USPS's Low Rates for Foreign Shippers
"We lose revenue on every single package we deliver." It was a clear and unmistakable point made by the U.S. Postal Service's inspector general during a recent House Oversight Committee hearing. Federal officials, industry representatives, and members of Congress were discussing the shipping rates that USPS charges to foreign sellers — artificially low rates that are one reason the agency is having so much financial trouble.
The rates come from the Universal Postal Union (UPU), a 141-year-old institution, comprising 192 countries, that works to set international postal prices. Each nation is granted voting power on these rates, and the Department of State handles the negotiations for the U.S.
As a result of this archaic arrangement, the U.S. now has rates that do not cover the costs of delivery. This leaves the Postal Service effectively subsidizing mail coming from foreign senders — costing the agency more than $300 million since 2010.
Such losses are particularly troubling considering the Postal Service’s continuing financial turmoil. The agency has posted losses each of the last eight years, amounting to more than $50 billion dollars. The outlook for the USPS in 2015 remains grim, as the organization reported a loss of $2.25 billion in the first two quarters.
To better negotiate on USPS's behalf, the State Department needs more accurate knowledge of service costs, which the Postal Service has failed to fully analyze. While the Postal Service has said that a move toward shape-based pricing could be an option to help alleviate costs, the reality is that greater systemic cost-tracking concerns persist within the agency.
A recent report commissioned by the USPS inspector general found that the agency needed to employ more thorough and granular cost data to measure how each of its products functions within an increasingly dynamic market. Further, Robert Taub, the Postal Regulatory Commissioner, has pointed out that the pricing regime does not reflect the burden of USPS’s institutional costs.
Intensifying the problems in international mailing is the Postal Service’s agreement to deliver lightweight packages known as ePackets from China at specialized rates: USPS collects just 94 cents on average, losing about a dollar on each package. Someone sending a similar package (up to 4.4 pounds) from one state to another could pay more than $10. Many small businesses have found that sellers from China now have a tremendous ability to undercut prices through low USPS rates.
A better pricing system is sorely needed, both to secure the long-term health of the USPS and to eliminate artificial and detrimental constraints on American businesses.
David Williams is president of the Taxpayers Protection Alliance.