Lexington Institute held a forum on the Trump administration' s
Postal Service Task Force, June 15, 2018 -
Speaker - Jayme Smaldone - founder of Mighty Mug
US Postal service is helping to destroy small business by helping
China and Amazon take over online retail, and American taxpayers
and small businesses are paying for this.
Transcript of Speaker's remarks:
We are looking forward to your remarks. jayme: hello, everyone. thank you for having me, and a loving small business to come here and air grievances. my name is Jayme Smaldone own. I'm the founder of the small business called mighty mug. we make an innovative coffee mug that when you knock into it it with your table but then when you want to see if you just listed, grips. get that demo in early.
We worked incredibly hard and invested a ton of money to bring something new and unique to the market, and two patent and enforce those patents globally. so since Sunday the company we have spent about $250,000 on obtaining patents around the world, and another approximately -- and another approximately $750,000 enforcing those patents, removing infringing companies from the market. it's a very expensive endeavor to be innovative. like many businesses in order to compete we produce the item overseas in Asia, but all the other things that we do to add value to the marketplace is, design, engineering and e-commerce distribution is done in our facilities in beautiful Raleigh, New Jersey.
I want to talk about shopping online because it's something that is growing more and more each year. there are two significant costs when you're shopping online. there's a cost of the product and there's a cost of the shipping. i want you to put yourself in a situation you about to buy a $20 item. do you still buy it with $5 shipping, seven dollars shipping, $10 shipping? for most Americans the expectation now is free shipping. we want to pay nothing, but everyone in this room, probably a rare time when they get to speak to people where the action of shipping is actually not free. there is actually a real cost to shipping. so the ability to offer free shipping is a major competitive advantage for those that can do that. as with any innovation it wasn't long before we started to have a ton of infringing items flood the marketplace.
While attempting to remove some of these fake items from the marketplace my lawyer told me go buy all the items and prove that you're actually transacting in commerce and that's how we'll build our legal case to remove them. during this shopping spree i came across one knockoff, a particularly high-quality for sale for only $5.69, with free shipping all the way from China. i ordered it and it arrived in just 8 days which meant it shipped by plane, the most expensive form of transport with delivery by the US postal service.
My team was dumbfounded as to how all these knockoffs could be in the marketplace offering seemingly factory prices direct to the consumers with free shipping. this is where i entered the postal universe. for better or worse, i became obsessed with understanding how this was occurring, and let me to research and confirm that Chinese shippers are being given a rate, and inter-country rate that is set by a U.N. agency called the universal postal union, referred to at the UPU that grants developing countries such as China, rates that are up to five times lower than what domestic shippers pay. seeing this enraged me because of me to ship that same item that the china shipper was getting for about one dollar, cost my money for even delivering 34 steps to my neighbor $6.30, five times the amount approximately.
So this Chinese competitor infringing on my intellectual property was being given an advantage so massive that they are able to offer the product and the shipping and the commission to the platform for less than just my shipping. i want to say that again because this is so important for a business operator. they were able to offer the product and the shipping and pay commission less than just our shipping. as the weight of the package rises, the problem increases. for us to ship a 4. 4 pound package we will pay up to $18 depending on the zone. but the Chinese shipper for the delivery of that same package within the US pays a max of $3.70. think about that. there is no intellect, no efficiency that i can squeeze out of the supply chain that will make me $15 to $17 better to be competitive. and this is no small issue, although it is seemingly flew under the radar. last year over 643 million of these international inbound packages, of which i believe over 85% of them are coming from china. exploiting this loophole.
Now, you may be asking, does this incredibly low rate go both ways? -- can mighty mug ship into china? can we ship from here to china for $1.50? when i got orders for Chinese consumers, and i asked the postal service, what is my lowest rate? $22. $22 or something they get the ship for a little over one dollar. if i want to track it, $62. 50. the USPS says they are losing money on these Chinese shipments coming in in the structure. who is subsidizing these? according to the postal service, American taxpayers are footing the bill.
Americans are covering these losses by playing -- by paying inflated rates when we go to our shipments internationally. member that $22? or everyone i am able to ship, i am able to subsidize 12 to 15 international shipments. what happens here, the result is American businesses capture almost no market share in china, and china gets to flood the market here. welcome to the postal episode of the twilight zone.
American businesses are being forced unknowingly to subsidize foreign competitors and very likely our own deaths. there is more. in addition to incredibly low shipping rates, Chinese shippers have other advantages. I take customs duty on the first dollar, because I am importing goods. these individual packets that are shipping to the US postal service are taking no customs duty, and because they are not domiciled here, there are no staff were warehouses in the US, 0% chance of sales tax transacting. take about that. they have extremely low shipping, no duty, no sales tax, and their e-commerce is 75% lower than mine. this is what allows a Chinese competitor to infringe on our property to offer an item that we charge $20, for five dollars. this has impacted not only our e-commerce business, it has impacted our ability to close details -- to close due the close to close deals.
I want to bring something up that is comical. Alibaba, they get massive subsidies from us, and the US government on all of their small packages. our American businesses get no deal on our packages. we have to chase these people around the country, around the world, removing their counterfeits from the marketplace. this is a comedy and tragedy. some of it makes you laugh because of the ridiculousness, that it makes you cry because of its unfair nature. how can anyone in this room or on either side of the aisle -- it is so much to ask American businesses that own distribution facilities and employ people who pay taxes, to be given rates on par with our foreign competitors.
I like to close with one thought. what message does this policy send to entrepreneurial people like myself? I look at this ridiculous policy, and I say, I can be making hundreds of thousands of dollars if not millions extra if I simply close my domestic facility and ship my logistics to Asia. when I did the math, all of my inventory in new jersey ready to travel from china, pack it up in a container, ship it back to china, then have might incoming e-commerce orders shipped directly from china so now that package, this one mug has traveled 23,400 miles, the circumference of the earth, and yet it is still cheaper if I would have shipped it 34 steps to my neighbor on the US postal service. think of how ridiculous that is from so many ways. I am concerned if this is not addressed soon, we will have a chain reaction of catastrophic proportions in this country retailers who are on their heels shed hundreds of thousands of jobs, less retailers mean there will be less truckers needed, and businesses like mine that sell goods and services to the retailers will take a hit. i would like to say thank you to those who have done an incredible job with this severe.