How great is this news? Trump is preparing to withdraw from the 144-year old postal treaty that allows Chinese merchants to ship to the United States for far less money than it costs US merchants to ship within the country. China’s sweetheart deal for super low shipping rates is going away. It’s about damn time!
History of the Universal Postal Union Treaty
The Universal Postal Union Treaty was signed in 1874 to set shipping rates between countries. In 1969, the treaty was revised to set much lower rates for developing countries. At the time this included China. This was done to allow developing economies the opportunity for growth in the global marketplace.
Fast forward 50 years. China is one of the largest economies in the world. They are not economically disadvantaged and the super low prices of e-packet shipping are now creating an unfair competitive market. Not only is China producing products for far less than they can be made in the United States, but they have been able to ship directly to consumers for a lot less than it costs a merchant to ship from one US location to another. This has made it very tough for American merchants to compete. Today 60% of packages shipped into the US are coming from China via this program.
Enter Amazon, Ebay, and Walmart
These three marketplaces are favored by deal shoppers and have encouraged an entire eco-system of sellers who drop ship directly from China. However, it isn’t just the marketplaces that have benefited from Chinese drop shipping. Websites are popping up at a breakneck pace that exclusively drop ship merchandise from AliExpress or Alibaba via platforms like Shopify or home-grown sites like Wish.com, Zulilly.com, etc.
It is our prediction that smaller merchants using this model will disappear. Merchants who stock products on US soil will be better able to compete.
How big a deal is this?
Any merchant can tell you that shipping is expensive and costs keep rising. Given that many merchants must offer free shipping to be competitive, shipping costs eat into profits or cause the merchant to price their goods above the competitive market. A 4.4lb packages shipped between US states runs between $19-$23. The same package costs merchants shipping from China using China Post only $5 to ship to anywhere in the States. Ouch!
Additionally, the US Postal Service has been hurting for years. While there are many factors impacting the operating costs of the USPS, the cost of handling global imports generated a $135m loss in 2016. Stemming this bleed may help prevent the post office from cutting back on services and slow the frequent increases in package costs US residents pay.
What do you think?
How much do you think this shift will impact your business? Is this good or bad news for your store?