Broken UPU Terminal Dues System Outlined in OIG Report

The U.S. Postal Service Office of Inspector General (OIG) researched terminal dues in 2015, with a particular focus on the China to U.S. corridor, to examine concerns and assess the impact of terminal dues distortions in the international small package market. It found:

■ The terminal dues received by the U.S. Postal Service do not fully cover costs, leading to a loss on inbound mail and small packages; and

■ Terminal dues create winners and losers. In certain instances, low terminal dues benefit China Post and Chinese online retailers in the lightweight, low-value package segment at the expense of the U.S. Postal Service and American retailers

The OIG also found, however, that the advantages to posts and e-merchants in low terminal dues countries only go so far:

■ In segments other than lightweight packets, such as heavier, higher-value packages requiring additional services, the rate advantage of low terminal dues posts like China Post decreases.

■ Despite the price advantage that low terminal dues afford China Post, other carriers and consolidators operating in Asia still effectively compete in the Chinese market by providing better service and through direct entry into the U.S. mail processing system.

■ Evolving innovation in cross-border logistics and the rise of alternatives to the terminal dues channel mean that the competitive impact of lower UPU terminal dues, paid by certain countries like China, is less significant than it may appear. Nevertheless, terminal dues remain distortionary, and reform is a necessity.

The OIG report states: In the long term, the terminal dues system should reflect the true cost of inbound delivery. In the interim, the United States should continue to work with the UPU to support the separation of competitive small packages containing merchandise from documents and letters.

While letters would continue to fall under terminal dues, small packages would be subject to self-declared rates that reflect cost and are available to all — posts, competitors, and shippers alike.

The bigger issue is the increasing irrelevancy of the international terminal dues channel in an age of ecommerce because it fails to meet customer demands for speed and reliability. Efforts to ensure this channel’s responsiveness should not only include fixes to terminal dues remuneration but also, in parallel, measures to improve the service quality of cross-border packages. The Postal Service should champion reform to an increasingly anachronistic terminal dues system. Otherwise, it risks becoming an international ecommerce provider of last resort for a residual product that does not reflect associated costs or provide the speed and quality consumers demand.

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