by Azoya Consulting
This past week, Trump administration officials notified the Universal Postal Union that the US would pull out of a longstanding postal agreement that provides developing countries such as China with subsidized, low-cost postal shipping rates on shipments to developed countries. The US government plans to pull out of the agreement within a year, though trade officials are open to negotiations.
Trump administration officials have reasoned that this postal agreement gives Chinese suppliers an unfair advantage over local suppliers. Under the agreement, manufacturers and shippers in developing countries can ship items to developed countries at ultra-low rates, with the costs absorbed by member countries' postal offices. It is estimated that the US postal office loses $300 million a year by subsidizing such cross-border shipments.
Chinese companies occupy approximatly 60% of shipments sent to the US. Those sent by post generally consist of lightweight items such as apparel, electronics, and other gadgets. Because of such low shipping rates, many Chinese companies can offer free shipping to US customers purchasing through cross-border platforms such as Aliexpress, Light in the Box, or DHGate.
While postal shipping rates for Chinese suppliers are likely to increase as a result, it is also likely that more private shipping companies will jump into the fold to grab market share. This means that private shipping rates may decrease, giving companies more affordable access to quicker and efficient private services. However, it is possible that Chinese suppliers will pass on the extra costs to US consumers.
On another note, US exporters and cross-border e-commerce companies selling to China are unlikely to see much direct impact. While they do use postal shipping services, these rates are much higher than those covering the China-to-US channel and are unlikely to change much, though it is still too early to tell how China will retaliate.