UPS, FedEx blocked from Chinese letter market

By Rachel Tobin Ramos

The Atlanta Journal-Constitution

China has given its national postal service a monopoly over the domestic letter and document delivery market, cutting UPS and rivals FedEx, DHL and TNT out of a huge potential market.

A law went into effect Oct. 1 that stipulates that only China Post may deliver letters and documents mailed within China to Chinese addresses. Foreign carriers may still deliver letters in or out of the country, as well as packages mailed within China, UPS spokesman Norman Black said.

Still, the domestic letter rule is a setback for Sandy Springs-based UPS.

The company was the official logistics sponsor of the Beijing Olympics -- in part to meet high-level Beijing officials who create postal policy. It had hoped China would open the domestic letter market.

Doug Caldwell, an industry consultant with ParcelResearch.com in Portland, Ore., called the law a "protectionist move."  He believes the worldwide recession was a motive.

"As the world economy went down, it affected Chinese employment as well," he said. "I'm sure the local companies were complaining to the government, saying that unless they pass this law, they will have to lay people off. Local issues sometimes trump goodwill gestures, like[sponsoring] the Olympics."

After China announced its intention last spring, the European Union said it would investigate whether it violated world trade laws.

UPS Chairman and CEO Scott Davis mentioned the issue in an analyst conference call last week to discuss earnings.

Davis said the rule "is unfair and ... it's bad for China to keep the international companies out of that marketplace."

Both UPS and Memphis-based FedEx have made major investments in China. In the past year, FedEx moved its Asia hub from the Philippines to China, and UPS opened a hub in Shanghai.

FedEx believed it already had the right to deliver letters in China.

"We're disappointed by the newly enacted postal law in China," said spokeswoman Denise Lauer. She believes the change will "decrease the choices of Chinese consumers and stifle healthy competition."

She said FedEx is assessing its next steps but will comply with the law.

Davis told analysts that UPS's relationship with Chinese officials "has been good," noting the company succeeded in getting rights to operate the Shanghai hub.

Added Davis: "We're patient."