The U.S. announced its intent to withdraw from the Universal Postal Union (UPU) late last year. What could this mean for logistics and e-commerce businesses?
In October, the Trump administration voiced its frustration with the rate structures surrounding global postal tariffs. China’s UPU status as a “developing country” makes shippers eligible for discounts on international postal rates, although the economy is now the second largest in the world. This raised concerns about an unfair advantage: Businesses could potentially bypass certain shipping rates via U.S. mail.
The UPU hurried to make adjustments and says changes are coming in April. So what might this mean for you?
What Is the UPU?
The Universal Postal Union was established in 1874 and is one of the world’s oldest international organizations. It was founded on the noble premise that a fair global mailing system requires leveling the playing field to accommodate countries in various stages of economic development. Since its instantiation, membership has grown from 22 countries to 197, and has significantly eased the burden of mailing and postal rates on developing countries. To achieve this, the UPU has devised a system of remuneration, referred to as “terminal dues,” to offset the differences in purchasing power between different countries. In essence, larger economies subsidize smaller ones.
However, the Trump administration’s recent expression of dissatisfaction is not the first; it echoes discontent that has been simmering for years. The Inspector General of the United States Postal Service had examined the issue several years prior, noting in a 2015 report that “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.” Many small businesses have also caught on that for certain items it is cheaper to sell and ship a product from China to the states than to do so within the states. It’s no wonder then, that something was eventually bound to give.
What Will Change?
There are several possible implications for this move. At the policy level, the UPU may adjust the terminal dues system to prevent what is likely their greatest subsidizer from leaving. Moreover, while reevaluating the validity of China’s current status, several other countries with growing economies may fall under the same critical lens.
Alternatively, the UPU may deem the matter too complex to mend by April and the U.S. may then opt out unilaterally. The withdrawal will force some structural and economic shift, as the UPU recovers and compensates for the loss of a major player. Meanwhile, the U.S. will have to determine how best to modify its approach. One apparent solution is to set up mutually beneficial, bilateral deals with each country. However, considering the complexity of this endeavor, it wouldn’t be surprising to see an entirely new system organically emerge. For instance, private parcel carriers may start handling international involvement in lieu of the U.S. postal service, which may completely exit the business of international mail and parcel shipping.
Put simply, unless everyone suddenly forgets that this is happening, the wheels of economic shift have been set into motion. We may not be certain of the type, scope, or magnitude, but considering the near-inevitability of some kind of change, it’s worth revisiting the strategic drawing board to meet the future prepared.
Who Will Be Impacted?
As far as China is concerned, the change won’t likely be drastic. If the cost of shipping rose for items entering the states, large manufacturers would probably respond by investing more in U.S.-based distribution centers and networks. Conversely, small mom and pop shops from China may no longer find it worthwhile to sell overseas, but they derive most of their volumes through domestic e-commerce anyway.
From the American perspective, small businesses may prematurely rejoice in the levelled playing field and loss of aggressive competition — the tenuous assumption being that consumers are willing to pay more for the same products. However, if the art of doing business is anything like courtship — and it is — then domestic players will need a better plan than being content in the role of second best or last-vendor-standing to actually become viable.
The same is true for anyone relying on cheap sourcing opportunities in developing countries. Now may be the best time to shift gears and consider other ways to flaunt your wares.
What Should I Do?
The courtship approach never goes out of style. With so many available options, e-commerce increasingly services a market of one, where building loyalty takes unique services and making customers feel special. As such, you can achieve the edge by understanding your audience and how to serve them better. The internet gets you halfway there through micro-targeting and messaging; step two is fulfilling on that promise.
In this new climate, successful supply chain management capitalizes on micro-targeting via micro supply chains. While the common approach is to lump consumers by convenient categories, businesses can differentiate themselves by taking a more personalized and dynamic approach. Generic rule-building has been common practice, but the long-game masters refuse to be common. Many have already realized the potential of configurable workflows. As long as you’re simultaneously optimizing your operations, you can control each individual shipment and delight each individual customer at no cost to you — or them. Whatever winds of change April brings — or doesn’t — refocusing your strategy toward effectively managing and understanding micro supply chains is a strength against any competitor, in any climate.
Buck Devashish is chief commercial officer for MP Objects, a software provider for supply chain orchestration.