If you've ever ordered individual products from China, you've probably seen that many of them come with free shipping.
When ordering things online, it may cost you less to have packages delivered from faraway parts of the world than to have the package sent to you from a store down your street.
Logically, shipping would mail and parcels across the ocean must have cost more than locally, but that's not quite the case.
Have you ever wondered how that's possible?
Here we will try to answer that question, and you will find out what Trump did and what made China angry.
International shipping rates are usually calculated to cover the "first mile" carrier costs, then the package transportation from the country of origin to the destination country, and the "last mile" carrier costs.
The first and last mile costs are the highest since they are costs where someone has to physically deliver the shipment to you personally, so the human factor and its labor cost are included.
The last mileage was provided by the destination and was free until 1969, when the members of the Universal Postal Union (a UN organization) adopted a system of "terminal duties" for the calculation of postal points intended to cover the actual costs incurred at the destination post offices and improve service quality.
The reason China sellers can offer a low price not only on products but also on shipping is because of the low first mile charges made by China Post and the low terminal fees applicable to the U.S. Postal Service (USPS).
What the Chinese saw from the start is that customers especially like free shipping. Many buy only those products that have free shipping.
In fact, customers are more likely to choose an item with free shipping than the same product that has both the product price and shipping cost highlighted, even if the total cost is the same.
An illogical calculation in the report of the US Postal Service for 2015 was the trigger for President Donald Trump's decision to withdraw from the Universal Postal Union, which is one of the world's oldest international organizations.
According to the data of the US Postal Service, postage for a small 2 kg shipment from one US state to another would cost about $20, but sending the same package from China would cost only $5.
Trump claimed that China pays discount rates for international shipping within the system and that this hurt the U.S. Postal Service.
The move to leave the Universal Postal Union, which oversees international mail exchanges, is Trump's latest protectionist move aimed at revoking China's competitive advantage over the U.S.
Followed by his accusation that China meddling in the US election and the continuing strain of the trade war between the US and China.
While Trump has distanced the US from several international organizations and treaties, the move to withdraw from the UPU could directly affect the daily lives of consumers when it comes to e-commerce.
What is UPU and why is it important?
From sending letters to receiving packages purchased online, postal rates are set by the UPU every four years for its members in 192 countries around the world.
This seemingly obscure organization based in Switzerland coordinates rates and standards between almost every national postal service. system in the world.
According to its mission statement, the goal of the 144-year-old organization is to "establish worldwide postal security, encourage and promote the creation of postal security services" among member countries.
The UPU terminal tariff system is at the heart of Trump's accusation that China has benefited from the arrangement, because poor and developing countries pay lower rates than rich countries.
All postal operators pay terminal fees to compensate foreign postal services for delivery their foreign posts.
When a letter or parcel is mailed abroad, the postal administration of the sending country - which received the postage payment, usually in the form of a stamp - pays terminal fees to the destination postal service for its part of the delivery process.
The UPU system divides countries into categories based on their level of development, which determines the terminal fee rates they pay to each other.
The US is classified as a “destination” country and China as a “transit” country.
UPU still considers China a “transit” country, meaning it enjoys a lower rate for sending mail to a developed nation like the US .
As a result, postal services from China to the U.S. cost less than Americans charge their postal service for domestic delivery.
The Trump administration has said this hurts U.S. businesses because U.S. customers can buy products at a lower price. prices, even when shipping costs from China are taken into account.
The US Postal Service reported that in 2016, the lost more than 135 million US dollars by importing from all over the world.
What will happen if the US withdraws from the UPU?
Within the UPU, it takes a year for a state to withdraw from the framework, during which rate negotiations can be conducted.
"If the negotiations are successful, the administration is ready to cancel the withdrawal notice and remain in the UPU," said White House spokeswoman Sarah Sanders.
The president wants to pass the "self-proclaimed rates" as soon as possible, but no later than January 1, 2020, she said.
There is no information on how to adjust the rates, but earlier in August the US State Department said it would encourage foreign postal carriers to pay the US Postal Service more to deliver small packages within the US.
The State Department also said it would ask foreign postal services to deliver data that will help customs officials detect drugs and other illegal shipments entering the country, which could also increase the cost of sending mail to the U.S. from abroad.
Who will be affected by the official withdrawal from the USA?
Amazon.com and United Parcel Service, both based in the US, have long argued that the current UPU system is unfair and are pushing for a review of shipping costs to increase their competitiveness.
However, both American and Chinese consumers likely to have higher product prices that increase new shipping costs.
Expanding Chinese e-commerce platforms like Alibaba, which owns the South China Morning Post, which ships goods overseas, could risk losing trade if postal rates rise .
In 2017, China's e-commerce transaction volume reached 8.2 trillion yuan (US$1.1 trillion), an increase of 22.3% over last year, according to a report last year month in Beijing.
Topping the list of cross-border postal destinations for e-commerce products from mainland China were Hong Kong, the USA and Russia.
For more information on this topic, listen to the podcast here.
While they fight it out, we can still enjoy shopping for cheap products with low shipping or free shipping!
