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Ecommerce

Small China e-commerce firms to be hit hard by US withdrawal from Universal Postal Union

Washington says global rates set for certain developing countries give them an unfair trading advantage – which is bad news for China’s small e-commerce companies

PUBLISHED : Friday, 19 October, 2018, 2:01am
UPDATED : Friday, 19 October, 2018, 5:10am

Small Chinese e-commerce businesses will suffer most from the US decision to withdraw from the international arrangement that sets global postal rates, with some likely to struggle to survive, company representatives said.

The effect on larger e-commerce companies, however, may be limited because many have developed their own logistical networks to deliver products to customers.

The White House announced on Wednesday that the US would start the year-long process of quitting the 144-year-old Universal Postal Union (UPU), opening a new front in the escalating trade conflict between Washington and Beijing.

The US claims the global rates set by the UPU for certain developing countries like China gives them an unfair trading advantage. For instance, it costs about US$20 to mail a 2kg (4.4lb) parcel from one US state to another, but mailing the same package from China costs only US$5.

The US direct mail business of Chinese sellers will be greatly affected
Analyst Li Pengbo

If the Trump administration eventually ditches the United Nations-run organisation and sets its own “self-declared” postal rates, small packages sent from China to the US through the postal system would face much higher rates, adding significant costs to small Chinese cross-border firms selling products on US e-commerce platforms like Amazon and eBay.

“The previously announced tariffs were targeted at traditional export merchants in China, while pulling out from the UPU is aimed at one of the country’s fastest-growing export sectors, cross-border e-commerce firms,” said Yang Xingjian, founder and chief executive officer of StyleWe, a cross-border online fashion shopping platform.

“The US direct mail business of Chinese sellers will be greatly affected,” said Li Pengbo, an analyst with consulting firm 100ec.cn.

In its 2017 annual report Global Top E-Commerce, a Chinese-listed cross-border retail firm, said 70 per cent of packages shipped by Chinese cross-border exporters are delivered through the postal system using UPU-dictated rates.

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However, the impact on Global Top E-Commerce will be limited since it has built its own logistics system, according to a company statement on Thursday in response to the US announcement.

Only 5 per cent of shipments to the US sent by Shenzhen Globalegrow E-commerce Co, Global Top’s wholly owned subsidiary and principal income source, go through the US postal system, the company said.

The other 95 per cent flows through the company’s own logistics network, which includes 61 overseas warehouses in more than 200 countries.

Still, Global Top agreed the White House decision could cause a purge of marginal Chinese cross-border e-commerce firms.

“The competitiveness of medium and small-sized cross-border e-commerce firms who rely on the UPU will decline, benefiting leading enterprises who have build their own logistics systems,” it said.

StyleWe’s Yang agreed that small businesses would suffer most from higher US postal rates.

“The only group that will be impacted consists of cross-border e-commerce firms which sell small commodities worth US$1 to US$5,” he said, on e-commerce platforms such as Yiwu, a popular site for wholesale merchandise such as socks or plastic flowers.

Representatives of two hat sellers and a carpet store on the Yiwu network said they were not even aware of Washington’s decision, let alone its possible effect on their businesses. Other firms said they were still waiting to gauge the effect on their costs.

China’s cheap shipping advantage explained

A worker at Superbuy, a Chinese purchasing agency that helps people around the world to buy from China’s online platforms, said the cost of shipping packages to the US through postal system could rise.

“If we are forced to adjust our shipping fees, we will inform the public,” the person said. “But as of now there is no change to our [shipping] charges.”

A cross-border e-commerce executive said companies that depended on the US Postal Service for shipping small packages could turn to international commercial courier services to avoid higher American postal prices.

“But international express deliveries will still face tariff pressures from the US,” said the Shenzhen-based businessman, who declined to be named.

“It is too early to get a clear picture [of the full impact] when the situation has just occurred.”