Of the various things that are causing uncertainty in the shipping world and the economy as a whole, the re-orientation of the United States’ relationship with the rest of the world vis-a-vis international agreements is high on the list.
From the Paris Climate Accords to TPP to NAFTA, the way the US deals with international trade has been turned on its head.
While the merits of these changes can be argued, the one thing that can’t be argued is the difficulty these changes create (at least in the short term) for shippers.
In the latest shake-up to international trade, the Trump administration has indicated it will pull the United States out of the United Postal Union, an organization that sets postal rates globally – an agreement signed 144 years ago.
It’s clear that this move is directly aimed at China, with whom the United States is currently in a quasi-trade war.
However, what is also clear is that pulling out of this agency will have far-reaching implications for shippers in the United States.
Why Pull Out of this Agreement?
While it will further create uncertainty within the market, there are some concrete reasons for this move.
Firstly, and most importantly, the current agreement treats China as an emerging market. Therefore, they are granted lower postal rates than other countries, like the United States.
As a result, Chinese manufacturers were able to sell their goods at a considerably lower price than US companies.
The structure of the agreement in which China was granted its status was developed in the 1960s. However, there is no debate that China’s economic position internationally has changed significantly since then.
What it Means for Shippers
Given that the provision in this agreement that was the impetus for leaving – significantly lower rates for Chinese companies shipping packages below 4.4 pounds – this move has clear implications for eCommerce.
However, there are larger implications at play.
The heavy subsidies on small packages from China had a clear impact on USPS’ bottom line. If the US holds firm on its stepping away from the United Postal Union, it’s possible that USPS could benefit financially. If it does, future price increases may not be necessary – or, at least, will be less significant than they might have been.
In addition, we are ramping up for a huge holiday shopping season – a season that is sure to blow all other ones out of the water.
If the increased costs for shipping from China get past on to the consumer, which is almost guaranteed, then it’s likely that shoppers will choose domestically manufactured goods more than they would have.
As a result, US shippers are likely to more sales this holiday season. More sales equal more shipping, and with already rising costs and greater pressures, this means shippers need to do everything within their power to mitigate costs and increase shipping efficiency.