When you mail a letter or small package (below 4.4 pounds) to another country, the U.S. Postal Service pays what is called terminal dues to the destination post for its share of processing and delivery of the item. It’s the same all over the world. Posts pay each other terminal dues to process and deliver cross-border mail.
Terminal dues have generally been kept artificially low — below domestic postage rates — because of a complex negotiation process. As a result, the Postal Service and other operators have lost money on international postal letters and packages received from abroad, especially from emerging countries like China. On the other hand, they have paid less than what it costs to deliver the item to countries with high postage rates like Norway.
These economic distortions are not new. For decades the Universal Postal Union (UPU) — the United Nations agency that governs the international terminal dues system — has been working to reduce the gap between terminal dues and domestic rates. The UPU’s one-country-one-vote decision-making system has made progress slow and difficult given countries’ widely divergent views and interests. The Postal Service has been able to negotiate with selected countries separate rate agreements that are more favorable than terminal dues — but this is just a partial solution.
With the influx of ecommerce packages, especially from China, some U.S. stakeholders have complained that Chinese online retailers have an unfair advantage over their U.S. counterparts because low international shipping rates afforded by low terminal dues allow them to ship goods to the United States for less than U.S. domestic rates. Private carriers competing with posts have also said they are disadvantaged because they don’t have access to low terminal dues. Congress considered the issue during a June hearing on terminal dues.
Our new white paper analyzes the terminal dues system and finds that in certain instances, low terminal dues benefit China Post and Chinese online retailers in the lightweight, low-value Air Mail package segment, at the expense of the U.S. Postal Service and American retailers. However, those packages can take 2-3 weeks to be delivered, and no tracking is available. When it comes to shipping heavier, higher-value packages requiring additional services, the rate advantage of low-terminal dues posts, such as China Post, decreases. In addition innovations in cross-border logistics create alternatives to the terminal dues channel, making it potentially less relevant.
The paper suggests an overhaul of the terminal dues system, and reviews reform measures under discussion.
Should the U.S. Postal Service charge the same rates for domestic deliveries and international deliveries of small packages from abroad? Do you think the rates postal operators charge each other to deliver inbound mail and small packages are better handled through commercial agreements among operators, or through global negotiations among governments?