The UPU’s Extraordinary Congress: Much Ado about Terminal Dues

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Last week the Universal Postal Union held its Second Extraordinary Congress in Addis Ababa, Ethiopia.  The Congress addressed a wide range of issues, but one of them is likely to get more attention than others: “terminal dues,” the fees that one country’s postal system pays to another for the service of delivering its international mail.

The dues have long been a source of debate because they often do not cover the costs incurred for delivering the foreign mail, so one country’s post ends up subsidizing another’s.  The imbalances also cause distortions in the marketplace. An online American merchant, for example, can discover that it’s sometimes cheaper to have a product sent from China to the U.S. than within the U.S.  FedEx and UPS also argue that the system’s artificially low rates make it difficult for them to compete in the rapidly growing small-packet market.

A couple of weeks before the Congress convened, the Trump administration — apparently in response to long-standing complaints from online merchants, the U.S. Chamber of Commerce, and private carriers — issued a Presidential Memorandum directing the U.S. delegation to the Congress to “make clear that UPU rates of postal reimbursement are unfair to United States merchants, mailers, and businesses.”

The Memo also said that “the United States will consider taking any appropriate actions to ensure that rates for the delivery of inbound foreign packages” satisfy various criteria, including covering delivery costs.  What those actions might be went unstated in the Memo, but it seemed clear that the U.S. was threatening to defy the UPU and adopt its own inbound rates.

The U.S. would be the only country in the world to do so, but it could trigger a chain reaction in which other countries started doing the same thing.  International shipping costs could go up everywhere, which would dampen cross-border e-commerce and inhibit the growth of developing countries.

After the Congress ended, the UPU issued a press release about all that had been accomplished, including approval of “a compromise proposal” on the Integrated Remuneration Plan (IRP), which includes modernizing and rationalizing the terminal dues system.

The press release doesn’t go into details about the compromise, but it says this: “On the topic of remuneration, which has been the subject of much discussion and debate in recent months, there was an agreement to use the IRP as a roadmap for a sound proposal on an Integrated Remuneration System to be presented at the 2020 Congress.”

It appears, then, that the Congress decided not to make any major changes in the terminal dues system at this time — it made some significant reforms at the 2016  Congress —  and it will return to the issue again at its next regular Congress in 2020.

Whether or not that is good enough for the Trump administration remains to be seen. It’s possible that we’re headed for a tit-for-tat war on parcel prices similar to the trade war, albeit at a much smaller scale.  

 

UPU milestones

The UPU got started in 1874, when the U.S. and 20 other countries gathered in Bern, Switzerland, to form a coalition focused on making the mail sent among them flow more easily.  They implemented a simple fix to the problem: “all signatory nations would deliver one another’s letter mail from their borders to their final inland destination for free.” (For more of the history, see this post by David Z. Morris and the UPU Fact Sheet.)

Five years later, the coalition renamed itself the Universal Postal Union.  When the United Nations was created after WWII, the UPU became a part of the U.N.  It now has 192 members — nearly every country in the world — and it is one of the oldest international organizations in existence.

By 1900, it was becoming clear that there was a problem with delivering international mail for free.  Each country wasn’t sending and receiving the same amount of mail.  Some countries, like Italy, were delivering much more inbound mail than they were sending out, so they were losing money.  In 1969, the UPU implemented the terminal dues system, wherein countries would reimburse each other for the international mail they delivered.

For at least the past two decades, the posts of some industrialized countries, along with their customers, have complained that these dues are insufficient to cover costs.

This problem has been exacerbated by the rapid growth of ecommerce.  Now countries like China are taking advantage of the terminal dues system to send millions of small packets containing goods like electronic devices all over the world at artificially low postal rates.

The UPU is well aware of the issue, and at the 2016 Istanbul Congress, it made several significant reforms, including separate — and higher — terminal dues for small packets containing goods.

These changes went into effect on January 1, 2018, so it’s early to see what the full impacts will be.  The Postal Service says that it will start posting positive net revenues on inbound terminal dues mail as a result of these changes, particularly on the mail from those countries that send the most mail to the U.S.  Critics and regulators, however, have said that the rate hike on the packets will not have a significant impact on the inequities of terminal dues, so more needs to be done.

 

The ideal of universal postal service

Normally, the UPU meets for a congress every four years, but at the last meeting, in 2016 in Istanbul, a consensus could not be reached on many important issues (as explained in this UPU press release).  The UPU therefore decided to hold an Extraordinary Congress to address issues that couldn’t wait four more years.  The first, and until now, only, Extraordinary Congress had taken place in 1900, so this Congress would have been noteworthy even without a Presidential Memo to call attention to the event.

UPU monument in Bern, Switzerland, showing five continents joined together to transmit messages around the globe. (Photo: Baikonur/Wikimedia Commons

Meetings of the Congress provide an opportunity for posts around the world to work together on a host of issues, like how to sustain and improve the world’s postal systems through mutual cooperation and how to use the postal sector to drive socio-economic development.

While critics complain that the terminal dues system mandates subsidies and distorts markets, there are many justifications for having wealthier countries subsidize developing countries through postal tariffs.  In some respects, the situation is similar to the way the Postal Service’s urban customers subsidize rural customers.  Rural delivery and rural post offices may not be profitable, but they benefit everyone.  In both cases, the “unfairness” of the subsidies can be justified by pointing to a greater good: universal postal service.

In a footnote to comments to the PRC about the terminal dues, the Postal Service articulated some of the benefits of the UPU’s system.  The explanation deserved more than a footnote, and it’s worth quoting in full.

“The system helps foster worldwide social interaction and communication and helps build financial inclusion among the community of nations. Participation in a global system can help advance the development of nations with less history of investment and less scale upon which to build postal networks. At the same time, all nations can benefit not only from the increased efficiency in global operations, but also from the gains of the less developed nations themselves, such as in capacity for better collection and exchange of electronic customs data and for better mail screening and security.”

 

Winners and losers

The UPU system causes various kinds of distortions in the marketplace, including unfair competition between national posts and private carriers (at least according to the private carriers), inflation and deflation of consumer demands, and financial transfers between postal operators.  (A “transfer” is said to occur when the terminal dues rates are below what a postal operator charges domestic customers.)  According to a study done by Copenhagen Economics for the PRC, in 2018 these financial transfers between operators will total $3.1 billion worldwide.

The terminal dues system has clearly created winners and losers.  For some, it’s a boon, and for others, the bane of existence.  (The following winner-and-loser analysis is examined in more detail in the GAO report on terminal dues.)

American consumers who buy things online from Asia save money on low cost inbound shipments.  Ecommerce businesses in the U.S. that ship a lot of small packets abroad enjoy lower postage than they would pay if charged the going rate of countries where postal rates are very high.

On the other hand, when it’s cheaper to ship from China to the U.S. than within the U.S. itself, many American businesses find themselves at a disadvantage.  The private carriers, UPS and FedEx, don’t like the UPU system because it makes it difficult to compete in the rapidly growing small parcel business.  If the dues were raised or the system replaced, they’d be in a better position to capture more of the small packet business themselves.

The solutions, however, can create new problems and new inequities.  If the UPU were to raise terminal dues significantly, rather than gradually (as it does annually), costs would go up everywhere.  The prices the Postal Service charges on outbound mail would also go up.  Higher prices might cause lower volumes, both to and from the U.S. and around the rest of the world, offsetting the gains in revenue per piece.  Other countries might suffer more, since they may depend more on their postal systems for economic development.

 

Apples and oranges

In the summer of 2015, the House Subcommittee on Government Operations held a hearing called “Fair Competition in International Shipping” about the terminal dues issue.  At the hearing, Paul Misener, Vice President for Global Public Policy at Amazon, gave testimony about how unfair and irrational the system is.  Here’s the key passage from Misener’s testimony:

“Amazingly, when combined with extremely low bulk shipping rates from China to U.S. transfer points, shipments from China to points throughout the United States are often cheaper than shipments entirely within the United States. The resulting competitive disadvantage to American businesses of all sizes is as unfair as it is illogical. For example, at today’s rates, shipping a 100g parcel to Fairfax, VA would cost a small business in Marion, NC at least $1.94, at a distance of 340 miles, but would cost a company in Shanghai only $1.12, at a distance of over 7000 miles. Similarly, shipping a one pound parcel to New York City would cost nearly six dollars from Greenville, SC, but only $3.66 from Beijing.”

Many online merchants have identified similar anomalies when they look at shipping prices on websites like Amazon and Alibaba.  One oft-cited case involves Mighty Mug, a knock-resistant coffee mug.  In a 2018 Wall Street Journal article, the company’s CEO James Smaldone explained that he had to pay the Postal Service $6.30 to ship a Mighty Mug within the U.S., while a fake Mighty Mug could be purchased online for $5.69, with free shipping all the way from China.

Amazon’s testimony at the Congressional hearing led to a slew of news reports about the unfairness of the terminal dues rates.  Not all the reports were fair and accurate.  As a representative of the State Department told a meeting of the Advisory Committee on International Postal and Delivery Services, which works with the UPU on behalf of the U.S., these claims were “doing more to inflame than to inform debate.”

Here’s a table showing the current rates for small packets from China compared to the rates for domestic U.S. First Class and Priority Mail.  The numbers come from this USPS rate page and this rate calculator page for China Post.

There are several rates for sending a small packet from China to the U.S. (including an expensive airmail option), but the chart focuses on two: The China Post Small Packet rate is the least expensive rate from China (surface mail), and ePackets are an exclusive shipping service for merchants on eBay, AliExpress, etc.  The table also provides the retail and commercial rates for First Class Mail (for 13 ounces or less) and Priority (for more than 13 ounces) shipped within the U.S.

As the table shows, the China Post rate is sometimes less than the USPS domestic rate, sometimes more, depending on the weight.  The table doesn’t show, however, a whole other range of factors that affect rates, like tracking features, mail preparation requirements, negotiated discounts, and delivery speed.

For example, the Small Packet rate quoted here is for surface transportation, not airmail, so it can take a long time, like 20 to 90 days. The ePackets take 7 to 30 days for delivery.  The domestic delivery standards for domestic First Class Mail within the U.S. are 2 to 5 days.

Given all the factors and services that go into determining postal rates, one must be skeptical about comparing rates, as the Postal Service has explained in comments to the PRC.  It’s almost impossible to do an apples-to-apples comparison.

Plus, as Mr. Misener noted, his examples involved the heavily discounted rates that large merchants make with their postal systems, not the published retail and commercial rates used in our table.  The U.S. Postal Service obviously has no way of controlling these foreign rates.  Even if the terminal dues were increased enough to cover the Postal Service’s delivery costs, merchants in countries like China could still find ways to make it very cheap to ship to the U.S.

 

Overview of International Mail

The UPU divides letter mail into three formats.  The P format (for petite) consists of regular sized letters.  The G format (for grand) consists of oversized letters, magazines, catalogs, etc., or what are generally called flats.  The E format (from the French encombrant, “cumbersome” or “bulky”) consists of larger “letters” — actually packets — weighing up to 2 kilos (4.4 pounds) and containing documents and/or goods.

There are basically two types of E-format packets, regular single-piece small packets and the ePackets.  They look the same, but regular customers send small packets at terminal dues rates, while ePackets, which were introduced in 2010, are available to commercial mailers only in countries where the Postal Service has negotiated a deal.  The rates on ePackets are set by these negotiations, and they include tracking and delivery confirmation.  (While the “e” is often assumed to refer to e-commerce, it probably refers to the UPU’s E-format “bulky” packet.)

Source: International Mail: Information on Changes and Alternatives to the Terminal Dues System (GAO, October 2017)

As part of the annual compliance determination review conducted by the PRC, the Postal Service shares a detailed International Cost & Revenue Analysis (ICRA) that contains information about how many pieces were received from each country and the costs and revenues associated with each.  This report, however, is not shared with the public, and the secrecy has been the subject of much debate at the PRC.

During last the 2017 Annual Compliance Review, the U.S. Chamber of Commerce, UPS, Congressman Kenny Marchant (R-TX), James Smaldone (the founder of Mighty Mug), and several other organizations argued that ICRA should be made public.  The Commission agreed, and it issued an order (actually, a couple of them) directing the Postal Service to make the ICRA public, but the Postal Service refused to oblige and filed a stay in federal court.

Eventually the Commission ruled that the matter was moot because the comment period on the compliance review had expired.  The Postal Service had simply run out the clock.  The story is to be continued in PRC Docket PI2018-1, Public Inquiry on the Classification of the Inbound Letter Post Product.

(By the way, it may be worth noting in this context that the minutes of the State Department’s Advisory Committee on International Postal and Delivery Services, which, until 2015, were published regularly on the State Department website here, are no longer being made public.  My efforts to get the minutes have gone nowhere. The relevant individual at the State Department has not responded to emails, and a FOIA request was classified as “complex,” meaning it will take a year to get a response.)

While the International CRA has not yet been made public, one can examine the public version of the Postal Service’s Cost & Revenue Analysis report, which contains several line items for international mail.  Here’s a table with the lines for international mail from the public version of the CRA for FY 2017.

Overall, in 2017, the Postal Service handled over a billion pieces of international mail.  That’s obviously a lot of mail, but this was just 0.67 percent of total volumes of 150 billion pieces.

About 660 million pieces of this international mail were inbound: 400 million single-piece First Class, 243 million pieces covered by negotiated service agreements (NSAs) with foreign posts, and about 15 million pieces included in the Competitive Product category.  The remaining 340 million pieces were outbound.

Here’s a chart showing the share of volumes for each category.

Chart by Visualizer

 

International mail as a whole brought in about $2.7 billion in revenue — about 3.9 percent of total USPS revenues.  Overall, international mail is very profitable, with a cost coverage of nearly 140 percent, meaning that this mail covers its attributable costs (those caused by the product itself) and also produces $755 million in “profit,” i.e., contribution to institutional costs (aka common or fixed costs) .  The competitive mail has a very good cost coverage, and the market-dominant mail, inbound and outbound together, more than breaks even.  The inbound mail, if you include the NSA volumes, almost breaks even as well.

The losses occur with inbound single-piece mail, which failed to cover attributable costs by $170 million in 2017.  These are the losses caused by terminal dues.

Given that there were about 400 million pieces of inbound single-piece mail, and at least half of the volume probably consisted of regular size letters and almost half consisted of small packets, one can roughly estimate that the Postal Service lost this $170 million on approximately that many packets — in other words, about $1 per packet.  We’ll get into the details on this in a moment, but first, let’s look at the NSA mail.

 

NSAs and ePackets

While regular single-piece inbound letter mail is subject to the terminal dues, the Postal Service can, as an alternative, enter into bilateral agreements with foreign postal systems.  The agreements provide more flexibility about pricing and services.  For example, the foreign postal operator may do some worksharing (e.g., labeling and sorting), and thereby get a discounted rate, and the Postal Service can offer additional services, like tracking, for which there’s a higher rate than the base terminal dues.

According to the PRC’s Annual Compliance Determination, there were four negotiated service agreements for inbound mail in 2017.  The big one appears to be called Inbound Market Dominant Multi-Service Agreements with Foreign Postal Operators 1.  It’s comprised of nine bilateral agreements with six foreign postal operators: Australia Post, Canada Post, China Post, Hongkong Post, Korea Post, and Royal PostNL.  The ACDR says that this NSA is covering its attributable costs. It may be doing better than that.

The Cost & Revenue Analysis just has one line on the inbound NSA mail.  Here’s a table showing the data since 2010.

Here’s a chart showing the revenues and costs from this table.

Chart by Visualizer

 

The public version of the CRA does not indicate how much of the NSA volume and revenue was due to ePackets, but there have been a couple of OIG reports about their history.  According to a OIG report, in 2016, there were 150 million ePackets out of total NSA volume of 213 million, so ePackets clearly represent a large portion of NSA volumes.  One package consulting company, notes the OIG, estimates that nearly half of eBay’s sellers in China use ePackets to ship to the United States.

In the early days of ePackets, the Postal Service was losing over $1 per piece.  According to this OIG report, in 2011 the Postal Service handled 9.52 million ePackets from China, generated $6 million in revenue, and lost $9.6 million. In 2012, there were 26.8 million ePackets from China, with $25.3 million in revenue, and a loss of $29.4 million.

Just to convert those numbers to per piece averages: For 2011, the average revenue per piece was $.64, the average cost per piece was $1.65, and the average loss per piece was $1.00.  For 2012, the average revenue per piece was $0.94, the average cost per piece was $2.04, and the loss per piece was $1.10.

During these years, there wasn’t much difference between the negotiated rates and the terminal dues.  At 2015 Congressional hearing on terminal dues, Inspector General David Williams (now a member of the Board of Governors) testified that the losses in 2012 were only about 5 cents different per piece from what the Postal Service would have lost using terminal dues rates.

By 2014, though, the Postal Service was breaking even on the ePackets.  A 2015 OIG report on terminal dues reported that “the product lost $1.10 per piece in 2012, but the Postal Service has been working on negotiating higher rates and estimates that ePackets are now covering their costs according to its methodology.”

By 2015, e-Packets were doing better than covering costs.  In 2017, the OIG reported that in 2016, the average revenue on an ePacket was $1.84, and the cost to deliver was $1.34, so the Postal Service was making 50 cents on each packet.  Overall, in 2016, the Postal Service handled about 150 million ePackets, with revenues of about $270 million and a profit of about $75 million.

From FY 2014 to FY 2016, ePacket volume grew by about 111 percent and revenue grew by about 163 percent. This resulted in over $493 million in additional revenue during those fiscal years.  The success of the ePackets is reflected in the cost and revenue data on NSAs.  By 2016, NSAs were bringing in about $123 million more than it cost the Postal Service to deliver them.  The ePackets were largely responsible for this contribution.

It should be emphasized that while the rates on ePackets are not derived from terminal dues, the rates are negotiated with reference to the dues.  If a country’s postal operator thinks the Postal Service’s price is too high, it can always just stick with the lower terminal dues rate.  Along similar lines, if the terminal dues rates were raised significantly, the Postal Service could probably raise ePacket rates as well.

 

Single-Piece Inbound Letter Mail

While the bilateral agreements have led to a positive net contribution for ePackets and other NSA inbound mail, the regular inbound mail is a different story.  Here’s a table showing volumes, costs, and revenues for the single piece inbound letter mail for the past few years.  The numbers come from the Cost & Revenue Analysis reports for each year.

As the table shows, the losses caused by single-piece mail have increased steadily since 2011, and for the past couple of years, the cost coverage has gotten worse too.  The reason for these trends is the growing share of the volume that consists of small packets containing goods purchased online. These packets cost much more to process and deliver than regular letters, and each year, there are more of them.

Chart by Visualizer

 

In such tables, the revenue numbers typically reflect the prices set by the Postal Service, but in this case, they are determined by the terminal dues.  Here’s roughly how the dues are calculated.

The UPU identifies countries as either “target” (i.e., industrial) or “transitional” (developing).  For mail sent from one target country to another, the terminal dues rate is higher than for mail that goes to or from a transitional country.  The goal of this “inequity” is to make it more economically feasible for the developing countries to send and receive mail with target countries where the postal rates are higher.

The formulas used to determine the terminal dues themselves are extremely complicated, as one can see by looking at the UPU Statistics and Accounting Guide in effect during 2017.  The dues can vary country to country, and numerous variables get factored in.  But, basically, the dues are derived from a cost per piece plus a cost for weight.

For mail to and from transitional countries (p. 7 of the Guide), the dues in 2017 were .221 SDR per piece and 1.79 SDR per kilogram.

(An SDR — Special Drawing Right — is the IMF’s international unit, based on a basket of currencies. Its value has varied over the years from $1.40 to $1.60, but during 2017 it hovered around $1.42.)

If you translate these metric weights and SDR figures to dollar and pounds, you get about $0.31 per piece and about $0.072 per ounce.  For a 10-ounce packet, then, the terminal dues would be about $1.04. For a one-pound packet, the base terminal dues would be about $1.47.  (This 2014 Washington Post article noted that the dues on a one-pound package would be no more than $1.50.)

In the table above, it should be noted that the revenue numbers do not represent the minimum terminal dues for a transitional country.  The Postal Service also collects additional remuneration for optional services like tracking, and some of the inbound mail comes from target countries at higher rates, which raises the per-piece averages and the totals.

 

A hypothetical scenario

Since the Postal Service doesn’t publish the International Cost & Revenue Analysis, it’s impossible to know exactly how the $170 million in losses in FY 2017 were incurred, but one can do some guesswork.

Here’s a table disaggregating the numbers reported in the CRA (in the shaded cells) along with a hypothetical distribution of the volume according to the three formats of letter mail, P, G, and E.

Volumes: The distribution of the volumes into letters, flats, and packets is based on news reports, studies, and comments filed with the PRC, with an eye on the total weight (also reported in the CRA) and some tinkering to get the bottom line to come out right.  According to this scenario, over a third of the volume consists of packets.

Chart by Visualizer

 

That’s roughly in line with data cited in comments submitted to the PRC by FedEx, citing a study about global volumes (not the U.S. specifically):  “In 2014, small packets accounted for about a quarter of letter post by volume and 70 percent by weight.  By 2018, small packets will constitute more than a third of the letter post volume and 80 percent of the weight; by 2021, small packets will account for the majority of international letter post items and 90 percent of the weight. In brief, in the 2018-2021 period, terminal dues will mainly represent delivery charges for e-commerce packages.”

Revenues:  The revenue numbers are based primarily on the terminal dues.  In our scenario, the average letter weighs about .8 ounces, which is approximately the average for domestic letters, so the terminal dues would come to about 37 cents.  For flats, the scenario uses 3 ounces, the average weight for domestic flats, and the terminal dues come to about $0.53.

For packets, the average weight in our scenario is about 10 ounces, so the terminal dues for mail from a transitional country would be about $1.04.  In this case, however, the scenario uses a somewhat higher number, $1.29, because some packets come from target countries and because there are various sources of supplemental remuneration, including signature confirmation, insurance, an incentive bonus (and penalties) for meeting service performance, and so on.

(As explained in this GAO report, the Postal Service is paid between $1.13 and $1.87 in terminal dues to deliver a 10-ounce packet from a developing country, an amount that does not include any additional surcharges for tracking and other features.  USPS officials stated that surcharges could range from $0.96 to $1.37.)

Costs: For letters and flats, the figures for attributable costs in the scenario are the same as for the analogous mail type of domestic mail, as reported in the CRA.  The domestic costs include expenses incurred at the post office when one mails something, so for packets we’ve adjusted the cost downward a few cents (from $2.51 to 2.43) to reflect the fact that there are no window costs for international mail (and to help make the bottom line come out right).

It’s worth pointing out that the cost for delivering an ePacket — about $1.34 in 2016, according to the OIG —  is much less than for delivering a single piece small packet — in our scenario, about $2.43. That is presumably because as part of the NSAs, the foreign mailer does much of the work that the Postal Service would otherwise have to do in terms of preparation, separation, and labeling requirements.  The Postal Service has also explained that there has been an increase in processing costs for inbound letter mail “due to the improved use of barcodes in the In-Office Cost System (IOCS) to assign costs to a specific product, which led to increased costs for mail preparation and platform and sack sorting operations.”

The range: Our hypothetical scenario is mostly guesswork.  But it suggests the range of possibilities, and it shows, as one would expect, that the more packets there are, the lower the revenues, costs, and losses per packet.

If packets accounted for a much larger portion of inbound volumes than in our scenario — say 55 percent of total volumes (220 million pieces) — the average revenue per piece would be about $1, the average cost per piece would be about $1.80, and the loss per piece would be about $0.80.

On the other hand, if packets represented just 25 percent of total volumes (100 million pieces), the average revenue per piece would be about $1.80, the average cost per piece would be about $3.60, and the loss per piece would be about $1.80.

While these other scenarios are possible, they stray from the attributable cost for domestic single-piece First Class parcels — around $2.50 — by a considerable amount.  The more likely range for the share of volume for packets is between 35 and 45 percent.

 

Losing relevance

The problem with terminal dues appears to boil down to about 150 million small packets losing on average about $1.14 per packet.  That’s roughly the same loss per per piece for an ePacket back in 2012.  While it may take a while for various UPU reforms and rate increases to have full effect, it’s likely that sometime over the next few years the regular small packets will, like ePackets, come to cover their costs.

While the Presidential Memorandum on terminal dues has called attention to the issue, in some respects, it’s not really big news.  The UPU has been working on the problem for several years, and it continues to make progress.  But change needs to be gradual in order to avoid a rate shock.  If the UPU were to raise the terminal dues too sufficiently for target country posts to cover their costs and it did so too quickly, all sorts of disruptions could occur.

The terminal dues issue may also be somewhat less significant than in the past because, as the OIG has explained, “Despite the price advantage, the terminal dues channel is losing relevance.”  There are many ways for merchants and shippers to get around the system.  Private package delivery companies can compete with the national posts by leveraging discounts on transportation, customizing services for visibility and speed, etc.

Another approach is for a consolidator to ship packets to the U.S. in bulk, then enter them into the Postal Service as domestic items at domestic rates. As the OIG observes, “In fact, as value chains evolve and large online retailers further globalize, distinguishing ‘Chinese’ from ‘American’ merchants is increasingly difficult.”

It remains to be seen if the UPU will make changes fast enough for the Trump administration.  If the White House is dissatisfied with what the Second Extraordinary Congress achieved, we may be hearing more about terminal dues in the near future, and another sort of trade war may be in the offing.  But raising the terminal dues rates, while it may help level the playing field, isn’t going to stem the flow of e-commerce shipments into the U.S.


For further reading: