UPU seeks to address international rates that put USPS at a disadvantage

By Bill McAllister, Washington Correspondent

This is a story about incredible international mail rates, one that a senior Amazon.com executive swore was true to Congress last summer.

A small company in Marion, N.C., wants to send a 3.5-ounce package to Fairfax, Va. — 340 miles away — and it’ll cost “at least $1.94,” said Paul Misener, the Amazon executive.

But that same parcel could be shipped by a Chinese company from Shanghai — more than 7,000 miles away — to the Washington, D.C., suburb for $1.22, Misener said.

Similarly, shipping a 1-pound parcel to New York City from Greenville, S.C., would cost almost $6 via the United States Postal Service, but only $3.66 from Beijing to New York.

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That might sound like an international horror story but it was just one of a number of examples that Misener, Amazon’s vice president for global policy, and others laid out before a House Postal Service subcommittee last summer as it probed the arcane world of “terminal dues” and international mail rates.

On Sept. 20, representatives of the world’s postal services gathered in Istanbul for their quadrennial effort to set the rates countries must be paid for carrying letter mail and small parcels that originate in another country.

Those rates are called terminal dues, and as the testimony given to the House Government Operations Subcommittee on June 16, 2015, indicated, they can be extremely favorable to some countries and costly to others.

A 2014 study by one postal consultant estimated the disparities could cost the postal systems of industrial countries as much as $2.1 billion a year.

Losses to the USPS from inbound letters were estimated by the Postal Service’s inspector general at $75 million in fiscal 2014, the latest year for which figures are available.

That loss was partly offset by a $119 million gain from international mail shipments from the United States, the inspector general said.

The problem country that has received the most attention is China with its booming economy.

“Under international postal agreements,” Misener explained, “the U.S. Postal Service charges much lower rates for delivering foreign shipments from transfer points in the United States to recipients in the United States than USPS charges for handling comparable wholly domestic shipments between the same U.S. points.”

David C. Williams, then the inspector general of the USPS, put it bluntly: “In the United States, China has an unfair edge over U.S. businesses.”

That is supposed to end — or at least be eased — after the Universal Postal Union ends its 2016 Congress in Istanbul Oct. 7.

The State Department heads the U.S. delegation, but the USPS has already sought to assure U.S. mailers that the agenda for the UPU calls for increasing the terminal dues paid by foreign posts to a more realistic level.

In addition, Kate Muth, executive director of the International Mailers Advisory Group, a trade association, has shared with her members word that China is scheduled to be moved from a “developing country” category to a higher level. That should boost its dues payments.

Also, the new terminal dues proposal supposedly includes an accommodation in the rates for packets, in an effort to account for the flood of small e-commerce parcels that are now hitting postal systems.

Small packets under 2 kilograms (4.4 pounds) move as letters and are subject to terminal dues under UPU regulations.

The higher terminal dues, expected to be approved in Istanbul, would become applicable in 2018.

A December 2015 report by the USPS inspector general, however, cautions that changes from the UPU have been slow in coming.

The USPS is telling mailers that the expected UPU changes should end the losses that the USPS says it sustains on incoming foreign mail under the current terminal dues plan the UPU enacted in 2012.

Besides, noted Misener, the preference given Chinese shippers “makes no sense now, given the strong trading position that China already enjoys.”

The UPU may also move on another international shipping issue that could have a direct impact on U.S. communities — the flow of illicit drugs in the mail.

There even is a proposal to make amendments to the philatelic code of ethics of UPU member countries, to discourage “abusive issuances” of stamps with themes alien to the culture of the issuing member country or territory, and which cannot be considered as contributing to the dissemination of its culture or to maintaining peace. 

Members of a Senate committee have been strong in denouncing the lack of advance disclosure foreign posts give on incoming parcels compared to the advance electronic customs information that commercial shippers, such as FedEx and UPS, must provide.

Postal operators are said to be making progress on this issue, but there are varying levels of compliance among the 192 foreign posts.

In his testimony before the House Government Operations Subcommittee last year, Robert G. Taub, the PRC’s acting chairman, seemed to urge caution about expecting major changes from the UPU.

“I think the only conclusion that most onlookers unfamiliar with the UPU terminal dues system would come to is that progress on terminal dues has been glacial,” he testified.

David Partenheimer, a spokesman for the USPS, notes that terminal dues are “intended to cover processing and delivery costs for inbound international mail and that the coverage is for letters and parcels up to four pounds.

“For most major mail flows, terminal dues are based on country-specific postage rates [currently 70 percent of retail domestic postage rates],” he said.

“One reason that terminal dues rates can be lower than U.S. domestic postage is that the up-front costs of retail acceptance at a Post Office, pick-up from collection boxes or customer location, marketing and sale and other overhead expenses are incurred in the country in which the mail originates.”

Some countries, including China, “must pay the Postal Service additional charges — known as air conveyance dues — to allow the Postal Service to recover domestic air transportation costs,” Partenheimer said.

He also pointed out that the USPS has a bilateral agreement with China Post for so-called “ePacket service” of some parcels and that these parcels pay a higher rate than they would under terminal dues alone.

Because the terminal dues serve as a default to any bilateral agreements, China Post can opt out and use terminal dues rates for its U.S. mail.

That’s one reason witnesses at the House hearing last summer said reforming the current terminal dues structure is important, adding that even under the current bilateral agreement between the United States and China, Chinese mailers get a significant price advantage over U.S. mailers.