Why Free Shipping from China Was Possible

Note on updates: This article explains why it used to be possible, for years, to order small parcels from China with “free shipping,” thanks to the rules of the Universal Postal Union (UPU) and very low postal rates for China. Those rules and prices have changed since then — especially in the EU, where a flat €3 duty on small parcels is being introduced — so please treat this article as an explanation of the system, not as a description of today’s situation.

If you ever ordered individual products from China, you have probably noticed that many of them came with free shipping. When you shop online, it often turns out to be cheaper to have a package sent from the other side of the world than to get a similar package from a store right across the street.

In theory, sending mail and parcels across an ocean should cost more than local delivery, but for a long time, that is not how it looked in practice.

Have you ever wondered how that was possible?

In this article, we explain why China had such low postal costs, what Trump tried to change, and why China was so angry about it.

How the first and last mile work

International delivery rates are usually built to cover the cost of the “first mile” operator, the transport of the parcel from the country of origin to the destination country, and finally the cost of the “last mile” operator.

The first and last mile are the most expensive parts, because that is where someone physically has to pick up and deliver the parcel. This is where labour costs and hands-on logistics matter most.

Until 1969, the cost of the last mile was covered by the postal service in the destination country and was not really charged separately. That year, the member countries of the Universal Postal Union, an organisation within the UN, introduced a system of terminal dues so that postal services in the destination country would at least receive part of the money needed to cover real delivery costs.

The reason sellers from China could offer such low prices not only on products but also on shipping was a combination of low first-mile costs (China Post) and low terminal dues that applied when parcels arrived in the US (USPS), as well as in other developed countries.

The psychology of free shipping

Chinese sellers quickly realised that customers love free shipping. Many buyers literally filter products so they only see items marked “free shipping.”

There is a very good chance that a buyer will choose a product with free shipping over the exact same product with a separate product price and shipping fee, even if the total amount is the same.

In other words, the combination of low international postal rates for China and buyer psychology created the perfect environment for the growth of Chinese e-commerce platforms and small parcels around the world.

Why Trump went after the UPU and China

An “illogical” calculation in the US Postal Service’s 2015 report was one of the triggers for President Donald Trump’s decision to threaten to withdraw the US from the Universal Postal Union, one of the world’s oldest international organisations.

According to the US Postal Service, postage for a 2 kg parcel sent from one US state to another was around USD 20, while sending the same parcel from China cost about USD 5.

Trump argued that China was paying “discounted” international delivery rates under the UPU system and that this was hurting the US Postal Service.

The move to leave the Universal Postal Union, which oversees international mail exchange, was part of his protectionist policy and an attempt to remove China’s price advantage in small parcels, especially in relation to American online retailers.

At the same time, Trump’s administration also hardened its rhetoric toward China — from accusations of election interference to a broader escalation of the trade war between the US and China.

What the UPU is and why it matters

From letters to parcels ordered online, postal rates are largely coordinated through the UPU, a Switzerland-based organisation that sets rates and standards across postal systems in more than 190 countries.

Its mission is to build a global postal network and encourage cooperation between member countries.

At the heart of Trump’s complaints was the UPU terminal dues system. Poorer countries and developing economies paid lower rates than richer countries. The UPU still classified China as a transition country, which meant it qualified for lower rates toward destination countries such as the US.

The result: sending mail from China to the US cost less than what Americans paid to send domestic mail to each other. Trump’s administration argued that this hurt American businesses, because US buyers could purchase Chinese products at a lower total cost even after shipping was added.

The US Postal Service estimated that it lost more than USD 135 million in 2016 because of these tariff differences alone.

What it means when the US pressures or leaves the UPU

Under UPU rules, withdrawal takes one year, during which negotiations are held on changes to the system and the level of terminal dues. Trump’s administration made it clear that it wanted to introduce “self-declared rates” as soon as possible — in practice, to decide for itself how much foreign postal services should pay for the last mile inside the US.

The idea was to force foreign postal services, including China’s, to pay more for delivering small parcels inside the US, reducing the price gap between domestic and international shipments.

At the same time, foreign postal services were asked to provide more shipment data so that customs and other agencies could better detect drugs and illegal shipments — which also increases processing costs.

Who these changes affected

Large companies such as Amazon.com and UPS had long argued that the existing UPU system was unfair and favoured cheap international parcels over domestic transport, so they supported reform.

Still, both American and Chinese consumers had to expect that higher postal prices would mean more expensive products and more expensive delivery.

The rapid expansion of Chinese e-commerce platforms like Alibaba and others, which were sending goods worldwide with symbolic shipping fees, faced the risk of losing some of that price advantage if postal rates rose sharply.

In 2017, the value of China’s e-commerce market reached around 8.2 trillion yuan, or more than USD 1.1 trillion, a rise of more than 20% compared with the previous year. The top cross-border postal destinations for products from mainland China were Hong Kong, the US, and Russia.

You can also hear more about this topic in the podcast episode “The Postal Illuminati” (NPR).

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How to think about free shipping today

The combination of low UPU rates and Chinese labour costs made it possible for years for sellers from China to offer products with “free shipping,” even when the parcel was travelling to the other side of the world. Since then, the rules and prices have changed — especially in the EU, where a flat €3 duty on small parcels is being introduced and the old “privileged” status of low-value shipments is gradually disappearing.

That means small parcels from China are no longer as cheap as they used to be, and buyers and importers are increasingly asking whether it makes more sense to bring goods in larger quantities (B2B) instead of placing many small orders. For a more detailed explanation of the new EU rules, see “New EU Rules: €3 Duty on Small Parcels”.

There are still cases where free shipping makes sense, but it is important to understand that “free shipping” was never truly free. Someone always paid for it — the only question was whether it was the postal service, the seller, or the buyer, and under what conditions.

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