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How The USPS Loses Money Despite Government-Granted Mail Monopoly

On Jan. 17, Priority Mail and Priority Mail Express shipping went up 9.8 percent … except for packages shipped by Amazon, which will continue to ship at 2015 rates.

The Postal Service delivers to about 4,000 routes on Sundays … unless Amazon needs it to deliver to more.

The term Priority Mail is itself a bit misleading because packages sent by Amazon have, well, priority over packages through Priority Mail. That is even though the Postal Service makes some of its highest margins on Priority Mail and almost certainly loses money on its deal with Amazon.

There’s a postal worker in North Carolina who says he came back from running his route with some mail still in the bag that included Priority Mail packages – for which customers paid top dollar for timely delivery – and Amazon packages. The supervisor made a special trip to deliver the Amazon packages, the postal worker says, but left the Priority Mail packages for delivery the next day.

Yes, Amazon has a sweetheart deal with the Postal Service. It’s called a Negotiated Service Agreement, and its purpose is to make it worth Amazon’s while to ship through the Postal Service rather than competitors such as UPS or Fed-Ex.

It’s not a one-way street. When three consumer groups raised concerns about the Amazon deal and the lengths to which the Postal Service is willing to go to make it work, Amazon rode to the rescue.

The groups say such deals would not be profitable if the Postal Service did not use resources intended for regular mail delivery to give itself and, by extension, Amazon, various monopoly-protected competitive advantages. In short, the USPS is cross-subsidizing Amazon package deliveries with money generated through its monopoly letter mail delivery business.

They groups have asked the Postal Regulatory Commission to consider how Amazon alone gets exempted from a nearly 10 percent price hike and how the move can be financially justified for the Postal Service otherwise. They’ve also asked that the Postal Service be required to break out the costs of providing its special favors to Amazon.

In response to the groups, Amazon told the commission there is nothing in the rules that govern rate-setting that “requires rates for either market-dominant (the products, on which it has a monopoly, such as home delivery of first-class mail) or competitive products (package and other delivery services) to cover fully allocated costs.” It derides such accounting as a relic of the first third of the last century and says such costs need not be broken out.

Why not? We have a stake in the viability of the Postal Service. If it goes belly up, we will have to bail it out. It has monopoly protection to deliver our mail, and its delivery network could not be replaced.

It has run up $51 billion in losses in the last seven years and blown through a $15 billion line of credit from the U.S. Treasury. It expects to lose $4 billion more this year despite a profitable first quarter.

And that’s with significant advantages because of its government-enforced monopoly on home delivery, such as not having to pay property taxes, vehicle or fuel taxes, nor for any local licenses.

But others are raising what might be a more serious question: Is the Postal Service being placed in the service of private goals at the expense of meeting the public need for which it was devised?

The changes it has made certainly suggest as much. It has shed a third of its workforce, closed 400 mail distribution centers and relaxed its delivery standards then failed to meet the new, weaker standards. Meanwhile, it has pursued a variety of side businesses – delivering fish from a fish market and groceries – that have had, at best, an uneven record.

Amazon likes to point out that it is making the Postal Service a major player in the package business and that, of course, the Postal Service belongs in that business, as it has been since 1912, when Congress changed the law to allow it to deliver packages so it could break up a cartel of delivery services.

But there is no small cartel of delivery companies now. There are thousands, specializing in every conceivable niche of this massive Internet-fueled industry.

If the Postal Service is doing these deals to improve its bottom line and better fulfill its mission of delivering our mail in a timely and affordable fashion, then why not open the books?

If it won’t share details of the Amazon deal and explain how it benefits all Americans, it’s probably because the Postal Service’s priorities are out of whack.

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