DAVID GREENE, HOST:
So the rise of e-commerce has allowed Americans to order things directly from sellers around the world. Kenny Malone from our Planet Money team met a New Jersey business owner who became obsessed with the mystery of how those items can ship so cheaply.
JAYME SMALDONE: The thing that makes our item special is this base. It's called Smartgrip.
KENNY MALONE, BYLINE: Jayme Smaldone makes a suction cup travel mug that is very hard to knock over.
SMALDONE: So when you put it down and you knock into it...
MALONE: Jayme is smacking this mug.
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SMALDONE: So you see that?
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MALONE: A few years ago, knockoff versions of this so-called Mighty Mug started popping up all over the world. And so Jayme bought one of these.
SMALDONE: For $5.69, free shipping from China.
MALONE: Five dollars and 69 cents total, including shipping. And Jayme turns to his shipping guy and says, wait; how much would it cost us just to ship this same mug across the street?
SMALDONE: He told me it's going to cost us about 6.30 to ship this item across the street.
MALONE: Somehow, Jayme's foreign competitor could manufacture and deliver a mug to a U.S. address for less than he pays to just ship the mug. When he started to look into how this was possible, Jayme discovered the answer had to do with a quiet, powerful organization called the Universal Postal Union.
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ALTAMIR LINHARES: Hello. This Altamir speaking.
MALONE: Altamir Linhares works at the UPU in Bern, Switzerland. The organization is made up of postal service representatives from 192 countries which get together and make sure that international shipping functions, because it's a small miracle that we take for granted. Let's say, for example, I order a travel mug from China. The seller buys some postage from China Post; my mug travels on the ground in China, then across the ocean, and then it lands in the U.S.
LINHARES: There is a moment where the international items, they mix with the domestic items.
MALONE: At that moment, China Post hands my mug to the United States Postal Service for the so-called final mile of delivery to my doorstep. This final mile is a very expensive leg of the journey.
LINHARES: Yeah, somehow, it's more labor-intensive when it comes to delivery.
MALONE: And here's where international shipping gets problematic. In this example, the USPS got stuck delivering the expensive final mile, but they didn't get any of the money. The initial postage payment went to China Post. Anna Moller Boivie is the leading postal economist.
ANNA MOLLER BOIVIE: Maybe I wouldn't drag it that far, but one of the, I would say.
MALONE: Fine. As one of the leading postal economists, Anna explains that the UPU member countries have generally agreed to cut each other a deal on the final mile of delivery. So in our example, the USPS delivers my mug, but when they ask for some money from China Post, they ask for way less money than market value. It's a small decision with huge implications.
BOIVIE: I mean, this is a system which totally, you know, skews the market.
MALONE: Because Americans buy lots of stuff online and because of this UPU reimbursement system, there are often artificially better deals when we order things that ship from foreign countries instead of shipping from within the United States.
BOIVIE: It makes us buy a lot of crappy things that we shouldn't have bought otherwise. It also means, you know, a lot for the environment, that we ship a lot of things by airplane or, you know, even boat. But it's just bigger than money.
MALONE: When Jayme Smaldone, the Mighty Mug maker, learned about the Universal Postal Union and the deals that member countries were cutting each other, he was not happy.
SMALDONE: I just think it's unfair - not to sound like a whiner. You know, like, I just think that it's - like, we have to think further down the road.
MALONE: Because Jayme says if our Postal Service is giving special rates to foreign competitors, that is like his own country subsidizing his competition. But there are signs that this may be changing. Earlier this year, Louisiana Senator Bill Cassidy did introduce a bill that would force the State Department to renegotiate any foreign subsidies of international shipping. Kenny Malone, NPR News.
(SOUNDBITE OF EMANCIPATOR'S "EVE II (ODESZA REMIX)") Transcript provided by NPR, Copyright NPR.
