Last year, Amazon told Congress that Chinese sellers can ship low-weight orders to American buyers at significantly cheaper rates than are available to domestic sellers. It cited an example: the cost to ship a one-pound package from South Carolina to New York City would run nearly $6; from Beijing to NYC: $3.66.
Now, Americans have until Thursday to weigh in on an issue that is the root cause of that discrepancy: UPU Terminal Dues. Online sellers in particular may want to voice their opinions.
Terminal Dues and Their Impact on Chinese Imports
The Universal Postal Union (UPU) is an international body that sets rates for cross-border deliveries known as terminal dues, and they’re set to meet in Istanbul this fall to set those rates for the years 2018 – 2021. In the US, the Secretary of State, not the USPS, oversees the negotiations.
The purpose of the UPU terminal dues (TD) system is to compensate destination countries for the cost of handling, transporting and delivering letter-post items from abroad. In other words, terminal dues are rates paid for last-mile handling of cross-border letter-post items.
Because sellers in Asia can send small products to US shoppers at low rates thanks to the terminal dues system, the USPS negotiated slightly higher rates through ePacket rates with Asian postal services including China Post, which even provide tracking – but the Postal Service still loses money on ePacket deliveries, according to the USPS Office of Inspector General (OIG).
For online sellers, it’s less important whether the USPS breaks even or not – rather, they’re concerned about whether their shipping costs are higher than those of overseas merchants when sending packages to US shoppers.
The OIG addressed the impact of Terminal Dues on small US businesses in a report from December 2015 and wrote, “A comprehensive and representative survey of small U.S. businesses would ultimately be needed to determine how much harm small businesses experience in relation to Chinese competitors benefiting from lower terminal dues. It should also be noted that although inexpensive deliveries from China may potentially penalize domestic retailers, they may benefit U.S. consumers who take advantage of the combination of inexpensive goods and low international shipping rates.”
However, the OIG concluded that “both terminal dues and the existing UPU governance model need reform to become more agile – and to allow the world’s posts to compete in the present fast-paced cross-border ecommerce market.”
Ecommerce Amplifies Impact on US Sellers
Last December, Pacific Standard magazine delved into the issues and wrote: “While terminal dues are nominally for letters, that includes anything up to two kilograms and more or less envelope-shaped. The rise of platforms like Alibaba and eBay has massively increased the volume of small packets being sent by international post directly from developing countries.”
It went on to report, “Things like audio cables, sunglasses, and circuit boards, which had previously been bulk shipped to wholesalers in destination countries, have begun to flow instead through the postal system, directly to buyers – and subject to UPU terminal dues agreements.”
It then goes on to cite research that shows what small online sellers have been experiencing over the past 5 years:
“A comprehensive study by the research group Copenhagen Economics has found that the misalignment of terminal dues rates is leading online shoppers to order directly from countries with favorable UPU positions, rather than from suppliers closer to home – even if the price of the item itself is identical.”
Americans Can Weigh in on Terminal Dues
The Secretary of State is required to request the Postal Regulatory Commission to submit its views on whether the Terminal Dues rates are consistent with the standards and criteria established by the Commission under section 3622 (US Code Title 39 Sect 3622 sets out rules governing market dominant postal rates).
The Postal Regulatory Commission (PRC) in turn is seeking public comments on the proposed terminal dues rates for 2018 – 2021. Unfortunately it’s very difficult to understand what those rates are and the impact they will have on US merchants in order to post a response. There are six categories of countries paying one of three different rates based on a basket of currencies known as SDRs – Special Drawing Rate.
Jim Campbell, a lawyer in Washington who works with private carriers, is an expert on terminal dues. He told EcommerceBytes he expects that the discount for proposed terminal dues rates for mail from Hong Kong, Singapore, China to drop from the current level of about 70% to about 50% by 2021. “This is a step towards more equal treatment for ecommerce goods from China et al, but, over 5 years, a pretty small step in my view.”
However, he said those are estimates – the real situation may be better, or much worse.
“I think that the overall discount, or pricing preference, that USPS will give foreign mail in the 2018-2021 period will represent about $1 billion in lost revenue, which American mailers will, of course, be required to make up one way or another,” Campbell said.
We asked him what he believes the PRC and/or the State Department should do about the issue of terminal dues – his answer follows:
“The question that the PRC must answer is whether the proposed terminal dues are consistent with the standards and criteria which it has established for regulation of market dominant products of the Postal Service. Then the PRC must so advise the Dept of State. I would like the PRC to make this determination based on the law and the facts, with a full and transparent explanation of its decision.
“Under the law, the Secretary of State must then ensure that U.S. obligations under the next UPU Convention are consistent with the Commission’s views, or alternatively the Secretary may determine that the foreign policy or national security interests of the United States require conclusion of an agreement that is not consistent with the modern system of rate regulation established by the Commission. If the Secretary decides that the foreign policy or national security interests require the Department to override the views of the PRC, then it must prepare a written explanation of its decision. I would like the State Department to follow the law. I would also like the State Department to explain the inconsistency with U.S. antitrust law.”
Deadline to Comment: July 21st
Americans can submit comments to the PRC (that will be publicly viewable) “on the general principles that should guide the Commission’s development of views on relevant proposals, in a general way, and on specific relevant proposals, if the Commission is able to make these available.”
The relevant docket is found on the PRC website here.
Within the docket, Document 40 contains the UPU Proposed new Terminal Dues system for 2018 – 2021.
Instructions on leaving a public comment are found in the user guide on the PRC website, including the following FAQ:
I only want to file a Comment. Can I do that without a Filing Online Account?
The best way for a person who simply wishes to file a comment with the Commission in response to a Commission Request for Comments is to apply for a Temporary Account. Go to the Filing Online login page and click the Need an Account? link in the side navigation bar; then, click the button for Apply Online for a Temporary Account. Complete the form, and you will be able to file your comments right away. The Temporary Account expires after 10 days, so if you think you might want to file comments more often, you should complete the hardcopy application and establish a Permanent Account.
Here’s a link to Apply Online for a Temporary Account.
Be warned: the deadline for submitting a comment is 4:30 pm ET on Thursday (July 21, 2016).
Update 7/20/16: People have reported problems submitting a public comment on the PRC website. Here’s one reader’s description of the problem:
Following your directions I opened a temporary account this morning on the Postal Regulatory site. I completed the document and attempted to submit it. Three times I received the following error message:
The website encountered an unexpected error. Please try again later.
Mary Hanks, Dockets Assistant at the PRC, told us one common problem is if you have special characters in the file name – make sure it doesn’t include a comma, for example. (Also keep in mind you must submit all contact information when filing.)
Anyone who continues to have problems can call her at the main number, 202-789-6800, or her direct line at 202-789-6845. Mary is extremely friendly and helpful, so don’t give up.
Update 7/21/16: See this Letter to the Editor on detailed instructions on how to leave a comment.
Comment on the EcommerceBytes Blog.