Uncertainty the Watchword Heading Into UPU Congress

With a showdown looming over international postal rates at a Sept. 24 congress of the Universal Postal Union, uncertainty reigns in terms of the United States’ continued participation in the organization, leaving merchants wondering about parcel shipping rates heading into peak season.

If the outcome of the congress isn’t satisfactory to the U.S., it will withdraw from the UPU as of Oct. 17, one year after the Trump administration declared its intention out of dissatisfaction over an uneven international playing field. A major factor: Chinese merchants have been enjoying subsidized discount rates for years.

At issue are so-called terminal dues, rates set by the UPU that national postal agencies must pay each other for cross-border mail and parcel shipments. There was a partial reform of terminal dues at a 2016 UPU congress, but the system is still considered unfair by the U.S. That’s why the State Department is pushing for an agreement in Geneva that will allow member nations to set self-declared rates.

A majority vote of the congress is required to pass any resolution. There are 192 UPU member nations, about 170 of whom are active and have voting rights. Jockeying and lobbying has been going on in earnest.

The Postal Regulatory Commission (PRC), which oversees the U.S. Postal Service, has warned major parcel consolidators that their negotiated service agreements (NSA) providing discounted rates could be void as of Sept. 30 if the U.S. decides to pull out of the UPU. The PRC could also extend the agreements up through January 2020 if an agreement is reached. NSAs are generally set in January, following peak season.

As a result, consolidators including Stamps.com, RR Donnelly, Asendia and DHL are reportedly making contingency arrangements that would bypassing the USPS and directly induct mail and parcels through partnerships and their own networks into foreign postal services.

Experts are split on whether the U.S. will remain in the UPU, even though a departure would prove costly all around, requiring rafts of bilateral agreements and eliminating standards that allow for a smoother flow of international volume.

Parcel consultant Jerry Hempstead said other countries don’t want to pay more in fees to the U.S., nor do they want U.S. merchants to enjoy lower prices for mail and packages moving into their countries, as they had “a sweet deal” for a long time, especially the Chinese.

“Their deal made sense when they were a third-world country and Nixon opened up trade,” said Hempstead, who believe the U.S. will end up out of the UPU. “But the one constant in life is, things change. We need to send stuff overseas, and foreign sellers want access to American purchasers. The question is, at what price.”

He said brinkmanship will come into play at the UPU congress, perhaps followed by a period of uncertainty “where we don’t know if foreign post offices will deliver our stuff or if they do, at what price.”

“But just like the trade war and the imposition of tariffs, the U.S. may have to exercise some muscle to level the playing field,” he said. “We represent like 80% of the worlds purchasing power. Foreign companies need us more than we need them.”

Gordon Glazer, a senior consultant with Shipware, said he believes the U.S. will ultimately stay in the UPU. “I believe the rest of the UPU member countries will see the benefit of the U.S. remaining and will accommodate the need for more rational pricing,” Glazer said.

He said the consolidators will be hit especially hard, which in turn will impact their many shipper customers.

“These companies offer a variety of options for international ecommerce, with many of them leveraging USPS options including e-Packet and International Priority Airmail alternatives to the other mainstream USPS options like First Class Package International Service, Priority Mail International and Priority Mail Express International,” Glazer said. “Unlike the USPS, they also offer prepaid duties and taxes, to mitigate the shock and high return rate for items that arrive COD. They also have other options for increasing the detail on tracking and final delivery.”

Kate Muth, executive director of the International Mail Advisory Group, said the 2016 UPU reforms mean inbound parcel and mail rates from China have closer to covering their costs for the past year or two, eliminating some of the inequity in the system. She added everything is up in the air ahead of the congress.

“If there’s no UPU deal amenable to the U.S., then the NSAs for the consolidators expire on Sept. 30, even though the U.S. wouldn’t officially leave the UPU until Oct. 17,” said Muth, whose organization represents consolidators and major shippers including Amazon, R.R. Donnelly, Asendia, Neopost, DHL and Stamps.com. “What happens during those two weeks – full list prices? The whole thing is full of uncertainty.”

Shea Felix, senior director of GlobalPost for Stamps.com, said the company has been preparing for a possible UPU exit since Trump’s announcement last October. Like other providers it has created an international shipping service not reliant on a UPU relationship, that would be available in 200 countries. Businesses can continue to ship internationally without disruption, while still receiving similar transit times, customs clearances and competitive rates.

“Different segments of shippers are impacted in different ways,” Felix said. “Larger shippers tend to have more options. This would let small shippers hand off their international packages to the USPS, which would then be delivered to our hubs and routed through our network using other commercial options, leveraging different services once they leave the country.”