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As U.S. Postage Rates Continue To Rise, The USPS Gives The Chinese A ‘Free Ride’

As the rates of the U.S. Postal Service continue on their precipitous ascent, how cheaply Chinese merchants are able to ship their products thousands of miles across the world to the USA has become emblematic of the stark trade imbalance between the countries as well as the disadvantages that American companies are up against as foreign competitors outmaneuver them in their own backyard.

As you browse through the listings on sites like Amazon and eBay it is almost impossible not to be amazed at how cheaply China-based merchants are selling products for: xlr cables for $.99, a necklace for $.7810 watch batteries for $.78 — all with postage included. Perhaps you may feel a little suspicious or even a touch indignant about these low prices, as you know that you can’t possibly send packages for anywhere near this price internationally or, for that matter, even across the street. How cheaply the Chinese are able to ship products to the USA has become a mystery of sorts in online portals and message boards:

I’ve purchased several items on Ebay that came from China or Hong Kong. I bought a 4 pack of rechargeable batteries for 99 cents with free shipping. A 3 pack of ear bud extension cords with volume control for 89 cents with free shipping…The packages arrive withing [sp] 2 weeks with Chinese postage stamped all over them. How on earth can they sell these items so cheaply and then ship them all the way from Asia for under a buck?

 

However, it’s actually no secret as to how the Chinese are able to ship products abroad so cheaply. The reason is actually rather simple: they receive subsidized postage rates.

But before you scoff and think this is just another example of Beijing disrupting fair trade and tilting the tables in support of their domestic producers, please realize that you’ve pegged the wrong government to be the recipient of your complaints. These super low shipping rates are being subsidized by the U.S. Postal Service. Yes, the United States and, in a roundabout way, the U.S. taxpayer is footing the bill so that Chinese merchants can ship their products to the USA for dirt cheap, essentially losing millions to support a dynamic where domestic American businesses are being undercut by foreign merchants who are immune to any and all intellectual property and consumer safety laws.

 

ePacket

In 2011, the U.S. Postal Service made special agreements with the national postal carriers of China and Hong Kong (and subsequently South Korea and Singapore) to allow tracking-enabled packages not exceeding 36” or weighing over 4.4 pounds to be sent to the USA for extremely low rates. They called this shipping option the ePacket, and the rates are so low that it’s cheaper to ship small parcels from China to an American city than it is to send that same parcel domestically. As Amazon’s Vice President of Global Policy Paul Misener pointed out:

“The cost to ship a one-pound package from South Carolina to New York City would run nearly $6; from Beijing to NYC: $3.66.”

While sending that same one-pound package from New York City back to Beijing via USPS International Mail would cost in the ballpark of $50.

 

No returns

This state of affairs also makes Chinese merchants virtually immune to returns from U.S. customers, turning international e-commerce into a one-way street. As this unfortunate eBay shopper found out the hard way:

I bought an item from a seller in Hong Kong for $6 and $1.50 shipping. The item was broken so the seller told me to return for refund.

The shipping weight is 5 ounces. To ship from the US to Hong Kong with the cheapest USPS service that has delivery confirmation (priority international) it will cost $34.87. To ship 1st class without tracking it will cost $11.48.

How in the world did the China seller pay for the product, pay eBay and Paypal fees, pay for packing material, and ship to me WITH TRACKING for 1/4 of the cost it would cost me just in shipping costs alone to send the item back?

This drastic trade imbalance is severely exacerbated in the melee of global e-commerce, where merchants from around the world are put in direct competition with each other, often selling on the same platforms to the same customers, giving Chinese merchants a huge advantage over their domestic U.S. rivals, who are now being rendered obsolete on their own turf.

Wade Shepard

A USPS ePacket that was used to ship a counterfeit NFL jersey that was purchased on Amazon.com from China to the USA.

Counterfeiters

We’ve previously documented the struggles of Matthew Snow, who runs an innovative t-shirt design company called Boredwalk out of California, against Chinese counterfeiters who are stealing his designs and selling them on Amazon. Another side to that story is that Snow not only needs to compete directly against low-quality, low-price knock-offs of his own product but agencies of his own government are actually aiding and abetting the counterfeiters via these subsidized shipping rates.

“Having to pay less for shipping decreases their overall cost to bring the product to the customer,” Snow explained. “It enables them to offer lower prices, an area where they already have an advantage due to incredibly cheap labor and immunity to all U.S. laws.”

Becca Peter from Lopez Island in Washington state is in a similar situation. She sells something called Washi tape via a website called PrettyPackagesTape.com “at some of the lowest prices of any U.S.-based small business.” But these low prices are nothing compared to what Chinese competitors can sell at. While Peter must charge a flat $3.50 for shipping, Chinese merchants are selling versions of the product with all fees and and shipping charges included for a total price of $2.

The situation for American merchants gets even more dire when they try to compete in the fray of international e-commerce.

“It costs less than $4 to mail a 9-ounce parcel from China to Toronto or London. If I want to mail a 9-ounce parcel to Toronto it would cost me $14.73. If I wanted to send that same package to London it would cost me $21.38,” Snow exclaimed.

Cross-border e-commerce is currently one of the fastest growing economic sectors on the planet, but it is one that U.S.-based entrepreneurs cannot hope to compete in due to the extreme disparity of shipping rates. While Jack Ma talks a big game about trying to get more U.S. merchants selling on his platform in China, it’s pretty much a moot point considering that current international shipping rate conventions makes American merchants uncompetitive from the start.

The impact of this international postal rate imbalance for the USPS is dire. As pointed out in an article on the Washington Post, the USPS loses around a dollar on each ePacket coming in from China. The USPS Inspector General admitted that his agency lost $75 million handling mail from foreign shippers in 2014 alone.

 

Free ride

Overall, the postal service of the USA is getting financially demolished on all fronts, recording losses of over $60 billion since 2007, with $5.6 billion of this coming in fiscal year 2016. As a stopgap, they continuously hike rates for U.S.-based shippers. In January 2017, the cost of first class mail was significantly raised. In September, a new price category was added for lightweight parcels, which essentially boosted the cost to ship them by 12%. This coming January, the rate of first class mail will go up again, crossing the psychological threshold of 50 cents to send a letter domestically, not to mention higher prices to send anything heavier.

Essentially, U.S. shippers are partially paying higher shipping rates to make up for the hit the USPS takes giving subsidies to the Chinese.

“It just adds insult to injury to watch our postal rates continue to climb while China is being given a free ride to siphon all this money out of our economy,” Snow exclaimed in exasperation.

There are also broader economic repercussions to the onslaught of Chinese e-commerce entering the U.S. market. To put it simply, an end consumer buying products directly from China does just about nothing for the U.S. economy — unless you figure in the cuts that platforms like Amazon and eBay take on these sales — and millions and millions of dollars are flowing out of the country each year because of this. Meanwhile, China profits $40-$60 billion each month due to its import/export imbalance, something which will probably grow even larger as China continues development on an array of “cross-border e-commerce zones” — new, Beijing-fueled urban developments specifically geared towards assisting Chinese merchants with selling and shipping their products abroad even more than they already are. Basically, Beijing appears to be using international e-commerce as a tool to suck billions and billions of dollars out of other countries.

It is an understatement to say that the USPS ePacket product is not popular in the USA. In fact, it is generally universally despised by U.S. retailers, private shipping firms like UPS and FedEx, e-commerce platforms like Amazon, and even the USPS alike. The reason why it exists isn’t because the USPS wants to give a helping hand to the hardworking merchants of China, but due to what the Washington Post dubbed a “quirk in an international treaty.”

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