How can Chinese companies ship products to the US cheaper than it costs to ship the same items across town?
In: Economics
because the postal system filed paperwork to change that rule like 20 years ago… should be shipped any day now
Economies of scale, government subsidies on shipping to promote manufacturing/trade… but the biggest thing is that they’re loading orders into shipping containers with 10,000 orders at a time and sending those over vs. 10,000 individual packages getting handled by UPS or Fedex from China to the US.
US labor is expensive. People need to afford not just groceries, but also housing and healthcare. They probably need a car to get to work. They may have a family and kids. Most US companies’ largest cost is labor, and if they try to lower wages too much people simply *stop working* and look for other jobs because they can’t afford to live anymore.
Chinese labor is not expensive. The workers don’t need to afford the same things, but also China has a reputation for very exploitative labor practices.
So making a bunch of stuff in the US that costs, say, $1,000 might break down as follows:
$600 – Labor
$200 – Profit margin
$ 50 – Materials
$ 50 – Shipping
The company makes $200 of profit on the $1,000 you pay.
Now, keep in mind that shipping across the ocean is more efficient than you think. That $50 in the US might only move a few hundred items at a time. A container ship can move MILLIONS of items across the ocean at a time, then it goes on a train that can move MILLIONS of items, and eventually the things you ordered end up on a truck. So while the voyage itself will cost hundreds of thousands of dollars, this order of a few hundred items takes up less than 1/10,000 of the space on the ship, so they’ll have to pay accordingly. They’re sharing that shipping cost with literally thousands of other people.
The math might work out like this for a Chinese company:
$ 50 – Labor
$200 – Profit margin
$ 50 – Materials
$100 – Shipping
They paid twice as much for shipping, but their labor cost 8% as much. They make the same profit, but they can charge $400 instead of $1,000. If the US workers were making $7.25 minimum wage, to match this Chinese quote they’d have to drop to $0.60/hour. Nobody’s going to work for that in the US, it won’t pay any of our bills. Imagine if working a full 8 hour day couldn’t buy a combo meal at McDonald’s after taxes.
I made these numbers up, but I think they are illustrative. It’s a hard problem to solve without contemplating a lot of government assistance to take away from things that workers have to spend wages on.
More chance of more people shipping things from Chinese factory so cost gets spread across each item whereas the postie is probably only bringing that one/few items from A to B.
It’s incredibly cheap to ship cargo containers across oceans. Suspiciously cheap. Pack them as full as you want and they’ll ship them across the Pacific for under $8K, sometimes way under. Considering ho much stuff you can fit in a 40′ container and how heavy they can be, that’s a steal. If you pack a shipping container with 100,000 small items, that works out to about a dime or less per item to get it from a Chinese port to an American port.
I don’t think there is a reasonable answer other than Chinese government subsidy.
Doesn’t matter how efficient or inefficient the US postal office is.
Shipping items in China involves shipping items overseas to a US port, and then do a US local delivery from the port to an address.
I.e. shipping from overseas INCLUDES a local delivery.
China is classified as a “transitional” country by the Universal Postal Union (UPU), allowing it to benefit from lower rates (dirt cheap) for sending mail to developed countries such as the United States. Consequently, shipping costs from China to the US are lower than what Americans pay for similar domestic deliveries through our own postal service.
Planet money does a podcast titled ‘Unraveling the mystery behind international shipping rates’ it’s very informative and semi ELI5. Ultimately the united postal union sets standards for international deliveries. A long time ago they decided the rate should be set to the ‘from’ country. It made sense back then when global commerce was markedly different. With e commerce it creates a massive subsidy to countries like China
Transporting 100000000 items with 1 boat: cheap per item.
Transporting 1 item to a specific adress: expensive per item.
in the same vein, its crazy to me how an apple that is grown in Chile, then shipped to Thailand to be peeled, cut up, and packaged in plastic, and then shipped to the US to go into a grocery store is cheaper than… an apple grown 30 minutes out of town and brought into a farmer’s market on a saturday.
the whole thing is just a matter of economy of scale– the farmer out of town is selling 500 apples, while the fruit companies are shipping millions of apples. also, the fact that the true environmental costs of international shipping (climate change due to massive emissions) are not actually factored into what you pay, they are just shunted off down the line for future generations to contend with because those costs dont incur on a timeline that anyone currently living cares about
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