Analysis: Why It's Cheaper to Ship Goods From Beijing Than New Jersey
I run a 12-person company. Trump’s decision to leave the Universal Postal Union could help small businesses like mine.
Last week, President Donald Trump declared his intention to exit a 144-year-old international postal agreement known as the Universal Postal Union. If he follows through, Trump will be helping the American small businesses that so many politicians woo on the campaign trail, only to abandon once in office.
I run a 12-person business in Rahway, New Jersey, called Mighty Mug. We make a patented travel mug that won’t fall over when knocked, which we ship to every state in the country.
Shipping has become almost invisible to the average American consumer; many assume it should be free when making a purchase. But it certainly isn’t invisible to businesses like mine. We pay the U.S. Postal Service $6.30 to deliver one mug, and we provide free shipping for larger orders despite the cost because consumers expect it.
Almost anyone who makes a desirable product faces the threat of knockoffs eating into his or her market. We are no exception, but we were still shocked to see counterfeit Mighty Mugs pop up like weeds two years ago through an array of e-commerce sites. Not only were those counterfeits cheaper; they also came with free shipping—much of it through air mail, which is the most expensive form of transport—all the way from China.
It turns out that Chinese counterfeiters can offer free shipping because they pay only about $1.40 to send a mug 8,000 miles from China to an American home, or five times less than what we pay. Let the absurdity of that situation sink in for just a moment, and then consider that we can’t ship a mug across the street for $1.40. And if I were to ship one Mighty Mug to China, the U.S. Postal Service would charge me $22.00—or $62.50 with tracking. As the weight of the package increases, so does the problem: We pay up to $17.61 to mail a four-pound package, but a shipper in China pays $3.67.
The culprit is the Universal Postal Union, or UPU, which a century and a half ago set the conditions for global mail exchange. The UPU required postal authorities to give equal treatment to foreign and domestic mail, and established a uniform flat rate to mail a letter anywhere in the world. At the time of signing, it was revolutionary: No longer would senders have to calculate postage for each leg of a journey from country to country. The UPU also created a system known as “terminal dues,” which provided discounted rates for shipments of items up to 4.4 pounds, with the largest discounts going to shippers in developing countries.
Despite being the world’s second-largest economy, China is still classified as a developing country, getting the same subsidized rates as countries such as Cuba and Botswana. What this amounts to, in essence, is a massive undue subsidy paid for by U.S. ratepayers in the form of higher shipping costs.
These subsidies were not much of a problem in the past, when consumers generally bought household products from street-level retail establishments. Now they shop online, and mail has become the primary pipeline for products to travel from a business to a home. There is no efficiency that we or any business can implement to overcome the shipping subsidy that the UPU framework creates. This situation has helped fuel an avalanche of knockoffs online.
Because we have a patent on our product, we can request the removal of knockoff listings, but it’s a game of whack-a-mole. As of today, we have removed more than 1,800 knockoffs, most shipping directly from China, with still more to go. We even use a cutting-edge AI-driven system to detect and take down fraudulent listings—the smartest solution to the dumbest problem imaginable.
Beyond losing direct-to-consumer sales, the UPU has also caused us to lose major retail and distribution opportunities. When potential partners do a simple web search and find knockoff items selling at 50 percent to 75 percent of our price, they stay away. Why stock a Mighty Mug in your store if customers are likely to just buy the cheaper version online?
I spent the past year raising awareness of the UPU and its discriminatory rate structure; my side project was speaking to as many businesses, trade associations, reporters, and government officials as I could get in front of. When I complained to a postal employee about the rates, he suggested that I start shipping products directly from China to take advantage of the situation. Then he told me not to waste my time trying to fix the situation as this issue was “above the president.”
But Mighty Mug is far from the only company dealing with this problem. Other CEOs came out of the woodwork to say that they, too, were fed up, and the National Association of Manufacturers raised the issue directly with the administration. The overall effect of discounted rates on U.S. businesses is difficult to measure, but in the 2017 fiscal year, the U.S. Postal Service lost $170 million on inbound packets from China, and that cost is expected to balloon in the 2018 fiscal year to roughly $300 million.
Since the president announced his plan to leave the UPU last week, I have seen media outlets struggle to figure out how it fits within the broader Trump trade narrative. Is this anti-consumer? Anti-China?
That sort of speculation misses the mark. Sometimes you see a problem that shouldn’t exist, and you simply do your best to try to fix it. What the president did is good for consumers—who may not even realize they’re buying lower-quality knockoffs— good for postal ratepayers, good for the postal service, good for the country, and good for the planet if it discourages wasteful international shipping. It will also go a long way to keeping me and my 12 workers on the job.