The U.S. Postal Service (USPS) plans to abandon the 144-year-old Universal Postal Union (UPU) on October 17 unless an agreement is reached later this month at a UPU meeting in Geneva, Switzerland. The United States is seeking the right to “self-declare” postage pricing on international parcels.
Matthew White of iDrive Logistics, who is cited in a report at transportation industry website Freightwaves, noted that the “practical effect of the exit of the U.S. would be a rate increase of at least 300 percent on postal parcel traffic to the U.S. from heavy net exporting countries as rates kept artificially low for decades begin to normalize.”
The main issue is a 50-year-old terminal dues agreement governing the amount of postage paid to the destination country by the origination country. The agreement, as it stands, is not based on actual costs but on a system that gives lower pricing and other benefits to developing countries shipping goods into developed countries like the United States.
At the time the agreement was made, China was included on the list of developing countries. Now that it is the world’s second-largest economy, the Trump administration has argued that China should no longer benefit from the lower postal rates for developing countries.
A 2015 report by the USPS’s inspector general reached a similar, conclusion: “The global terminal dues system … does not fully reflect actual domestic processing and delivery costs. As a result, the U.S. Postal Service and other operators have lost money on international postal letters and small packages received from abroad, especially from emerging countries like China. The explosive growth in cross-border ecommerce traffic has greatly elevated stakeholders’ concerns about the economic distortions created by the system.”
The report estimated that the USPS lost $308 million (about $75 million annually) on single-piece letter post in the five-year period between 2010 and 2014. Including terminal dues totaling $1.02 billion paid for outbound first-class mail, the net positive result for the five-year period totaled $710 million.
If, as expected, the UPU meeting in Geneva does not back the U.S. intention to self-declare rates, the United States will exit the UPU on October 17 and begin a series of bilateral negotiations with 192 individual postal authorities. In 2020, the self-declare era would begin.
Private-sector carriers like FedEx and UPS are expected to see a significant increase in international shipping if the USPS self-declare proposal is not passed and the United States withdraws from the UPU.
According to the Freightwaves report, the Postal Regulatory Commission, the independent agency that sets U.S. postal rates, the USPS lost $134.5 million in 2016 and $170 million in 2017 due to UPU terminal dues. USPS revenue from international shipments totaled $2.63 billion in 2018, up from $2.61 billion in 2017 even as volume declined from 1.0 billion pieces to 940 million.
The USPS’s total loss in 2018 was $3.91 billion, of which $1.95 billion was considered its “controllable” loss. The agency’s controllable loss is the net loss adjusted to exclude items outside management control and other non-recurring items. The major contributors to the overall USPS deficit are unfunded pension and other expenses, which the Congress forces the agency to fund at 100% of its future liability, a stricture that applies to no other public or private entity. That is not to say that the USPS doesn’t have other budget issues.
Jared Dearing, the Kentucky state election director, told Channel Futures that a U.S. exit from the UPU could lead to international mailing costs of more than $60 per person for a U.S. absentee ballot sent to military personnel and U.S. citizens living overseas. Whether the U.S. can negotiate 192 self-declare agreements before the 2020 elections remains to be seen.