A free shipping mystery
romain.goyet.com
romain.goyet.com
Now, the cost of running the postal service is the cost of supporting the whole network of delivery vans, sorting offices, collections and so on, including all the staff.
The cost of supporting the network is the same whether it carries a very large number of packets or zero packets (up to the point where you have to add infrastructure to cope with extra traffic. Yes, like the Internet).
This economic structure means you can carry traffic at a marginal cost if you know the cost of supporting the whole network is covered.
All of which was worked out before Sir Rowland Hill launched the Uniform Penny Post in the UK in 1840. This disrupted the whole messenger business (where you paid for distance traveled) and was widely copied everywhere else. After that, nations formed a Universal Postal Union on the basis that "we'll deliver your letters if you deliver ours" (like the Internet).
In the early days of the public Internet (early 1980s), I used to explain how it worked by comparing it to the penny post. It's nice to be able to do the reverse ;-)
Yes, those are the network costs, ie the cost of supporting the collection-and-delivery network. They're assumed to be (more or less) constant, regardless of traffic.
You don't make any money running a network with empty vans.
The number of trucks or airplanes you need to run on any given day depends on how much traffic you carry. The amount of fuel you need to buy then depends on that. So does much of the maintenance you do, and how much you pay the workers. A postal network carrying zero traffic will be a lot cheaper to run than one carrying lots of traffic. The analogy to the internet is not very good. A network link with a 100Gbit capacity costs about the same to run for a day whether it carries a petabyte or nothing. A postal route with a million parcel/day capacity costs way more to run for a day if it actually carries a million parcels than if it carries nothing.
Thus, from the post offices perspective they are much better off with a steady stream of traffic than random spikes. Which is a large part of why the post office is willing to deliver spam aka junk mail so cheaply.
That might be how a delivery service works, but it's not how the post office works in almost all the countries in the world. Including, I suspect, the USA.
Post office networks are actually run as networks. They have drivers who collect from post boxes at regular times, sorting offices that work round the clock, postmen who do regular delivery rounds, and so on. The cost of running the network is, over the short term, almost impervious to the amount of traffic.
(Over the long term, of course, you restructure the network to cater for things like population changes -- again, just like the Internet.)
What you should realize is that a lot of people used to think like you before 1840, which was why the Penny Post was such a big deal. Network thinking made mail dramatically cheaper and led to a massive expansion in communications, and the whole system went global in a very short time.
None of that would have happened under the old system.
The real cost is the cost of running the network, not the cost of delivering an individual item. Think like that and you'll fail to understand why it's the same price to deliver a letter from Manhattan to LA as it is from Manhattan to Manhattan.
In this case, the problem is not the cost of an individual item from China. The problem is that the pricing incentivizes the sending of large volumes of items from China (where postal prices are low) to the USA (where delivery costs are high).
Unfortunately those prices were negotiated before (I assume) anybody realized it was going to be a problem.
On the good side, the USPS charges high prices to send items to countries with low delivery costs, so it's swings and roundabouts. If the traffic flows between China and the USA were equal, it probably wouldn't be a major problem.
Um, they're the same price because it's mandated to be such by law. Go ask a company whose prices aren't set by the government, like UPS or FedEx, and they'll quote you very different prices for those different services.
As for the rest, if the cost of additional items is near zero then why is it a prove that the pricing incentivizes large volumes sent to the USA?
Mail volume varies easily by a factor 3-4 between days.
The cause would be high volume things would be things like utility bills that usually go to everyone inside an area on the same day or within a few days.
And this is definitely happening with the USPS: a few years ago some people I know leased a local post office building that had been decommissioned due to decreased mail volume.
Do you pay more for web pages from China than you do from the USA because they travel further? Why not?
The problem is that the whole accounting and tracking overhead would be far more than it's worth.
The only real issue is whether the total income from carrying traffic is bigger than the total cost of running the network.
Yes, there are anomalies with China because Chinese charges reflect Chinese costs (and government subsidies, if any). The fact that USPS has higher costs is not something the Chinese have to worry about -- or not until the US negotiates higher fees via the Universal Postal Union.
Otherwise, the USPS charges a lot for overseas mail, so it makes extra profits when that mail is delivered in low-cost countries such as China and India. On the whole, it probably breaks even or comes out ahead....
Because of that artificial cap and China Post's cost of mailing, the shipper bears a very low cost. Probably still losing money mind you but that loss is in effect heavily subsidized.
Airmail costs for a button would be 6 RMB or $0.91 per china post's web site for a letter in the 3rd group (US, Europe, Canada, OZ, NZ).
Surface mail cost for the same letter would be 4 RMB or $0.61.
That's cost if you walk up to the post office. I don't really have the patience to try and sort out the discounts that might apply to volume shippers. I assume they have the whole line of discounts for electronic stamps, large volume shippers and pre-sorted mail, amongst others.
> assuming it takes the mailman as little as 10 seconds to deliver the package, and given he is paid the minimal legal wage here, that would already cost… 3 cents already!
The marginal cost for delivering that button (even assuming the button itself was free) was more than 3 cents.
all the major courier services offer same day delivery across the US. I learned this when I flew from NC to CA and left my car keys in NC. I could have gotten them on the next plane to CA for about $300. It wasn't worth it.
The simplest: he's salaried. However, I don't think mailmen generally are.
Alternatively, the mailman is paid hourly but is expected to put in 40 (or some other constant) hours of work per week. His primary role is to deliver mail, but any extra time he has after doing his route he fills by sorting packages, filling out paperwork, etc. If he had a longer route that morning, he'll try to work through the sorting faster. If it was a shorter route, he might pace himself more casually.
You might say - in response to either of these - "but this doesn't scale! If there were fewer packages, the company wouldn't have hired as many mailmen and would have saved money!" Again, I don't know much about this industry, but in some (e.g. rural) areas, staffing might be done based more upon geographical coverage than the expected number of packages to be delivered per day. Furthermore, the company may be choosing to deliver such a package in order to secure its branding. Does offering to deliver this unprofitable (on its own) package lead to a promise of further, profitable delivery contracts? In the case of Alibaba & its courier, it probably did have some weight. Maybe the extra cost of having the deliveryman out on his route longer is offset by the advertising painted onto the delivery van.
It's difficult to measure the value of one very small piece of a big system because its the system as a whole which generates revenue, rather than each individual component.
Nowadays they audit them very aggressively. Also the migration away from letters to packages has led to the decline of the route and an increase in other mechanisms.
Full time employees were salaried, with 8h work day averaged over a month. When work was done, you went home. If you worked 6h one day, 10h the next you would not get overtime. Overall, I would guess I worked about 80% of the monthly hours, and I never hit overtime. Longest day I worked was 13h, shortest day was 3.5h.
Temps were hourly.
The extra time cost of adding a piece of mail to a route is mostly negligible. There are a few exceptions.
The first piece of mail that will take you inside an apartment complex adds a good bit of time (since you have to get off your bike and go into the building). I may have occasionally have forgotten to deliver something that was going to the 4th floor if that was the only thing in that apartment complex on a given day, and delivered it the next day instead.
The first piece of mail to a house doesn't matter - 95% of the time delivering to houses is the transport time between houses, not the delivery.
For us, routes were typically limited by physical effort and in-between transportation time, not the volume.
Houses were limited by the time of going from house to house, to about 2.5h time total. Apartments were limited by the effort of going up and down stairs to about the same time.
A usual route would be ~600 houses, or ~80 4-story apartment entrances. High rises were more limited by volume (and were typically mixed with 4-stories for that reason) so that a normal route would be maybe 8 high rises and 70ish apartment entrances.
Sweden built a ton of housing (the goal was a million apartments in 10 years or so) back in the 50s and 60s. Those buildings didn't have letterboxes inside, all with letter gaps in the doors (at least where I worked). Newer places typically have them downstairs now.
The houses themselves are pretty good actually, but sadly due to where they are and the amount of them many have become undesirable neighbourhoods.
I Googled about it yesterday and found this insightful article instead.
The internet example for starters is incorrect. See AWS for some idea on real costings. It's just most internet plans are a all you can eat style system.
The real answer is subsidies and trade agreements.
PS The penny post would be around one pound in today's figures, more than current letters costs.
First class post in the UK is 62p, so in real terms around 3 times as expensive as in 1840. (and the service in the 1840's had multiple collections and deliveries per day).
> All this should be a reminder that any trade deal has winners and losers and unintended consequences.
Obviously, whoever you subsidize is a winner. If you're setting up barriers to trade (e.g. tariffs), foreign sellers/manufacturers lose. If you're subsidizing imports, domestic sellers/manufacturers lose.
Why can't we just not subsidize anyone?! Free trade is supposed to be just that, free. Instead, we have the TPP & TTIP, which will create yet new injustices and new sets of winners and losers.
For example, post great depression america started tax subsidy for farmers to ensure a stable food supply. That hurts imports of the same product. Another interesting example is minimum wage, it makes imports more attractive, as domestic labor costs go up. Not getting into what is right/wrong, simply that economic incentives are not uniform and may be defensive. Hence international trade tries to deal with that via accords, treaties, tariffs etc.
Not to mention to that tariffs are a source of revenue for the respective government.
The purpose of these tariff-reducing trade treaties is much more about gathering political coalitions to break through public-choice failures resulting in (overall welfare reducing) protectionist policies taken by each side.
Markets => competition => lower price.
[1] http://fortune.com/2015/03/11/united-nations-subsidy-chinese... [2] http://cep.lse.ac.uk/pubs/download/cp396.pdf
I guess they thought it was too much work too.
I've found that Malaysia Post is the worst, they often take 60 days until a package is delivered.
After lots of "failed" delivery notes when there was always someone present, I asked the workers in the post office why they don't deliver packages anymore (thinking it might be related to country of origin and specific agreements between different postal services regarding fees).
They were adamant that delivery was attempted and it must be coincidence. In the end I suspect, in our case, it's more a case of silent protest from the postmen who are payed poorly, so they don't bother carrying the packages.
Just so there's context, the actual cost is much, much higher than $1200. That's just the payment for the ocean journey. The other costs are factory to port (varies), insurance+docs (few hundred), destination port charges ($1k or so), customs bond, and then the actual duty for the imported items. Lastly, of course, getting the container from the dock to where you are to unload it.
The costs above and beyond just the "ocean shipping" part for the most recent one was $1914. $830 of it was the customs duty, which will vary wildly depending on the HTS code of what's being imported, and how much you brought in.
Modern container ships travel at about 25 knots (unless they're doing fuel-saving slow cruise at 12 knots). http://www.sea-distances.org/ tells me that a 25-knot ship going from Hong Kong to Marseilles via the Suez Canal takes 13 days 7 hours to get there.
In practice, of course, there's loading and unloading on both ends (figure 2 days) and you're not traveling through the Suez at 25 knots; the traffic there goes at 8 knots according to https://en.wikipedia.org/wiki/Suez_Canal#Navigation. That said, the Suez transit takes 11-16 hours according to that link, so maybe add half a day to the estimate.
The upshot is that a 16-18 day travel time is not unreasonable there. I was a bit surprised it's that short, but being able to maintain 25 knots around the clock eats up distance faster than one expects.
Of course if you go from Shanghai instead of Hong Kong, you need to add a day and a half or so. And if you go to Brest instead of Marseilles, add two more days.
But the huge mistake you're making is that a container vessel will make additional stops and it does not connect every possible port to every other possible port. If you have uncommon combinations, the container will usually be moved from one vessel to another. This adds additional time (days).
Hong Kong -> Fos Sur Mer is like 31+ days.
"Find the amount charged to domestic senders to go from the incoming drop-off point to the destination. Got it? Okay, if the foreign post drops it there, they get charged that amount."
Then, everyone gets charged the same, and you can't overcharge foreigners without also screwing your own people. Plus, foreigners get cheaper postage as they drop it closer to the final destination.
That's the idea of the treaty anyway, an idea that pre-dates internet and computers of course, which do make it at least theoretically possible for my local post office to figure this out.
When terminal delivery charges came in, countries were divided into classes based on economic criteria, basically gross national income per capita. Surface area of the country is also figured in.[2] Because there hasn't been a recalc of this in a few years, China gets a very good rate. This may change in 2016.
[1] http://www.upu.int/uploads/tx_sbdownloader/reportStrategyCon... [2] http://www.upu.int/uploads/tx_sbdownloader/resolutionClassif...
One time they knocked zero times.
[1]http://fortune.com/2015/03/11/united-nations-subsidy-chinese...
http://www.ems.com.cn/mainservice/ems/e_guo_ji_e_you_bao.htm...
for reference 6RMB=0.91 USD
Larger parties are able to obtain even lower rates.
Here in NYC Amazon delivery has gone from being amazing and magical to nearly worthless seemingly overnight with this change. UPS (and Fedex) didn't seem to have any trouble delivering even to challenging buildings without doormen, giving accurate tracking etc. Now every time I see USPS as the option I cringe knowing the package won't be delivered, there won't be a door tag left, and at some random arbitrary time the status will change to "attempted delivery" even if someone was sitting on the front porch waiting for it the entire time.
It's getting really bad, we'll see how long it takes Amazon to figure it out.
I'm losing faith in those 2-day guarantees, and the number of items available for Prime has been slowly dwindling. That, and their minimum spend for certain items went from $25 to $35. Starting to wonder whether renewing my Prime membership is actually a good idea.
Amazon at least mitigates this loss risk by unquestionably resending the package without additional charge. This exercise has grown tiresome.
It's interesting that Amazon finds this to be cheaper than shipping it properly to begin with. Although it makes sense if packages sent through USPS are low-value and not just small.
UPS also does a great job. I don't know how they break into my building, but they do. Once in a while the normal delivery person takes the day off, and you get the door tag. Fill out the form online and the package appears tomorrow. Not perfect but reasonable.
FedEx is awful. FedEx means I'm not going to get the package unless I happen to be at home and they happen to actually ring my doorbell.
DHL is also awful (the delivery mechanism of choice from amazon.co.jp to the US). I order a $10 magazine and they won't just leave the package at the door. In fact, they call me to see if I'm at home, say things like "oh, you didn't answer before, I'm not on the way there anymore so I can't deliver it" and other such bullshit.
Finally there are the taskrabbit-like shipping services, A-1, Lasership, etc. If you see one of those you aren't going to get your package. Just re-order it and hope you don't lose the lottery again. They can't even successfully deliver to commercial addresses with dedicated courier receiving and fully-staffed mail rooms.
USPS -> Australia Post means that I can get the parcel sent directly to my parcel locker [1] and get an SMS when the parcel arrives. I don't need to be present.
UPS -> ??? means I'm guessing whether it'll be a local courier who has the contract or whether it'll be one of the many Toll [2] subsidiaries. No couriers are accepted into parcel lockers (unless you get a Toll parcel dropped off at a news agent).
Amusingly there are also those orders of things you don't care about getting immediately. Those seem to come fast, often less than 24 hours from ordering. Amazon doesn't know which items fall in which category (their media $1 credit is not worth it). Nor do they seem to notice breaking their own promises and proactively doing something about.
My memory of prior years is that the vast majority of items arrived within time, and that it has been getting worse over the last year or so.
I celebrate when Amazon misses its Prime 2-day shipping guarantees. That means I can complain and they promptly give me extra free months of Prime as compensation. Not sure why you don't get the same. They always offer it in my experience.
I always order stuff with at least a couple of extra days before I need the item so if you can't do that I could see why missing the 2 day target is bad.
I asked around and it turns out that postal services in rich (EU) countries have a special, heavily sponsored rate for 3th world nations. This wasn't a problem with the occasional letter from Afrika, but the post services didn't really saw this coming: Mass free shipping from china. Apparently the EU wanted to get out of this, but china refuses (and seems to be able to, for now).
Enjoy it while it lasts :)
In fact, I ordered a USB lamp worth 2$ with free shipping just to verify it was possible. It arrived 3 weeks later (btw 3 weeks is the travel time China-Serbia for all packages so far, give or take a couple of days). It boggled my mind that someone is building these things (the connector, wires, led's, plastic and metal alone is worth that money surely), packaging them and sending for such a small amount (not as crazy as the example in the article, but pretty crazy for me).
We already have this problem in Poland with Allegro (local eBay equivalent), where people automate this at a large scale. You and up scrolling past tons of these items, because a) you don't want to wait 20 or so days for it to arrive from China b) you know you can get it cheaper from Aliexpress anyway.
Different sites, different targets.
Amazon also allows you not to specify a shipping location, for things being forwarded into USPS the customer often won't even notice it originated on the other side of the world.
Which they do that anyways. Last few items that I got from amazon... now shipping from China. Even an American flag.
Some portion of the people who buy one 3-cent button are going to come back in a couple weeks and order forty thousand 3-cent buttons. Free, fast shipping on the first button is to entice you to use that button for your design instead of someone else's.
*I say originally, as my experience with Amazon has been on a downward trend for at least the last two years.
I also think there's a sense of membership that if you are paying you might as well enjoy the benefits.
I personally enjoy Amazons packaging. I know my items will be well packaged, whereas there's always a surprise on Ebay or other store. I have chosen ship with Prime (Fulfilled by Amazon) on items that other Amazon sellers have cheaper.
It's just more consistent and efficient. And that's sort of a benefit.
In other words, for the business selling you the item, shipping is free. It's the Chinese citizen/taxpayer that foots the bill. This shouldn't be surprising since China, eg, is notorious for devaluing their own currency as a means of boosting exports. This is effectively a tax on the greater populace for the benefit of their manufacturing sector.
Amazon does not like this at all and are currently lobbying the US Govt to stop it.
If something costs $99 it isn't free. Free is no cost. $99 is not no cost, therefore $99 is not free. Just as text messaging isn't a "free" part of your $30/month cellphone plan, it is an included part however.
$14.99 prime item
$10.99 + $4 like new used item
As for multiple items, the same applies, I am only interested in the total cost to me, the supplier and the computer should do the arithmetic for me.
This is essentially the same argument as the stupid business of quoting ex-tax prices in shops; I'm glad this no longer happens in European shops and online stores, it annoys me every time I go into a dollar store in the US and hand over a dollar bill only to be asked for another seven cents or whatever it happens to be in that state.
It has to be this. I work at an E-commerce company. We often do the math on just exactly which items make a profit for us vs which don't. It's not always obvious until you really dig into the exact costs of handling the items. I believe Alibaba has a lot of 3rd party resellers, it's possible they haven't done the math themselves.
It's actually cheaper in many cases to ship from China-->US than US-->US
Newgistics handles AliExpress's inbound here in the USA. AliExpress-->China Post-->Newgistics-->USPS: https://newgistics.com/news-archive/aliexpress-selects-newgi...
Source for the above: Matthew Hertz from Shyp
This means subsidizing purchases to draw users in.
I just considered buying that 3c button just because of how cheap it was, and this would have required me to register with them, and enter my cc number. This means that purchasing stuff from them in the future would be easier and I would be more likely to do it.
This could explain the free shipping on the China leg, and then as was mentioned there is a treaty that allows for nearly free shipping in the US by Chinese companies.
I've noticed how common free shipping on AliExpress is and wondered the same thing as OP. Typically shipping to New Zealand is very costly due to remoteness. We do have a free trade agreement with China, not sure that would make a difference.
Edit: Pro-tip: Don't buy phone chargers, naively I left a Raspberry Pi running on a small chinese one and found it the next day burned black on the inside with the cable blown out.
By the way, the discuss on HN link at the bottom of the article links here: https://news.ycombinator.com/item?id=10331114
Agreed. I had a cheap USB charger that was working fine suddenly explode on my desk with droplets of molten metal ending up welded to my phone screen. Never again!
http://www.huffingtonpost.com/annie-leonard/the-story-of-stu...
the Stafford Beer quote "the purpose of a system is what it does" springs to mind.
what's the purpose of our economic system? to extract physical wealth from the environment and distribute it selfishly and unequally.
can we imagine other ways of running things? yep. one old idea is a centrally-planned globally optimized economy. e.g. model the USSRs economy as one giant optimisation problem, solve for the things you need to get people to do, then encourage them to do it one way or another. perhaps a more modern spin on things is china's "citizen score" system. if that was deployed and working tolerably, you might not need currency any more. citizen points might do fine. it'd sure have other very unpleasant problems, but it might be an improvement over the capitalist system in some respects.
are the alternative systems reachable from the current system? that's more of a challenge!
China must simply have cheaper shipping rates, obviously not 3 cents, but probably a fraction of what you are used to spending.
If the item is small enough, it usually arrive in a padded envelope in my mailbox. Bigger items I may have to pickup at the post office. Most often, it arrives within 2 weeks.
I suspect that postal services in different countries have some kind of peering agreement. That they simply assume that the amount of mail would be pretty much the same in both directions and because of that, they don't really charge each other.
https://en.wikipedia.org/wiki/Free_trade_zone China uses free trade zones extensively. This means that some items a moved in bulk to domestic staging areas, so not everything is leaving from China, I believe that there are requirements that they be postmarked from China due to import export rules. Second, China's postal system is heavily subsidized and therefore much of the costs are hidden in the system.
That's amazingly fast - I don't understand why it's faster to send things from Hong Kong/China to the US than from the same to Australia. I've had things from AliExpress take upwards of 35 days to get to me (in a "metro" area of SE Australia)
No idea how it is possible. The bubble wrapping protecting it from shipping is worth more than what I paid.
[1]: https://www.washingtonpost.com/news/storyline/wp/2014/09/12/...
[2]: https://community.ebay.com/t5/Archive-International-Trading/...
1) Why? Because large marketplaces are monumental beasts to manage, so they come up with a variety of rules that simplify operations. Amazon does this with FBA: if your item is above a certain size/weight threshold it costs one price, otherwise it costs another. Those thresholds don't make sense from a rational optimization perspective, because costs for storage and shipping are only loosely coupled to those sizes and weights but can vary wildly based on any number of other factors including distance, shipping speed, inbound and outbound processing costs, etc.. In many cases, the combination of factors is just right and Amazon loses money. But they keep it a 2-tier structure because it makes it easier to manage the business, and makes it easier for FBA sellers to understand it.
2) How? Their costs probably are monumentally lower than most people think, so that mitigates the damage from people buying items like this. They have special import arrangements (and seeing as it is china, they probably have export subsidies as well), pre-negotiated rates with carriers, and likely do a significant amount of pre-sorting and aggregation themselves which gives significant leverage in negotiation of those rates. Amazon does this with their sort centers: Instead of dumping 20k packages on a UPS truck with 15k different zip codes, they will sort them off of the outbound line into pallets with small geographic clusters of destinations. These go to sort centers which aggregate similar pallets from other areas. Then we drop those pallets off right on the doorstep of the local post office. When they do this, they get massive discounts on delivery, and often delivered the same day that it gets dropped off.
Furthermore, sometimes money-losing items have a way of lowering the barrier to future purchases. While there is some truth to this notion (If you can get someone to buy once, their subsequent conversion rates skyrocket), some companies take it overboard...literally trying to buy new customers that will someday be suckered into buying from you at a higher but more profitable price point. In reality, the loyalty of penny pinchers (the target market for this strategy) is near zilch. You lose money on them, and they might buy from you again, but you still have to work at being the low cost choice.
Jet.com is currently pursuing the strategy of selling dollars for 90 cents, but hoping that it encourages loyalty and hoping their cost structure will magically (hehe) lower itself towards a level of profitability someday. Here is for those betting for or against their future: Cost structures don't magically lower with size. Some costs do, some costs get worse. You have to work very hard and very intelligently to ensure that costs stay in check as you grow, and work even harder to make them go down. IMO, with assumptions like that they are well on their way to a fast bankruptcy.
The idea was that there is an equal amount of packages shipped each way, so the post office makes up the difference in packages sent. That used to be true, and now isn't, but the treaty stayed.
Even if an entry scan isn't made, it still gets scanned along the way.
Most of this stuff is shipped untracked though.
The plane was already flying from China to wherever, filled with AliExpress merchandise. They may have paid for the whole plane instead of just by weight. So adding this product didn't add any tangible extra weight or cost.
Then the mail carrier or whoever is already going on that route. I doubt he gets paid per package, so adding another small package is no big deal and doesn't add extra time/cost.
Unless someone is ordering 1million buttons, then the weight starts to add up. But then so does the cost of the buttons, which at that point would cover the shipping.
I'm generalizing a bit since I don't know the specifics of the shipping industry. But this makes sense to me.
It makes little sense to give nearly everyone free shipping, but charge every 100,000th person $50,000 because their item was the one that needed a new plane. So instead, they divide the cost across all the stuff that gets shipped so everyone pays a share. That per-item cost is typically more than what these sellers are charging, thus the questioning.