Edward Kiledjian

Have you ever wondered how Chinese retailers can offer free shipping on small items to Canada, while sending a package domestically costs a small fortune? The answer lies in an international agreement that has been shaping global postal rates for nearly 150 years.

The Universal Postal Union

At the centre of this issue is the Universal Postal Union (UPU), an agency of the United Nations established in 1874. The UPU sets rules for international mail exchange, including how much postal services can charge each other for delivering international mail.

The Terminal Dues System

The UPU operates a system called "terminal dues" to determine how much postal services should pay each other for delivering international mail. In the 1960s, the UPU introduced a policy aimed at helping developing countries participate in global trade. This policy allowed these nations to pay lower rates for international mail delivery.

China's Advantage

Despite its economic growth, China has long been classified as a developing country within the UPU system. This classification allows Chinese retailers to ship products internationally at significantly reduced rates.

For example, it can cost around $5 or $6 per kilogram to ship a package from China to Canada. In contrast, sending a one-kilogram package between Canadian provinces can cost about $24, according to Canada Post's shipping rate calculator.

Who Picks Up the Tab?

The discrepancy in shipping costs means that postal services in receiving countries, such as Canada Post, often deliver Chinese packages at a loss. Effectively, Canadian taxpayers and domestic shippers are subsidizing these deliveries.

Impact on Canadian Retailers

This situation puts Canadian retailers at a considerable disadvantage. They are forced to compete with Chinese sellers who can offer free or extremely cheap shipping, while Canadian businesses face much higher domestic shipping costs.

Recent Changes and Future Outlook

In 2018, pressure from the United States led to negotiations for a new UPU deal. While the U.S. secured significant concessions, Canada and other countries can only increase their rates by about 16 per cent annually. According to economist Mindaugas Cerpikin, Canada would need a 200 to 400 per cent increase to close the gap between domestic and international rates.

What This Means for Canadians

For Canadian consumers, this situation has provided access to a wide range of inexpensive products with free shipping from Chinese retailers. However, it has also created challenges for Canadian e-commerce businesses and could impact the financial health of Canada Post.

As international postal rates gradually increase, the e-commerce landscape may shift. Prices for products from Chinese retailers could rise, potentially levelling the playing field for Canadian businesses. However, this process will likely be slow.

In the meantime, Canadian consumers will continue to benefit from low-cost shipping from China, while Canadian retailers and Canada Post grapple with the economic consequences of this complex international agreement.