The impact of the UPU rate agreement on global e-commerce
The United States has agreed to remain in the Universal Postal Union (UPU), after threatening to withdraw from the treaty. The consensus, reached at the congress in Geneva this fall, averts massive impacts on cross-border e-commerce. Yet, it is a compromise that is about to change global shipping processes, and therefore global business. In this article, we have collected the key points and possible consequences.
What has been agreed on?
The agreement on the rate proposal, known as “option V” (“for victory”) offers countries to self-declare postal rates based on domestic tariffs to cover their costs. In other words: The postal companies can raise the rate, that they charge other countries to deliver their mailed small parcels. The aim is to renew arrangements that, in the eyes of mainly importing countries,created disadvantages.
From July 1, 2020, countries that meet certain criteria – like receiving more than 75,000 tons of mail a year – may implement self-declared rates (e.g. USA). These are on a reciprocal basis with the sending country. The rates have to be submitted by March 1 and will be published by April 1. The rest of the world will have to wait until January 1, 2021 to be able to make use of this new option and set their own inbound postage rates. Nevertheless, they can also choose not to and stick with the current proceeding and rates. For low-volume developing countries, there are provisions that are lower than self-declared rates. Secretary General of the UPU, Bishar A Hussein, commends the representatives in the closing session. They “showed a sense of responsibility, and […] proved this Union is resilient.”
What is the background?
In a withdrawal letter last year, the US threatened to leave the UPU because of unfair competitive conditions. They complained that China, as the second-largest economy of the world, still takes advantages of lower fees under the status of a ‘developing country’. Consequently, Chinese traders could send bulky letters and small parcels for lower prices to the States than American manufacturers within, for instance from NY to LA. In the eyes of the Trump administration, a clear disadvantage for American workers and businesses.
What is the task of the UPU in this matter?
The UPU makes sure that the postal operators, delivering small parcels and bulky letters sent from abroad, are sufficiently compensated for their cross-border services. At present, transportation and delivery of international mail and small packets are rather cheap. Due to exponential growth and scope of cross-border e-commerce, especially importing countries raised concern regarding the remuneration.
What is the impact of the agreement?
This compromise is not as destabilizing as the United States have strived for – which would have been an immediate pricing free-for-all. Yet, they expect a benefit for American businesses and a decrease in parcels from Chinese traders entering the US market. Also, for all other countries, changes are lying ahead. Businesses reaching international customers could see mail delivery costs rise. Affected will be small and light items that are shipped directly to customers, first in the US, and then Europe. For this reason, it might be relevant for cross-border merchants to evaluate other options. Eventually, logistics operators that are not part of the UPU can play an integral role when it comes to reaching international markets and customers reliable and affordable.