Business

International Agreement Forces USPS To Lose Money On Foreign Mail

A 141-year-old international organization forces the United States Postal Service to deliver foreign mail at a loss, costing it over $300 million since 2010.

At a hearing held Tuesday by the House Committee on Oversight and Government Reform, representatives of the USPS, Department of State, and private companies all testified that the existing approach to international shipping rates creates market distortions that hurt American businesses and consumers in the form of reduced competition and higher postage rates.

International postage rates are set by an body called the Universal Postal Union (UPU), an organization established in 1874 and tasked with facilitating the international exchange of mail by requiring participant countries to provide universal postal service at predetermined rates.

Currently, the rates set by the UPU for mail entering the U.S. are actually lower than the cost of delivery, effectively forcing the USPS to subsidize foreign mailers. (RELATED: Postal Service Posts $1.5 BILLION Loss in Second Quarter)

“We lose revenue on every single package we deliver,” testified USPS Inspector General David Williams, adding that the Postal Service’s cumulative losses from international mail are now approaching $308 million since 2010, contributing to the agency’s perennial, multi-billion dollar deficits.

Since 1998, the State Department has represented the U.S. at the quadrennial UPU Congress, and Tuesday’s hearing offered a forum for industry stakeholders to outline the goals they want diplomats to pursue at the next Congress, which will meet in 2016.

UPU rates vary according to a complex formula that categorizes countries based on their economic size and level of development, explained USPS Acting Chief Information Officer and Executive Vice President Randy Miskanic.

For most industrialized countries, international rates are based on domestic postage rates, and because the U.S. has among the lowest domestic rates of any such country, “the U.S. is one of the least expensive countries for foreign target countries to mail to, and the financial performance of inbound international mail for the Postal Service suffers.”

According to Amazon Vice President for Global Public Policy Paul Misener, however, the problem is exacerbated by a USPS agreement with China Post to make lightweight deliveries at even lower rates, with the result that “shipments from China to points throughout the United States are often cheaper than shipments entirely within the United States.” (RELATED: Penniless Postal Service Promotes Discounted Rates for Chinese Merchants)

“Shipping a 100g parcel to Fairfax, VA would cost a small business in Marion, N.C. at least $1.94, at a distance of 340 miles,” Misener pointed out, “but [the same package] would cost a company in Shanghai only $1.12, at a distance of over 7,000 miles.”

Not only do such agreements create a competitive disadvantage for American companies of all sizes, Misener claimed, they also “discriminate against American domestic shippers,” which cannot hope to compete with the generous rates imposed by the UPU. (RELATED: How a Concept Called an ‘NSA’ May End the USPS)

“Does anyone want to take the stance that China deserves more subsidies from the United States?” asked Democratic Rep. Gerald Connolly. “I didn’t think so,” he remarked after a moment of silence during which none of the witnesses sought to take up the challenge.

“In today’s global economy, American business will not always win,” Frontiers of Freedom President George Landrith said in a press release. “Yet losing at the hands of flawed policy from a quasi-government agency like the United States Postal Service is simply unacceptable.”

“Put simply,” Landrith argued, “the USPS should not be subsidizing international package shipments to the detriment of American businesses and consumers, and Congress is right to look into this misguided policy.”

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