International Postal Rates Harm U.S. Ecommerce and Strengthen Chinese Companies

My name is Jayme Smaldone. I am the founder and chief executive officer of Mighty Mug, a small business based in Rahway, New Jersey.

At Mighty Mug, we make the world’s most innovative – and globally patented drinkware. Mighty Mug grips when knocked, so you can avoid spills.

We have worked incredibly hard and invested a great deal to create something new. We have spent upwards of a million dollars on patents and intellectual property (IP) enforcement.

Like many businesses that effectively compete, we manufacture our goods overseas.  All other aspects of our business, though, are handled in New Jersey, including design, engineering and distribution.

When you shop online, there are two significant costs. These are the cost of the product and the cost of the shipping.

Put yourself in this situation: You are buying a $20 item. Do you also want to pay $5-$10 for shipping? For many Americans, the expectation is increasingly Free Shipping. So, the ability to offer free or low shipping is a major advantage.

As with any significant innovation, it was not long before counterfeit Mighty Mugs, infringing on our intellectual property, flooded the marketplace.

While attempting to remove fake items from the web, our attorney advised that we purchase the knockoffs. During this shopping spree, I came across several fake Mighty Mugs listed for under $6, with free shipping all the way from China. I ordered one and it arrived in just eight days, which meant it shipped by plane, the most expensive transport form. It was delivered to my doorstep by the U.S. Postal Service.

This led me to research and confirm that this Chinese shipper was paying a little more than $1 for the transport of the goods all the way from China. The shipper was doing this by exploiting terminal dues, the postal rates set by a United Nations organization called the Universal Postal Union, or UPU. The UPU grants developing countries, which has been defined to include China, with incredibly low postal rates to ship into the United States.

Seeing this enraged me. To ship that that same item, even to my neighbor via the U.S. Postal Service, costs my company $6.30, more than four times as much.

This meant that the Chinese competitor, infringing on my intellectual property, was being given an advantage so massive it offers the product and the shipping for less than just my shipping.

Let me repeat that, in many cases this insane policy allows Chinese shippers to offer the product and the shipping for less than just the cost of our shipping.

Moreover, as the weight of the package increases – the disparity gets worse. For a 4.4. pound package we will pay up to $20, but a Chinese shipper will be charged a maximum of $3.70.

And this is no small issue. Last year there were, 643 million of these international inbound packages. Most came from China – exploiting terminal dues.

So now you may be asking, does this incredibly low rate go both ways to stimulate our exports. Can Americans obtain $1.50 shipping from the U.S. to China?

When we went to ship Mighty Mugs to China, we were told by the U.S. Postal Service that we would have to pay $22 – and if we wanted tracking $62.50. So, China gets to ship it for $1.50; we get to ship it out for $22.

Even more troubling is that the U.S. Postal Service is losing money on these shipments from China to the United States.

And who is subsidizing these losses, you may ask? According to the Postal Service, American taxpayers are footing the bill by paying inflated rates when we go to ship our international packages. Is that $22 outbound rate starting to make sense now?  So American businesses capture almost no market share in China, while China’s business explodes here.

Welcome to the Postal Episode of the Twilight Zone. American small businesses are being forced to subsidize foreign competitors – with dire consequences.

In addition to incredibly low shipping rates, the Chinese also have no customs duty and no sales tax applicable to their sales, while we have both. These advantages combined with the fact that Chinese labor to pick and pack e-commerce orders are a quarter of what we pay, allow a Chinese seller to offer products at a fraction of what we can offer.

Alibaba, now a $525 billion market cap company, gets massive subsidies on all its small packet shipments into the United States. We, as American shippers get the exercise of chasing their counterfeit sellers around the world, trying to protect our intellectual property.

This is both a comedy and a tragedy. Something that makes you laugh because of its ridiculousness, but one that makes you cry because of its unfair nature.

How can anyone on either side of the aisle say that this is fair or American?

Is it too much to ask that American businesses, which own distribution facilities, employ people in this country and pay taxes here, be given rates that are on par with our foreign competitors?

Lastly, I would like to close with one thought: What message does this policy send to entrepreneurial people such as myself, who want to build big businesses here. By giving this advantage to China, I can be making hundreds of thousands if not millions of dollars more each year, if I simply fire my staff and shift my e-commerce business to China.

I can take all my inventory which has already traveled from China to the U.S., pack it back into a container, send it back to China and then once in China, have my e-commerce orders ship via terminal dues. A Mighty Mug would have now traveled for 24,300 miles, which is the circumference of the earth, and it will still be cheaper than if I shipped it directly to my neighbor in New Jersey, 34 feet away.

If the issues of terminal dues and international postal rates are not addressed soon, we will have a chain reaction of catastrophic proportions. More retailers will go out of business, shedding hundreds of thousands of jobs. Fewer retailers will mean fewer truckers are needed, and companies that sell goods and services to those retailers will also take a significant hit.

Jayme Smaldone is the Founder and CEO of Might Mug, an ecommerce business headquartered in Rahway, New Jersey. The above are prepared remarks for his presentation at the Lexington Institute’s June 15 Capitol Hill Forum on the President’s Postal Service Task Force.