Winners and losers of a US exit from the Universal Postal Union

Yesterday, the Department of State motioned to drop out of the Universal Postal Union (UPU) in an attempt to mitigate the subsidization of small parcel shipments coming into the United States from abroad – notably from China. Whether the move will put a damper on flows of international airmail moving through the US, and the winners and losers resulting from the potential exit of the 144-year-old postal treaty, will ultimately depend on how negotiations unfurl in the coming months.

Notice to leave the UPU will trigger a formal one-year withdrawal process that will proceed according to terms outlined in the UPU Constitution. In practice, the State Department will attempt to renegotiate bilateral and multilateral agreements that resolve problems with the archaic, and intensely politicized, agreement.

The point of contention has long been related to the UPU’s “terminal dues” remuneration scheme, which defines the rates destination Posts are reimbursed for processing inbound letters and parcels under 4.4 pounds. A provision put in place back in 1969 to help promote growth in developing countries gave certain countries, including China, lower remuneration requirements for international shipments.

Jumping ahead to the present, the issue is that terminal dues have not increased in parallel with China’s economic development, and in many cases, it’s cheaper to mail a parcel from China to the US than it is to send a parcel domestically within the US. According to White House figures, a one-pound package would cost around US$10 to send domestically, yet the China Post would be required to remit just $2.50 for domestic transport of a similar-sized shipment.

A spokesperson for China’s Ministry of Foreign Affairs expressed regret towards the US’ decision to withdraw from the UPU. Although a number of Scandinavian countries have expressed support of UPU renegotiation, other US allies including France and Germany have rejected the idea.

Separately from the withdrawal notice, the US is also looking to implement self-declared rates for all packages entering the country from abroad. This would enable the US Postal Service to bill international posts for the full cost of shipping, as it currently does for packages larger than 4.4 pounds.

What might all of this mean for e-commerce shipments moving out of China? Although ultimately dependent on how negotiations proceed, there may be an opportunity for global integrators, and even general cargo, to benefit. Were the US Postal Service to start charging market rates for all inbound items, services offered by the likes of FedEx and UPS could suddenly become more competitive with the Post. E-tailers, on the other hand, would likely experiment with different combinations of general cargo consolidations paired with various last-mile partnerships to reduce their shipment spend.