The UPU Congress Could Spell Disaster for International E-commerce (or not)
Last fall, the United States announced its intention to withdraw from the Universal Postal Union (UPU) – an international postage treaty that the US has been a part of since 1875. The UPU is set to convene an Extraordinary Congress (only the third in its history) in Geneva at the end of this month to “make decisions on the three options for a possible revision of E-format letter-post item remuneration before the end of this Congress cycle.”
The main complaint from the US is that, due to an outdated system of economic rankings, now-thriving economic superpowers like China are benefiting from discounted international shipping rates. Without a drastic modernization of the member nation contribution responsibilities (which have not been updated since the 1960s), it is unlikely the US will remain in the treaty.
That’s when things could get interesting – and probably not in a good way. Should the Trump administration deem the outcome of the UPU Congress to be unsatisfactory, the US is expected to follow through with its promise to withdraw from the UPU agreement entirely by this October. Ending this multilateral treaty between 192 member countries – including the U.S. – could send shock waves through the United States Postal Service (USPS) and cause significant disruptions to international e-commerce.
However, should an agreement be reached, the playing field may wind up a bit more level for US sellers who, in some cases, are currently paying more to ship a package to their own neighbor than it would cost a business in China to send an E-Packet to that same address.
The Best Case Scenario
Based upon the current trade war maneuverings between the US and China, it is a safe bet that it will take a drastic change to the current way postal rates between UPU countries are calculated for the US to remain in the agreement. This is not to say that a favorable outcome is impossible, but anything shy of a perceived parity between the US and China is unlikely to sway the Trump administration from its plan to leave the UPU.
To understand how we have gotten to this point requires a basic understanding of how the treaty functions. The UPU agreement is based on a formula whereby countries are assigned to specific contribution classes relative to their overall economic strength – that is, their economic strength in 1960 when the UPU last calculated these figures. Countries receive significant discounts when shipping to a higher-ranked nation and typically pay more when shipping to a lower-ranked one.
As it stands, China’s “contribution units” responsibility to the UPU is 25 (the same as smaller economies like Italy and Spain) whereas the US tops out the scale at 50. This notable disparity allows China to ship products into the US at rates that are lower than most domestic US shipping rates.
Should China’s expected contribution levels rise to meet those of the US, there is a chance that the US will consider remaining in the UPU agreement. This would be a big win for US e-commerce sellers who have long been fighting to be able to compete against goods shipped to the customer directly from China as well as marketplaces like AliExpress where Americans are increasingly purchasing directly from Chinese e-commerce businesses. Furthermore, this scenario would create minimal to no disruption of current international shipping practices for US sellers.
The Worst Case Scenario
While finding an acceptable resolution to the current US dissatisfaction with the UPU agreement would be great, it’s not likely. Come October, America’s international shipping policies may be totally upended.
The USPS has been operating under the UPU since the 1870’s. It is almost certain that withdrawing from the treaty would create substantial disruptions for exporters and e-commerce sellers shipping internationally. Making matters worse, there is currently no public indication that the USPS has a plan in place for how to handle mailing international packages in a post-UPU world.
Not only that, it has been reported that existing negotiated service agreements with the USPS may be dissolved. Losing these types of favorable rates will surely hamper if not shutter international sellers that currently depend on these deals to maintain profitable margins.
The Middle Road
Still, there is a potential result that lands in the gray area between ideal and awful.
Withdrawing from the UPU means that the US will have to renegotiate bilateral shipping agreements between each of the 191 other UPU nations. The odds of this being a swift process are low. However, negotiating terms with popular shipping destinations like Canada, the UK, the EU, India, South Korea, and Japan will likely be a high priority.
In this scenario, the USPS would continue shipping to the most popular destinations with minimal disruption. Unless your e-commerce business relies on more obscure international customer bases, your bottom line should not suffer too significantly.
Be prepared for every possible outcome
When it comes to international e-commerce, the ability to ship products to the customer smoothly is critical to growing your business. This is why even though SellerCloud began as a channel management product, we have continually invested in building out our shipping functionality from within our platform. No matter how the chips fall in Geneva, the SellerCloud e-commerce growth platform has you covered.
Should the US withdraw from the UPU, SellerCloud is ready to continue shipping as usual with an automated contingency plan: if you try to ship merchandise using USPS Priority International service (the current UPU-compliant option) to a country that is no longer served, we will automatically generate an alternative label that complies with whatever new policies are put in place. This will ensure your packages get where they need to be, when they need to be there. You won’t have to worry about your merchandise being stuck in export limbo.
Additionally, SellerCloud maintains integrations with some of the world’s leading third party logistics (3PL) providers. These partnerships allow sellers to maintain, ship, and track large quantities of international inventory from 3PL warehouses located in the countries where your customers reside. Rather than ship each international order from the US, customers can receive their merchandise from your stockpiles being housed abroad. This helps reduce shipping costs and prevent shipping delays to the customer. Should something go wrong with an international order, 3PL providers can also become your destination address for international returns. What’s more, SellerCloud’s software makes it easy to keep track of inventory levels across all of your warehouses and will even alert you when it is time to resupply. In times of international uncertainty (like now), reliable 3PL partnerships are valuable commodities.
In the grand scheme of things, your business may actually benefit from this current turmoil. The US leaving the UPU will create a gap in the shipping market that third parties will gladly fill. Logistical consolidators will gain market share and, with economies of scale, be able to provide more cost effective and streamlined shipping options. There’s a good chance that an increase in competition in the international shipping space will eventually drive prices downward.
Ultimately, it is too early to tell how all of this will play out and consequently affect international shipping rates. In the meantime, be sure to keep an eye on the situation – we will, too.
Not sure how to prepare your international e-commerce business for all this uncertainty? Reach out to us directly to discuss how the SellerCloud growth platform and our stable of direct third party integrations can help protect you against these types of policy shifts and the potential disruptions they create.