U.S. potential exit from Universal Postal Union could impact global parcel rates

Later this month, the Universal Postal Union (UPU) will meet in Geneva, Switzerland, and all eyes will be on whether or not the United States will remain part of the UPU, with the eventual outcome having the potential to impact global parcel rates heading into Peak Season. 

Established in 1874, the UPU is comprised of 192 member countries and serves as the primary forum for cooperation between postal service players, helping to ensure a universal network of up-to-date products and services, according to its website. The UPU sets the rules for international mail exchanges and makes recommendations to stimulate growth in mail, parcel and financial services volumes and improve quality of service for customers.

As previously reported, in October 2018, the White House said that a report President Trump received on August 23, 2018 ahead of the Presidential Memorandum on “Modernizing the Monetary Reimbursement Model for the Delivery of Goods Through the International Postal System and Enhancing the Security and Safety of International Mail,” which explained that sufficient progress has not been made on reforming terms of the Acts of the Universal Postal Union (UPU) in line with the policies of the United States outlined in the Memorandum.    

The statement went on to say that President Trump signed off on the Department of State’s recommendation to adopt self-declared rates for terminal dues by January 1, 2020, adding that the Department of State will also file notice that the U.S. will withdraw from the UPU and begin a one-year withdrawal process at that time. Over this one-year period, the Department of State would seek to negotiate bilateral and multilateral agreements that resolve the problems discussed in the Presidential Memorandum, and if negotiations are successful, the Administration is prepared to rescind the notice of withdrawal and remain in the UPU, the statement noted.

A June presentation by Giselle Valera, Executive Director of Continuity of Global Operations for the United States Postal Service (USPS), noted that the USPS “fully supports the objectives of the Administration to secure a more balanced and fair remuneration system for small packets containing goods.” As for the Unites States’ reason to withdraw from the UPU, Valera explained that the UPU rate system for small packets creates economic distortions, which allow foreign producers to ship goods to U.S. consumers at a lower price than U.S. postage rates.

The presentation also indicated that the USPS is making the necessary preparations for an exit, saying that if the economic disruptions resulting from the terminal dues system can be eliminated, then the USPS will remain in the UPU. What’s more, the presentation said that USPS will remain in the international mailing business, regardless of whether or not it is a UPU member.

“USPS intends to keep out major international products and services for export,” the presentation noted, adding “USPS expects some changes to geographic coverage may result from exiting. Rate changes are likely to follow the current, normal annual cycle schedule that our customers expect, unless costs increase significantly. USPS is seeking to establish agreements with foreign posts to continue exchanging mail if the U.S. exits; USPS also intends to use commercial logistics partners for delivery abroad.”

An analysis from iDrive Logistics said that with the U.S. set to exit the UPU, it will be ridding themselves of scores of negotiated service agreements with PC postage providers on 9/30/19, affecting negotiated international rates. 

“This is due to the United States government’s plan to withdraw from the Universal Postal Union,” said iDrive Logistics. “This has significant implications for postage providers, international shippers, importers, and domestic small businesses who compete with (particularly) Chinese manufacturers.  This is due to the UPU setting variable rate structures between countries way back in 1969 and pegging them (in essence) to trade imbalance.” 

In an example, iDrive Logistics said that shipping a package under 4.4 pounds from China to the United States costs less than shipping the same package domestically from New York to, say, Detroit.  It said that this is solely due to this 1969 agreement, and if it ends for the United States and others (192 member countries, this will significantly disrupt international e-commerce.

What’s more, iDrive Logistics explained that there are three proposals for the U.S. to remain in the UPU, with one viewed as acceptable by the U.S. government, which would allow the U.S. to control and declare separate rates from other UPU countries to be implemented in 2020. And if a resolution is not reached, the U.S. would exit the UPU on October 17.

As for the potential effects of the U.S. leaving the UPU, iDrive Logistics cited:

• a reduction in Chinese imports as a result of higher costs;
• an improvement of USPS finances due to effective subsidy reduction/elimination;
• potential volume shifts to private carriers; and
• worldwide USPS international shipment pricing changes if self-declared “terminal dues” (subsidy rates) are permitted

Gordon Glazer, senior consultant for San Diego-based parcel consultancy Shipware LLC, said that if the U.S. exits the UPU, it is likely that the international consolidator industry is going to especially hit hard, with the largest players being  DHL e-Commerce International, RR Donnelley Logistics, APC Logistics, and Globegistics/Ascendia. 

“These companies offer a variety of options for International e-Commerce, with many of them leveraging USPS options including e-Packet and IPA alternatives to the other mainstream USPS options like First Class Package International Service, Priority Mail International and Priority Mail Express International,” he said. “Unlike the USPS, the International Consolidators also offer pre-paid Duties and Taxes, to mitigate the shock and high return rate for items that arrive COD for Duties and Taxes. They also have other options for increasing the detail on tracking and final delivery. The USPS and the PRC have scheduled all INTL Consolidator contracts to expire the end of September.  This means any new programs and rates that come out of the Exigent UPU congress can be rolled out at the same time.”

Jerry Hempstead, president of Hempstead Consulting, explained that the methodology for calculating postage has become extremely imbalanced, in particular, in the age of e-commerce, putting sellers in the USA at an extreme disadvantage.

“U.S. companies pay more than twice as much to mail an item from a U.S. address to another US address than does a manufacturer in China or Russia to mail the exact same item to a US customer,” he said. “So why buy American?

When the U.S. announced its intention to leave the UPU in October 2018, he said that made it clear to the other UPU country members that the U.S. was not going to stand idly by and remain disadvantaged. 

“Participating countries don’t want to pay more to the USA for delivery, nor do they want American retailers to enjoy lower prices for mail and packages moving into their countries,” he said. “After all they have had a sweet deal for a long time. In particular the Chinese. Their deal made sense when they were a third world country and Nixon opened up trade. But the one constant in life is that ‘things change.’ So we need to send stuff overseas, and foreign sellers want access to American purchasers. The question is at what price. This is all going to work itself out, and my take is that brinkmanship will come into play. We may even have a period of uncertainty where we don’t know if foreign post offices will deliver our stuff or if they do, at what price. But just like the trade war and the imposition of tariffs the USA may have to exercise some muscle to level the playing field. The USA is like 80% of the world’s purchasing power. Foreign companies need us more than we need them.”