Package from China: Who pays the freight?

Michael R. Czinkota


Running a small business which ships low weight merchandise, say 10 T-shirts or small hardware from China to the United States, made logistics cost easy. The U.S. provided for a large shipping discount of 40% to 70%.


Such generosity came from U.S. membership in the Universal Postal Union (UPU). Founded in 1874, the UPU is the international postal organization in Switzerland, committed to a smoothly running international postal system.

In 1969, the UPU’s developed country members implemented discounts for poor nations when shipping small parcels. China then was isolated with few outward shipments. In consequence, consumers in Washington, the shipping cost of a face cream was more affordable from China than from Los Angeles. Today, however, China delivers more than one billion small packages a year to the U.S. and the special discount treatment continued.

Then there came change. The Trump administration announced U.S. withdrawal from the UPU as of October 17, 2018. The objective was to arrive at competitive and fair global shipping rates. This move showed the Trump Administration’s willingness to leave quit multilateral agreements judged unfavorable to U.S. interests. Although the UPU withdrawal process takes one year, U.S. deep discounts for Chinese packages ended immediately.
Now China Post has introduced a new Express Mail Service. It raised the price of packages to the U.S. from $ 30 to $34 for the first 0.5kilogram shipped. Who pays, who benefits?
The United States Postal Service (USPS) can use higher payments from China. But transshipments through other nations and competition will lead to reduced shipping volume.

The price advantage of many Chinese e-commerce vendors declines. Higher cost of shipping reduces this advantage even further. Most endangered are eBay type international vendors. Sellers who compete on price alone face higher cost and more competition. To survive it will become new practice to find alternatives for product and service delivery both for processes as well as markets.

Adjusting the rules for new conditions makes sense. Few parameters conditions have remained static for 144 years. The UPU should get ready for a significant restructuring. What applies to China, the U.S., and other relationships, applies to other nations as well. One should expect further exploration of antiquated subsidies which have been bypassed by new market conditions. Such tracking can identify new opportunities for change and innovation.

De-subsidization will create market alternatives based on new forms of delivery. Such adjustments will be cost analyzed and competitively compared to achieve higher efficiency. Legislators and internationally active framers of distance trade, such as the World Bank and the World Trade Organization can use this opportunity to pinpoint, develop and scale up models which reflect transport cost sensitive sectors and practices. In addition to greater accuracy and fairness, the President’s initiative for higher prices can lead to higher capabilities, more efficiencies and better services. A good start!

Professor Czinkota teaches international business and trade at Georgetown University and the University of Kent. His latest book is ‘In Search For The Soul Of International Business (Businessexpertpress.com) 2018

Trumps Wirtschaftspolitik in den USA / ZIB 2 vom 02.11.2018 um 22.00 Uhr

Trumps Wirtschaftspolitik in den USA / ZIB 2 vom 02.11.2018 um 22.00 Uhr

 

Trump fostering a new era of prosperity for US-EU relationship

The walk over burning coals with tariffs rattling has been completed and soothing coolness has returned. EU Commission President Juncker came to Washington with a publicly pronounced low level of expectations. But, as could be expected, when it was all said and (hopefully) done, acerbic argument gave way to collegial progress. The United States will be able to sell more of its products to Europe, and, in exchange, the treat of prohibitive tariffs will be eased.

Some believe that these developments were unexpected – like Manna from heaven. Not so! The Trump Administration had undertaken many steps to indicate that trade was a key concern. Unlike the experience of other administrations, President Trump persisted in his intent to support American business domestically and internationally. The shot across the bow of the ship Europa helped to concentrate the minds of policy makers. Yes, they still have other problems, such as NATO, Household deficits, Brexit, migration, and more. However, with the imposition of significant tariffs, Trump made it clear that trade had to move up on the list of important policies to consider.

After much hesitation, the adjustment steps began to take place. And rightfully so, when one considers that it has been more than 70 years, three generations , since the setting in place of U.S. sponsored world trade mechanisms such as the International Monetary Fund, the World Bank and the General Agreement on Tariffs and Trade. Back then, the principal dimension was the strengthening of European economies in order to improve local standards of living and achieve a meaningful defense against the then Soviet Bloc. In support of these goals, the U.S. willingly accepted its leadership cost to a growing excess.

The world changed, as did its opportunities and threats. But the U.S. negotiation approach stayed the same, support others, don’t worry about the drawbacks to the privileged U.S. firms. Over time, the U.S. started to fall behind – lots of imports, few exports, and still no major support from the government. When Trump took on his campaign, he promised changes in the trade picture, and he even lived up to that goal after he won the election. He started to use an anvil and hammer approach to break through old fashioned restrictions and chains. When other nations complained, he warned them of the sparks that could fly during the hammering in a larger forging process. His watchword was ‘reciprocal’ relations.

Now, it has worked out. With reason on both sides there will be progress and stronger linkages. It is gratifying to see how past barriers can be converted into linkages. Decades ago, for example, the river Spree in Berlin clearly marked the distance and separation between East and West Germany. Today, the very same river offers easy crossing and pulls the two river banks together. Its flow encourages rather than inhibits linkage.

The willingness to acknowledge shortcomings and engage in the collaborative implementation of solutions is a new engine for growth. Trump has coached this right, the EU and Juncker are good co-captains. Let the new game begin!

Professor Czinkota (czinkotm@georgetown.edu) teaches International Business and Trade at Georgetown University and the University of Kent. His forthcoming book in October 2018 is In Search for the Soul of International Business.

This commentary was published first by The Hill; Washington D.C. On July 29, 2018