Tilted Playing Field: How The Postal Service Benefits from Unfair Competition

Issue Brief

The United States Postal Service recently formed the International Business Unit to compete with private sector express package delivery services in the global marketplace. The IBU, noted for its cost overruns and slow service, receives special treatment by the United States Customs Service, a federal agency charged with inspecting all packages coming into the United States and levying the appropriate duties and tariffs.

While private carriers must obey eleven detailed customs regulations, the Postal Service only has to abide by two of those same regulations, according to a recent U.S. Customs Service report. While this regulatory imbalance helps the Postal Service’s International Business Unit, such special treatment hurts its U.S.-based private sector competitors, costs consumers and small businesses, and harms the competitiveness of the nation’s economy.

This report examines the history of the overseas express package delivery business, scrutinizes U.S. Customs regulations, compares the U.S. Custom Service’s treatment of the Postal Service with that of private firms, examines the harm posed to consumers and the economy by this seemingly minor bureaucratic imbalance, and presents a detailed, practical public policy solution.

History of the Overseas Express Package Delivery Business

Receiving an overnight package from a branch office in Paris or a friend in Dar Es Salaam is a common occurrence today. Three decades ago it was virtually impossible.

Private companies began offering “express delivery service” (at the time three business days) beginning in the late 1960’s. By the mid-1980’s, the United Parcel Service, Federal Express, DHL, and others were competing aggressively to deliver business documents and commercial cargoes worldwide. The new express delivery industry grew rapidly.

This rapid growth was fueled by the dramatic restructuring efforts of U.S.-based businesses. As manufacturing and service companies implemented “just in time” inventory practices, and as Internet and catalog sales increasingly relied on direct shipments from factory to consumer, the express delivery industry became a vital link in our nation’s distribution chain. In fact, for many small businesses — by far the fastest growing element of the American economy for the past two decades — private delivery companies serve as their de facto logistics, tracking, and distribution divisions. Without these delivery firms, an Internet clothier would not be able to have a sweater shipped from a factory in Taipei, Taiwan to a customer in Des Moines, Iowa a day after the order is received. In short, business as we know it today would not be possible.

Eyeing the expanding overseas market in overnight package delivery for business clients, the U.S. Postal Service formed the International Business Unit in 1996. The plan was “to boost mail volumes to foreign countries by streamlining the lengthy process of global shipping, which often includes delays and fees for customs inspection,” the International Business Unit’s vice president James Grubiak told Federal Times.1 Postal officials estimated that the IBU would boost international mail revenues from $1 billion in fiscal 1996 to as much as $11 billion by fiscal 2005.2 The IBU created two new products, Global Package Link and Global Priority Mail, in an attempt to tap the increasingly lucrative international business market. The IBU “was really a test of whether the Postal Service could compete against the private sector,” Mike Sundel, a former Postal Service attorney on international matters, told Federal Times.3

The U.S. Customs Service’s Treatment of the Postal Service

Compared with Private Firms

Recognizing the rapid growth of the overseas, overnight package delivery business — especially the need for rapid movement through the customs system — the U.S. Customs Service adopted special regulations for the industry in 1989. While these new rules laid out the procedures for speeding private parcels through Customs, they failed to cover the United States Postal Service, which meant that Customs would treat the Postal Service differently than private carriers. At the same time, the Postal Service devoted an increasing amount of money toward entering the overnight package delivery business on the national and international levels.

Under U.S. Customs law, there are two purposes for import-export regulations: (1) to determine whether the cargo or package may legally enter the United States or whether it is contraband (including banned agricultural products, marijuana and other illegal drugs, or Cuban cigars and other merchandise from trade-embargoed nations) and (2) to assess the proper duties, collect statistics, and establish whether all other import laws are met.

The Customs Service holds the “importer of record” responsible for complying with all laws and paying all duties and other taxes for every item that it brings into the country. Consequently, the importer of record must post a number of bonds and develop an expertise in all the arcana of customs law. In short, the private express delivery firms must act as “importer of record” and bear considerable legal and financial responsibility for every package they handle — a burden which is not borne by their government-financed competitor, the Postal Service’s IBU.

When the U.S. Customs Service streamlined its procedures for the express package business, it required package firms to provide much more detailed information about each package than it had previously. What’s more, it required firms to provide that information in advance of the arrival of the packages and cargo at U.S.-controlled ports. That meant, in practice, companies such as United Parcel Service had to spend millions of dollars developing state of the art electronic systems to let Customs know, in advance, the exact contents and destination of each of the millions of packages that are delivered or transshipped into the United States every day. Using computer tracking systems developed by private carriers, Customs can “flag” suspicious packages. These packages are then put aside by the carrier’s employees for Customs inspection. (The packages which Customs does not flag, by far the majority of parcels, can be immediately released and delivered.)

By contrast, the Postal Service’s IBU does not provide such detailed information to Customs in advance or upon arrival. Instead, Customs inspectors must look at and examine individual packages with virtually no advance screening techniques. This leaves inspectors with a tough decision: treat every package as suspicious and slow delivery for many days (an impractical choice given the high volume of packages) or randomly select packages for inspection. Either way, some contraband inevitably seeps into the United States and duty revenues are lost.

The U.S. Customs Service treats the Postal Service and its International Business Unit very differently from the way it treats private carriers. An array of government reports and private audits have shown that the magnitude of this unequal treatment is both significant and problematic. A few of the differences are outlined below.

Manifest Requirements

Private Carrier: Manifests are official documents that Customs requires shippers to provide. They must include the following information:

Country of origin
Shipper’s name and address
Ultimate destination, recipient’s name and address