[SCMP Column] Parcel Post

September 15, 2018


The blogger was furious: “I bought an item from a seller in Hong Kong for $6 and $1.50 shipping. The item was broken so the seller told me to return for refund. But to ship it back to Hong Kong with delivery confirmation using the US Postal Service will cost US$34.87. Without tracking it will cost $11.48.

“How in the world did the China seller pay for the product, pay ebay and paypal fees, pay for packing material and ship to me WITH TRACKING for 1/4 of what it would cost me just in shipping costs alone to send the item back?”

Welcome to the weird, wonderful and voluptuously monopolized world of international mail, and the quirks of an international treaty that goes back to Berne in 1874, the birthplace of the 20 countries that created the Universal Postal Union (UPU).

As the organization admits on its website: “Major changes in the international postal environment have brought a certain complexity to the system because of the need to prevent it from being circumvented and exploited to the prejudice of designated operators.” But it seems our irate blogger was venting about something more substantial than simple “complexity”.

For most of us, the idea of mailing a letter or parcel overseas seems simple. Wrap it, weigh it, stick on the stamps, and sit back confident that in a few days it will drop through a Blackpool letterbox in time for your great aunt’s birthday.

Back 150 years ago, the original UPU agreement was simple: everyone would charge the sender the cost of getting the letter or parcel to the foreign country, and the foreign country’s (government monopoly) postal service promised to get it to your aunt for free.

Simple – it has led to 83 per cent of the world’s population getting mail delivered to their door – but sadly not sustainable. As costs of delivery rose, and the volumes of international mail increased to an estimated 320bn letter-post items a year, nothing going across borders could stay so simple.

The solution agreed in 1969 – and a root cause of the “certain complexity” that confounded our blogger – was something called Terminal Dues – essentially the money paid by the sending country's postal service to the delivering country's postal service to cover the cost of delivering the package to your aunt’s doorstep.

All might be well if everyone’s monopoly postal services charged the same, and if the Terminal Dues were the same. But of course, they are not. And as you wade into the volumes of spread sheets that lay out what dues one country should pay to another, you wade into a complete quagmire of different charges. Terminal dues are linked to local postal rates, and poor countries tend to offer cheap postal rates. So the terminal dues they pay to rich countries is much less than what rich countries pay to poor countries.

These Alice-in-Wonderland postal economics might have remained a matter of little consequence to most of us had it not been for four developments. First, many of the traditional postal services are losing money hand over fist as letter volumes decline by 3 to 5 per cent a year. Second, a fast growth in parcel services (currently about 17 per cent a year according to the Pitney Bowes Parcel Shipping Index, with over 100m international parcels delivered in 2015) has not compensated them because here they do not have monopolies and face fierce competition from private sector companies like DHL or Fedex.

Third, the E-Commerce revolution has created a fresh explosion in parcel services being competed over by the likes of Amazon, EBay, Alibaba or TenCent.

And fourth – perhaps most important – Donald Trump has noticed injustices here, and has decided that these are being exploited unacceptably by guess who – his trading bogeyman China.

Trump has become particularly sensitive because the US Postal Service lost an uncomfortable US$2.7bn last financial year, and has not made a profit since 2008. Apart from ruthless Chinese exporters exploiting unfair Terminal Dues rules set by the UPU, Trump also blames Jeff Bezos’s Amazon, which seems to be eating the US Postal Services’ lunch.

While there can be no question that the quirks of an ancient byzantine international treaty is making life tough for his cherished USPS (which delivers nearly half the world’s mail), my own sense is that the USPS’s deepest challenges lie elsewhere – in bloated labour costs, strident unions, a costly network of sorting centres, a struggle to compete outside its monopoly areas, and huge costs in prefunding its pension obligations.

Satisfying though it may be to demonise China’s exporters for exploiting the UPU’s quirky rule book, and tag the issue onto his general China trade war, Trump has decided to attack the root of the problem: he last week delivered a Memorandum to the 192 members of the UPU who were holding an Extraordinary Conference in Addis Ababa. This demanded radical overhaul of the unfair Terminal Dues system, and threatening to adopt “self-declared rates” if the meeting “fail(s) to yield reforms that satisfy the criteria set forth”. The UPU has until November 1 to satisfy the Trump administration.

Now the Extraordinary meeting has come and gone, it seems a train wreck seems possible. The press release at the end of the Addis Ababa meeting committed to continue modernizing and rationalizing the terminal dues system, gave no details, but then added: “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 Integrated Remuneration Plan as a roadmap for a sound proposal ... to be presented at the 2020 Congress.” So much for Trump’s November 1 deadline.

Trump has a good case for complaining about the preposterously complex and distortive rules that are shaping the global traffic of E-Commerce parcels, but I sense another “America First” temper tantrum may not be the best way of finding a solution. Setting “self-declared rates” can only trigger a cascade of similar unilateralism by others among the UPU’s 192 members, and a wholly new tangle to replace Terminal Dues. This is not the art of the deal.
 
David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view. Opinions expressed are entriely his own.

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