U.S. Ecommerce Merchants Disadvantaged by Outdated Shipping Rates
Cross-border ecommerce and shipping are thriving, with a notable disparity in shipping costs between Chinese and U.S. merchants. While Chinese merchants can ship to U.S. consumers at remarkably low rates, U.S. businesses face higher costs due to an outdated international postal system.
The root of this issue lies in the International Universal Postal Union's (UPU) classification system, established in 1969. The UPU groups countries into categories with varying postage rates, placing the U.S. in the highest group (1) and China in a lower group (3). This system allows China's ePacket program to offer cheaper shipping to the U.S. than domestic shipping within the U.S.
The ePacket program mirrors the effect of the international terminal dues agreement, putting U.S. ecommerce merchants at a competitive disadvantage. The U.S. Postal Service (USPS) incurs significant losses, amounting to millions of dollars annually, due to this system. The entire terminal dues system is now under review, as it was designed in an era before the dominance of ecommerce and international shipping.
The cheaper international freight costs, especially by sea using consolidated shipping and optimized routes, benefit from economies of scale, specific logistical efficiencies, and negotiated carrier contracts. In contrast, domestic shipping involves more fragmented delivery networks and higher per-unit handling costs.
The UPU's classification system and the ePacket program put U.S. ecommerce merchants at a disadvantage. The U.S. government and the USPS are reviewing the terminal dues system to address this imbalance. Failure to do so could lead to further loss of U.S. ecommerce businesses, resulting in lower tax revenue and fewer jobs.
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