With the massive expansion of E-commerce in recent years, the growth in shipping of small packages internationally has been immense. Did you know that the freight rates for these packages are not only set by a country’s postal union (in Canada’s case it is Canada Post), but it is also influenced by the UPU. Not many people have heard about the Universal Postal Union (UPU). The UPU was established in 1874, making it one of the oldest international institutions, and is headquartered in Switzerland. There are 192 countries that are members of this institution, including Canada, the US and China. The UPU aims to serve as a forum for cooperation between postal service providers. It also sets the rules for international mail exchanges and recommends changes to stimulate growth in mail, parcel and financial service volumes.
Recently the UPU has been in the news as the President of the United States of America, Donald Trump, has threatened to withdraw from its membership due to unfair practices which results in China being given favourable rates for freight relative to developed nations. The concern is that the US is subsidizing imports from China of packages under 2 kilograms. In October 2018, the US gave 1 year notice to the UPU that it plans to withdraw unless the organization allows members to determine their own dues. This seems to be another move in the ongoing trade negotiations between the US and China.
The current rules of the UPU, which were negotiated in the 1960s, classify China as a developing economy. These guidelines were in place prior to the explosive economic expansion which resulted in China becoming one of the top economies in the world. Because of this classification, freight rates for small packages from China to developed countries by post, such as Canada, are cheaper when compared to freight rates for the same package going from Canada to China. This is specifically in regards to packages weighing under 2 kilograms coming by mail. Although this has been in place for many years, only recently with the explosion of E-commerce has the difference in prices become more evident.
If the US follows through with this threat, then there would be no agreement in place for postal rates between the US and other member countries. Canada would have to negotiate an agreement on postal rates for small packages with the US. Just like with the contentious USMCA negotiations, the US would have the upper hand in negotiations. Canadian businesses would invariably see an increase in rates for small packages to the US, while US businesses could see a decrease in rates. Analysts say this will have the largest effect on small businesses in Canada that have benefited from the growth of E-commerce and rely on the current postal service rates.
The UPU has proposed amendments that are expected to be voted on in September to try and appease President Trump. These proposals include accelerating the increase in fees and allowing each post office to set their own prices with a limit which would be a percentage of the domestic rate. Whether this is enough to keep the US in the UPU remains to be seen. Once the votes are counted, the UPU will have clarity on how to proceed and the US will react accordingly. Regardless of the outcome, there will be changes to international shipping rates for small packages coming by mail. As Canadian Customs Brokers, Orbit Brokers will keep on top of the developments. Contact Us with any questions or for more information.