	Background

In fiscal year 2016, USPS handled over 1 billion pieces of international  mail, which included over 976 million pieces of letter mail. The UPU created the terminal dues system in  1969 to establish a means for paying destination countries’ designated  postal operators for the cost of delivering the mail that originated in  another UPU member country. 1). Current Terminal Dues Rates Benefit USPS despite Revenue Losses on Inbound Mail and Have Mixed Effects on Other U.S. Stakeholders

		The Current Rates Benefit USPS, as Increasing Gains from Outbound Mail Outweigh the Increasing Losses on Inbound Mail

According to USPS analysis, USPS has generated positive net revenue  from all terminal dues mail, which has increased from fiscal year 2012 to  fiscal year 2016. 4 for examples). These stakeholders benefit for the following reasons:
U.S. businesses that send outbound terminal dues mail, for example,  e-commerce shippers or magazine publishers, may pay lower postal  rates than what would be set by the destination country’s designated  postal operator to deliver that mail. 2. This price information may not be publicly  available as designated postal operators in other countries might also  have non-published prices. Planned Changes to Terminal Dues Rates Should Reduce USPS’s Losses and Could Affect Other Stakeholders

		Changes Should Reduce USPS’s Losses from Terminal Dues System

Based on our analysis of the changes to the terminal dues system  recently adopted by the UPU and of USPS’s estimates of the financial  impact of those changes, increased terminal dues rates should help  reduce USPS’s losses for inbound mail. As the majority of terminal dues  mail handled by USPS is inbound, the increase in revenue resulting from  higher terminal dues may likely more than offset the increase in USPS’s  costs that will result from increases in terminal dues rates to the countries  where most USPS outbound terminal dues mail is sent. A consultant who has experience in  international mail issues stated that, given some assumptions about  changes in international mail volume, the terminal dues increases will still  not be equal to the delivery costs for domestic postage for inbound  terminal dues mail to countries such as the United States. Changes Could Affect U.S. Stakeholders Differently, but Effects Are Difficult to Quantify

According to stakeholders we interviewed as well as our analysis of  UPU’s terminal dues rates, the projected increase in terminal dues rates  caused by the planned changes to the terminal dues system may  negatively affect U.S. businesses that send outbound terminal dues mail  and U.S. consumers (see table 3). U.S. businesses and U.S. consumers  that send mail to other countries will pay higher postage rates for terminal  dues mail, to the extent that USPS increases its prices to reflect the  higher terminal dues USPS must pay to designated postal operators. While these changes may have different effects on U.S. stakeholders, it is  difficult to quantify the future effects because of limited information and  forecasting variability. However, we also found that the analyses are limited in how they  can predict or describe the effect of the terminal dues system, in part due  to a lack of complete information on the following issues:  the volume of mail, including its type and weight, that flows between  each UPU member country; equivalent domestic postage rates that would be charged to domestic  mailers for service equivalent to inbound terminal dues mail;  the presence of alternative international mail agreements, such as  bilateral and multilateral agreements;  the number of U.S. businesses and consumers that receive or send  international mail covered by terminal dues rates;  the number and market characteristics of U.S. businesses that  currently compete with imported products that are sent under terminal  dues; how terminal dues rates and changes in those rates would affect  supply chains between businesses in the U.S. and other countries;  and,  the share of postage costs of U.S. businesses for outbound mail that  is covered by the terminal dues system and the proportion of total  business costs; how important postage and shipping costs are to total  costs of doing business, domestically and globally. The representatives also noted that they did not  believe their products are able to compete directly with USPS bilateral  and multilateral mail products because the rates for these products are  based on comparatively low terminal dues rates. PRC and State did not provide any  technical comments. Postal Service (USPS), the Department of State (State), U.S. Customs  and Border Protection (CBP), and the Postal Regulatory Commission  (PRC); industry consultants; and selected mail stakeholders affected by  terminal dues. This is a public version of GAO-17-571SU that we issued in August 2017. Therefore, this  report omits proprietary information and certain data related to USPS’s  revenues, costs and volumes for international mail. The UPU uses the country groups to, among other things, apply  terminal dues rates to international letter mail sent between member  countries.
Why GAO Did This Study

In 2016, USPS handled over 1 billion pieces of international mail—both inbound (received from other countries) and outbound (sent to other countries). International mail is governed by the UPU, which is comprised of over 190 member countries, including the United States. The UPU establishes remuneration rates, called terminal dues, for certain types of international mail exchanged between member countries. Questions have been raised about how current and future planned rates for terminal dues affect USPS and other stakeholders that are involved in international mail. GAO was asked to review the terminal dues system.
Among other issues, this report examines the financial effects of: (1) the current UPU rates for terminal dues and (2) the planned changes to those rates on USPS and mail stakeholders. GAO analyzed USPS's mail data for fiscal years 2012–2016; USPS's, the Postal Regulatory Commission's (PRC), and UPU's policies and documents; and applicable U.S. statutes. GAO interviewed USPS, PRC, and Department of State officials, and mail stakeholders, including U.S. companies, such as FedEx and UPS, and consultants. These stakeholders were identified through public comments made to PRC on proposals related to terminal dues. While not generalizable, the views provide illustrative examples.
This is a public version of a sensitive but unclassified report issued in August 2017. Information related to USPS's revenues, costs, and volumes for international mail that USPS has deemed proprietary has been omitted from this report.

What GAO Found

The Universal Postal Union (UPU), a specialized agency of the United Nations, created the terminal dues system so that designated postal operators in member countries could compensate designated postal operators in other countries for delivering mail in those countries. GAO found that it is not possible to quantify the financial effects of the terminal dues system on various U.S. mail stakeholders because the data needed to conduct such an analysis are not readily available. However, stakeholders GAO spoke with and literature GAO reviewed described differing impacts of the terminal dues system on U.S. stakeholders. For example,
Analysis by the United States Postal Service (USPS)—the U.S. designated postal operator—found that the rates for inbound international terminal dues mail does not cover its costs for delivering that mail in the United States. As a result, USPS's net losses on this type of mail more than doubled between 2012 and 2016. In contrast, USPS analysis indicates that the rates for outbound international terminal dues mail has resulted in net positive revenues for USPS, which offset the losses from inbound terminal dues mail.
U.S. businesses that send outbound terminal dues mail may benefit to the extent that their costs to mail items to certain countries through USPS may be lower than the actual mail delivery costs in those countries.
U.S. consumers who receive imported products may pay lower mailing costs for products originating from low terminal dues rate countries.
Express consignment operators such as FedEx and the United Parcel Service said the terminal dues system creates a competitive disadvantage for them. Representatives from these companies said that they have difficulty competing for some international mail business because they cannot offer pricing as low as the postage based on the terminal dues rates offered by designated postal operators.
The UPU adopted increased terminal dues rates for member countries starting in 2018. GAO found that these planned changes could affect U.S. stakeholders differently, but the effects are also difficult to quantify because of limited information and forecasting variability. Nevertheless, stakeholders identified examples of the potential effects that the planned changes could have on them. For example:
For USPS, an increase in inbound terminal dues rates should reduce related losses for delivering this mail; although USPS's costs may increase from paying higher terminal dues rates to countries where USPS sends most of its outbound terminal dues mail.
U.S. businesses that send outbound terminal dues mail may have to pay higher postage to USPS to cover the increase in terminal dues rates to send mail to other countries, thus increasing costs to them.
U.S. consumers who receive lower-priced imported products may experience a reduced benefit because of the higher terminal dues rates for inbound mail.
The increased rates for inbound terminal dues mail may allow rates offered by express consignment operators to become more competitive as they may be able to offer their mail products at more comparable costs.