How a 150-Year-Old Treaty Still Rocks the eCommerce World – and It’s Getting Killed

How a 150-Year-Old Treaty Still Rocks the eCommerce World – and It’s Getting Killed

How a 150-Year-Old Treaty Still Rocks the eCommerce World – and It’s Getting Killed

One hundred and fifty years ago – obviously – there was no internet. So, of course, there was no email. But there was also no FedEx or UPS. And there was no radio or television. The ONLY way to communicate over any distance further than you could shout was via mail and parcel delivery by the local postal service. And just like there are international disputes around internet and cloud services today, there were disputes about international mail delivery then.

A bunch of countries got together in 1874 and signed a treaty governing international mail and parcel deliveries to eliminate confusion and make things fairer. Agreements were signed. Those agreements are what we now call the Universal Postal Union Treaty.

But … Here’s the International Postage Problem

Even though the rules and regulations have been revised a few times over the years, the meteoric rise of eCommerce has created a huge imbalance. Because the rates for international postage and parcel delivery are set by treaty, they just do not get updated very often. In an age where technology and innovation are running at a breakneck pace, there is no possible way that an archaic postal governing board based in Europe that is now a division of the United Nations (UN) can keep up. As a UN agency working within a treaty covering hundreds of countries, it literally takes years and years to agree on the color of stamps. Just imagine how long it takes them to agree on pricing.

Asian countries – especially China – have been taking HUGE advantage of the loopholes for years. For example, it’s actually cheaper to send a 1-pound shipping envelope from Shanghai, China, to New York City than it is to send the same package from Toledo to Dayton, Ohio – a distance of just 150 miles. You'd think that shipping a product thousands of miles across the ocean would raise your costs, right? Not so in the case of China. The US postal service – and the postal services of nearly every industrialized western nation – actually loses tons of cash on each delivery, and they can’t do a thing about it except pass those costs on to domestic shippers (i.e., you).

Why It Helps China and Is Super-Unfair 

The median household income in China last year was about 18,371 Chinese Yuan – that’s less than $2700 per year at current exchange rates. That’s about 4.8% of the median household in the United States and 5.3% of Canadian households. So, China already has a HUGE wage advantage when it comes to not only manufacturing goods, but also in building websites, marketing, and fulfillment. If free markets were left alone, the increased shipping costs would offset the discrepancy a bit. But the loopholes in the current UPU then subsidize the delivery and pass the loss onto domestic merchants. Local entrepreneurs in the US and Canada actually help to pay for the shipping of their China-based competitors.

It’s crazy, right? Rules and bureaucracy set up by Victorian-era elites are hurting international competition and entrepreneurship in the internet age.

Victorian Elites Setting Unfair eCommerce Shipping Rates in the Interent Age

What’s Happening Now and Why It Matters

In October 2018, the US announced that it was pulling out of the UPU treaty. But these things do not happen overnight. Because of treaty rules, there is a one-year notice of withdrawal required. So, the US will still abide by the terms of the treaty through January 1st, 2020 – one year from now. In the meantime, the US will act more quickly to raise shipment rates on certain parcels and shipping envelopes coming from China within the terms of the treaty.

Everyone expects China to do the same in retaliation. But that retaliation is relatively meaningless since there is almost zero small package shipping going to China from any modern nation. Seriously … the number is so small that we can simply ignore it. Importantly, this has no impact on bulk shipments of goods at all. This ONLY affects individual small shipments – mostly direct to end consumers … you know, like the eCommerce packages we all ship every day while trying to make a living on the internet.

Net Result – Better & Fairer Competition in International Shipping

Obviously, China still has a HUGE advantage when it comes to labor rates across the business spectrum. But the net effect here should be felt by domestic eCommerce entrepreneurs in the US (Canada has not made any similar announcement, yet). It means that delivery costs on individual shipments to end consumers in the US from China will go up. If you are an eCommerce merchant, this could mean one or both of the following apply to you:

  • You will be able to be more competitive on domestic sales vs. overseas competitors shipping small goods directly to consumers.
  • If you use Chinese-based drop-shippers, the shipping costs on small shipments will rise to reflect a more accurate cost of delivery.

We expect eCommerce merchants on all platforms will start feeling the changes in the third quarter of the year and the full effect in Q1 of 2020. Of course, we are talking about governments and international diplomacy, so nothing is guaranteed. But we also fully expect the major shipping apps and service providers will keep up on the changes and the charges – which is another great reason to use outsourced shipping services. If you need help getting one of those shipping or logistics apps installed or working properly on your Shopify site, just let us know.

If any more developments occur, we’ll do our best to keep you informed. Thanks for reading!

Links and Resources

Average Canadian Salaries from Workopolis
https://careers.workopolis.com/advice/how-much-money-are-we-earning-the-average-canadian-wages-right-now/

History of the UPU from Wikipedia
https://en.wikipedia.org/wiki/Universal_Postal_Union

Official Statement of the White House on Leaving the UPU
https://www.whitehouse.gov/briefings-statements/statement-press-secretary-38/

Good Industry Summary of the Coming Changes by FreightWaves
https://www.freightwaves.com/news/economics/ups-praises-trump-move-to-renegotiate-international-postal-rates

0 comments

Leave a comment