December 14, 2015 (RARC-WP-16-003)

  • Terminal dues, which posts use to pay one another for international deliveries of letters and small packages, have generally been set below domestic postage rates.
  • As a result, the terminal dues system fails to cover many postal operators’ processing and delivery costs for international inbound mail and thus hinders competition.
  • Our research shows the terminal dues system creates definite winners and losers among posts and retailers, and comprehensive reform of the system is needed.

Terminal dues is the system that posts use to pay one another for international deliveries of letters and small packages. The global terminal dues system, updated every four years by the Universal Postal Union (UPU), does not fully reflect actual domestic processing and delivery costs.

As a result the U.S. Postal Service and other operators have lost money on international postal letters and small packages received from abroad, especially from emerging countries like China. The explosive growth in cross-border ecommerce traffic has greatly elevated stakeholders' concerns about the economic distortions created by the system.

In our report, we assess the impact of these distortions in the international small package market, with a focus on the U.S.-to-China corridor. Our research shows that terminal dues create winners and losers among posts and retailers:

  • In the lightweight, low-value package segment low terminal dues benefit China Post and Chinese online retailers at the expense of the Postal Service, other international carriers operating from China, and American retailers.
  • In other segments, such as heavier, higher-value packages requiring additional services, the rate advantage decreases. In addition, other carriers effectively compete by providing better service or through direct entry into the U.S. mail processing system.

We also note that the emergence of alternative remuneration methods (such as bilateral agreements) that circumvent the terminal dues system, and innovative, non-postal logistics value-chains reduce the competitive harm that lower UPU terminal dues may cause. At the same time, however, they threaten the relevance of terminal dues.

Finally, the paper addresses the need for comprehensive terminal dues reform and discusses possible fixes to the system, such as moving all small packages from terminal dues toward self-declared, cost-reflective rates.

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Comments (2)

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  • anon

    My Pension check, sent the 1st of every month from SF Lithographers Pension plan in Seattle to my address in the UK has recently been arriving on the 28th or 29th of every month. It used to arrive on the 2nd or 3rd of the month a few years ago but has been getting later and later. Royal Mail in the UK delivers 1st class items the next day. Pensions must be paid timely. That is a universal law. The Pension Plan officers are receiving many complaints about late payment from members and this is due to USPS failure to deliver ordinary mail timely.

    Dec 15, 2015
  • anon

    @Stuart Johnson - What has your comment got to do with the subject at hand (Terminal Dues) ? In any case, you don't have a USPS problem. You don't have a pension plan problem. So where does that leave the responsibility? You need to (politely) handle this concern with your pension plan, and it would seem that they might be willing to offer you the chance to allow a deduction from your payment to cover the cost of Federal Express if you are in such a hurry. But it would be irresponsible of the pension plan to fund the use of other than a least cost provider (USPS) for their mailings, and unreasonable of you to expect least cost delivery to be quick delivery. It would also be irresponsible for a financially strapped USPS to squander money expediting mail traveling in a service for which they are already being inadequately compensated. So, if you want faster, YOU should pay for faster, and it would be nice of the pension plan administrators if they elected to accommodate such special arrangements on your behalf. I know of no "universal law", regarding pensions or otherwise, and I think you are engaged in wishful (delusional?) thinking in that regard. But a requirement to "pay timely" would, in U.S. law, be satisfied by placing the payment in the mail in a timely fashion. How long it takes after that is not legally a burden for the pension plan. Placing an item with USPS is generally considered to discharge requirements for timeliness. Offhand, you seem to be a person who wishes to choose something other than that which is ordinary (by living abroad) which it is your absolute right to do. But rather than accept responsibility for the consequences of that atypical choice, you expect others to go out of their way (and out of pocket) to keep your own choices from discommoding you in the smallest way. This sort of selfish whining has become all too common, and as an American, I am embarrassed to think that one of my fellow citizens is behaving in such an unseemly way while living in another country. No wonder we are haunted by the phrase, "Ugly American". It is very odd that you chose an unrelated comments section on this site to blame the USPS for something in which they are blameless, and to whine about the fact that in honoring their fiduciary obligations, the administrators of your pension plan are failing to squander money on you for expedited international mailing. For an old guy, you sure seem selfish and immature. Look in the mirror, not at the post office or the pension plan when fixing blame for the timing of your checks. Sincerely, A fellow old guy who owns his problems instead of blaming everybody else and expecting them to pick up the bill. BTW- I have no affiliation with the USPS other than the mailbox in front of my house. I have some issues with them, but fair is fair, and they deserve to be defended against over the hill hipsters having hollow tantrums on the Internet.

    Jan 09, 2016

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Contributors

  • Jean Philippe Ducasse, Paola Piscioneri, Amanda Stafford, Renee Sheehy, and Harrison Grafos contributed to this report.

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