Why is it cheaper to ship products from China? – Exploring the economics of international shipping

Why is it cheaper to ship products from China than from Canada?

The Dilemma of Shipping Costs

Neil Pitman, residing in Sherbrooke, Quebec, was astounded by the price difference between shipping a replacement part for his pressure cooker from the United States versus China. The part would have cost him less than a dollar if shipped from China, whereas ordering it from the United States would have set him back $22.99. Pitman frequently purchases items from eBay and has consistently noticed how shipping from the United States is much costlier than shipping from China. He expresses his frustration, stating, “The shipping costs from China are virtually nothing. And I would like to buy American or Canadian products, but even from the next province over, it’s much more expensive.”

Shipping Costs from China vs. Canada

Serasu Duran, an associate professor of operations and supply chain management at the Haskayne School of Business at the University of Calgary, explains that shipping a package from China to Canada can cost around $5 or $6 per kilogram, which is quite inexpensive. On the other hand, according to Canada Post’s shipping rate calculator, sending a one-kilogram package from one province to another can cost around $24. And it would cost $28.50 to send a one-kilogram package from Canada to China, depending on its size. The significant difference in shipping costs is evident.

A Historical Perspective on Shipping Rates

The reason for this discrepancy in shipping costs dates back to 1874 and revolves around an international agency called the Universal Postal Union. Sending a letter from one country to another was exceedingly challenging during that time, as explained by Paulus Schoorl, a program director and policy advisor for the Universal Postal Union in Bern, Switzerland. He states, “If you sent a letter through multiple countries, you had to pay dearly. Each time the mail crossed a border, the sender had to bear an additional cost. It was terribly complex and difficult to send a letter from one country to another, sometimes through different jurisdictions or administrative zones.”

A meeting was held in Bern, Switzerland in 1874, where representatives signed the Berne Treaty, leading to the creation of the Universal Postal Union. It was an agreement in which countries would transport letters and small parcels from other countries free of charge. At that time, it was decided that all postal services fell under universal service, according to Schoorl. The idea was that everything would balance out, with each country aiding one another.

An Imbalance and Consequences

One hundred years later, a change occurred. Schoorl explains that Italy experienced an imbalance. Italian mail carriers handled a higher volume of international mail as Italians ordered heavy magazines, but the country did not send as much mail as it received. In the 1960s, member countries of the Universal Postal Union reached a new agreement. If a country received more international mail than it sent, it would be paid for the difference. At that time, it amounted to half a gold franc, a currency formerly used by international organizations, per kilogram of international mail. However, not all countries could afford it. The Universal Postal Union established a fee structure in which wealthier countries paid more for the distribution of their international mail than developing countries.

China was considered a developing country at that time, so international mail was charged at a lower rate compared to other countries. This situation remained unchanged for decades.

The Advantage of China‘s E-commerce Boom

With the surge of e-commerce in the 2010s, China gained a significant competitive advantage. It could ship goods to North America at a favorable rate. Postes Canada and the American postal services delivered packages without receiving substantial compensation, explains Schoorl. In 2018, then-U.S. President Donald Trump objected to the rates and threatened to withdraw the country from the Universal Postal Union. The United States and other countries, including Canada, were able to negotiate a new agreement with the Universal Postal Union. According to Mindaugus Cerpikin, an economist studying the postal system in Copenhagen, the United States obtained the most significant concessions. While Canada has been able to gradually increase its rates over time, Cerpikin believes that the gap persists. The United States has been allowed to raise its fees and has been able to do so at a faster pace than other industrialized countries. Canada and other countries can increase their rates by about 16% per year, according to Cerpikin. While 16% may seem substantial, it is worth noting that countries like Canada need an increase of 200% to 400% to bridge the gap between domestic and international rates.

Postes Canada’s Response

CBC reached out to Postes Canada regarding shipping fees within the country. While the company declined an interview, spokesperson Lisa Liu provided a response via email. She stated, “Parcel rates are not regulated and are entirely competitive within the industry.” Postes Canada determines shipping rates based on various factors, including origin, destination, and population densities. The weight, size, processing costs, transportation, and delivery are all taken into account when calculating the rate.

The Impact on Supporting Local and North American Suppliers

In the meantime, Pitman would like to support local commerce and purchase from North American sellers. However, as long as shipping costs remain high, he finds it difficult to justify it. Pitman states, “I would like to prioritize Canadian and American suppliers, but it doesn’t make any sense.”

Reported by Philip Drost of CBC Radio.