Package from China: Who pays the freight?

Running a small business which ships low weight merchandise, say 10 T-shirts or small hardware from China to the United States, made logistics cost easy. The U.S. provided for a large shipping discount of 40% to 70%.

Such generosity came from U.S. membership in the Universal Postal Union (UPU). Founded in 1874, the UPU is the international postal organization in Switzerland, committed to a smoothly running international postal system. 

In 1969, the UPU’s developed country members implemented discounts for poor nations when shipping small parcels. China then was isolated with few outward shipments. In consequence, consumers in Washington, the shipping cost of a face cream was more affordable from China than from Los Angeles. Today, however, China delivers more than one billion small packages a year to the U.S. and the special discount treatment continued.

Then there came change. The Trump administration announced U.S. withdrawal from the UPU as of October 17, 2018. The objective was to arrive at competitive and fair global shipping rates. This move showed the Trump administration’s willingness to leave quit multilateral agreements judged unfavorable to U.S. interests. Although the UPU withdrawal process takes one year, U.S. deep discounts for Chinese packages ended immediately.

Now China Post has introduced a new Express Mail Service. It raised the price of packages to the U.S. from $ 30 to $34 for the first 0.5kilogram shipped. Who pays, who benefits?

The United States Postal Service (USPS) can use higher payments from China. But transshipments through other nations and competition will lead to reduced shipping volume.

The price advantage of many Chinese e-commerce vendors declines. The higher cost of shipping reduces this advantage even further. Most endangered are eBay type, international vendors. Sellers who compete on price alone face higher cost and more competition. To survive it will become a new practice to find alternatives for product and service delivery both for processes as well as markets.

Adjusting the rules for new conditions makes sense. Few parameters conditions have remained static for 144 years. The UPU should get ready for a significant restructuring. What applies to China, the U.S., and other relationships, applies to other nations as well. One should expect a further exploration of antiquated subsidies which have been bypassed by new market conditions. Such tracking can identify new opportunities for change and innovation.

De-subsidization will create market alternatives based on new forms of delivery. Such adjustments will be cost analyzed and competitively compared to achieve higher efficiency. Legislators and internationally active framers of distance trade, such as the World Bank and the World Trade Organization can use this opportunity to pinpoint, develop and scale up models which reflect transport cost sensitive sectors and practices. In addition to greater accuracy and fairness, the President’s initiative for higher prices can lead to higher capabilities, more efficiencies, and better services. A good start!

Professor Michael Czinkota teaches international business and trade at Georgetown University and the University of Kent. His latest book is "In Search For The Soul Of International Business" (Businessexpertpress.com) 2018

© Japan Today