPS said it was pleased with the administration’s effort. FedEx said it would wait until after a special UPU meeting, scheduled to run from Monday to Wednesday, before making a statement.
The UPU congress—only the third special meeting held in the union’s 145-year history—will vote on whether to let Washington declare its own fees. The U.S. wants to be allowed to name its own rates for inbound foreign mail, setting fees that are more in line with the Postal Service’s costs.
“There is one vote per country—all 192 of them,” said Shea Felix, director of GlobalPost for Stamps.com. “It will be very hard to get everyone on board with U.S. demands.”
He sees a real possibility the U.S. will leave the union on Oct. 1 if the vote goes against the Americans. “Every single e-commerce seller will have to adjust strategy and small shippers [are] at risk of higher rates and limited access to international markets,” Felix said.
Stamps.com is working with its 700,000 shipping customers to develop alternatives to the postal system and keep merchandise moving around the globe. He declined to discuss the cost, but said there are price advantages in some areas.
Other logistics providers are getting ready for postal Armageddon, too. The supply-chain company iDrivelogistics is warning its customers and arranging alternatives using FedEx and DHL.
“This has significant implications for postage providers, FedEx, UPS, DHL, international shippers, importers, and domestic small businesses who compete with Chinese manufacturers,” said iDrivelogistics strategist Matt White. “It’s a big deal.”
It’s also an obscure one. And what’s going to happen is anyone’s guess.
An exit could mean fewer imports from China, or even chaos in e-commerce for the holiday season. Alternatively, if the UPU accedes to the U.S.’s demands, the Postal Service could be financially stronger, and there would be fewer market-distorting subsidies in the international logistics business.
This story may never become a miniseries, but investors should still tune in.
Read the original article here.
