Going postal: how Donald Trump is threatening the international mail system

David Dodwell says the US president’s gripes that the American postal service is subsidising other countries’ trade – and singling out China – may be justified but here, as elsewhere, unilateralism is not the way forward

PUBLISHED : Saturday, 15 September, 2018, 2:02am
UPDATED : Saturday, 15 September, 2018, 2:48am

The blogger was furious: “I bought an item from a seller in Hong Kong for US$6 and US$1.50 shipping. The item was broken so the seller told me to return it for a refund. But to ship it back to Hong Kong with delivery confirmation using the US Postal Service will cost US$34.87. Without tracking it will cost US$11.48.

“How in the world did the China seller pay for the product, for eBay and PayPal fees, for packing material, and ship it to me WITH TRACKING for 1/4 of what it would cost me just in shipping costs alone to send the item back?”

Welcome to the weird, wonderful and voluptuously monopolised world of international mail, and the quirks of an international treaty that goes back to Bern in 1874, the birthplace of the 22 countries that created the Universal Postal Union (UPU).

As the organisation admits on its website: “Major changes in the international postal environment have brought a certain complexity to the system because of the need to prevent it from being circumvented and exploited to the prejudice of designated operators.” But it seems our irate blogger was venting about something more substantial than simple “complexity”.

For most of us, the idea of mailing a letter or parcel overseas seems simple. Wrap it, weigh it, stick on the stamps, and sit back confident that, in a few days, it will drop through a letterbox in time for your great aunt’s birthday.

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Nearly 150 years ago, the original UPU agreement was simple: the sender would pay the cost of getting the letter or parcel to the foreign country, and that country’s (government monopoly) postal service promised to get it to your aunt for free.

With the volume of international mail being an estimated 320 billion letter-post items a year, sending mail across borders could not stay so simple

Simple – it has led to 83 per cent of the world’s population getting mail delivered to their door – but sadly not sustainable. As costs of delivery rose, and with the volume of international mail being an estimated 320 billion letter-post items a year, sending mail across borders could not stay so straightforward.

The solution agreed upon in 1969, and a root cause of the “certain complexity” that confounded our blogger, was “terminal dues” – the money paid by the sending country’s postal service to the delivering country’s postal service to cover the cost of delivering the package to your aunt’s doorstep.

All might be well if everyone’s monopoly postal services charged the same, and if the terminal dues were the same. But of course, they are not. As you wade into the volumes of spread sheets that lay out what dues one country should pay to another, you enter a quagmire of different charges.

Terminal dues are linked to local postal rates, and developing countries tend to offer cheap postal rates. So the terminal dues they pay to rich countries are much lower than when the situation is reversed.

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These Alice-in-Wonderland postal economics might have remained a matter of little consequence to most of us had it not been for four developments. First, many of the traditional postal services are losing money as letter volumes decline by 3 to 5 per cent a year.

Second, a fast growth in parcel services — currently about 17 per cent a year, according to the Pitney Bowes Parcel Shipping Index — has not compensated them because here they do not have monopolies and face fierce competition from private sector companies like DHL or FedEx.

Third, the e-commerce revolution has created a fresh explosion in parcel services being competed over by the likes of Amazon, eBay, Alibaba and Tencent.

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And fourth – perhaps most important – US President Donald Trump has noticed injustices here, and has decided that these are being exploited unacceptably by his trading bogeyman China.

Trump has become particularly sensitive because the US Postal Service lost an uncomfortable US$2.7 billion last financial year

Trump has become particularly sensitive because the US Postal Service lost an uncomfortable US$2.7 billion last financial year, and has not made a profit in the past decade. Apart from ruthless Chinese exporters exploiting unfair terminal dues rules set by the UPU, Trump also blames Jeff Bezos’ Amazon, which he sees as eating the US Postal Service’s lunch.

While there can be no question that the quirks of an ancient byzantine international treaty is making life tough for his cherished postal service, which delivers nearly half the world’s mail, the service’s challenges lie elsewhere – in bloated labour costs, strident unions, a costly network of sorting centres, a struggle to compete outside its monopoly areas and huge costs in pre-funding its pension obligations.

Satisfying though it may be to demonise China’s exporters for exploiting the UPU’s quirky rule book, and tag the issue onto his trade war with China, Trump has decided to attack the root of the problem: on August 23, ahead of a UPU conference in Addis Ababa in early September, he issued a memo to the US postmaster general and other officials. In it, he demanded a radical overhaul of the terminal dues system and threatened to adopt “self-declared rates” if the meeting “fail(s) to yield reforms that satisfy the criteria set forth”. The UPU has until November 1 to satisfy the Trump administration.

Now that the UPU meeting has come and gone, a train wreck seems possible. The press release at the end of the meeting committed to continue modernising and rationalising the terminal dues system, gave no details, but added: “On the topic of pay, which has been the subject of much discussion and debate in recent months, there was an agreement to use the Integrated Remuneration Plan as a road map for a sound proposal … to be presented at the 2020 Congress.” So much for Trump’s November 1 deadline.

Trump has a good case for complaining about the complex and distorted rules that are shaping the global traffic of e-commerce parcels, but another “America first” temper tantrum may not be the best way of finding a solution. Setting “self-declared rates” can only trigger a cascade of similar unilateralism among the UPU’s other members, and a wholly new tangle to replace terminal dues. This is not the art of the deal.

David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view