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Silicon War: How Donald Trump Can End Amazon’s Sweetheart Postal Service Deal

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Washington, D.C.

A pathway is emerging for President Donald Trump to end the sweetheart deal that Jeff Bezos’s Amazon has with the United States Postal Service (USPS), Breitbart News has learned.

In October, a five-year contract that USPS signed with Amazon allowing the internet retailer a significant bargain on shipping costs is set to expire—allowing the federal agency to re-sign at the terms with Amazon or renegotiate the deal to get a better result for USPS.

Essentially, the way the deal works right now is that Amazon gets a significant discounted per package shipping rate from the USPS. According to a 2017 Fortune Magazine report–based on a Wall Street Journal op-ed–about 40 percent of Amazon’s shipping business is done through USPS. The USPS, even in 2013, started Sunday shipment service to help Amazon packages reach their destinations earlier. The agreement is profitable for USPS, and helps pay for some other services like rural mail delivery, but the Fortune Magazine report–based on information from shipping industry watcher and money manager Josh Sandbulte–makes the case that it could be much more profitable for USPS than it is, and that Amazon is getting a deal of a lifetime from the government mail agency.

Amazon’s argument that this is all okay is essentially that the contract goes through review–it does–and that it’s profitable for the government: it is.Amazon told Fortune Magazine for its piece:

As is the case with all of its customers, our partnership with USPS is reviewed annually by the Postal Regulatory Commission, which has spent decades reviewing and approving USPS costing and pricing practices. The Postal Regulatory Commission has consistently found that Amazon’s contracts with the USPS are profitable. Amazon has invested hundreds of millions of dollars in a network of more than 20 package sortation facilities that inject directly into the USPS last mile network bypassing most of USPS network. This investment resulted in more efficient processes as well as thousands of jobs and related economic benefits in local communities.”

But the question really becomes: Is the deal as profitable as it could be for the USPS, or could Amazon be paying more and still getting an incentive-laced deal that helps a struggling federal agency? President Trump, with the upcoming contract deadline in October 2018, has the opportunity to zone in on these exact questions and push the USPS–which he arguably has authority over even though it is a semi-independent agency–to renegotiate a better deal for the USPS.

The Capitol Forum, a specialist subscription-only industry-focused D.C. insider publication, wrote on Thursday morning:

USPS signed a five-year negotiated service agreement with Amazon on October 15, 2013. As that agreement is set to expire, the pressure on USPS has increased substantially to strike a new deal that is in the strategic interests of the USPS rather than re-up the current contract. Sales officials from USPS typically reach out to companies to begin discussing expiring contracts of Parcel Select agreements (which is the type of last-mile deal that Amazon has) three to six months before they terminate, according to a 2015 GAO report. If a typical timeline is followed by USPS staff regarding Amazon’s deal, discussions on a renegotiated deal with Amazon will likely begin as early as April 15. At stake is nothing less than the potential to disrupt Amazon’s current path to dominance of the U.S. retail sector. Amazon’s current deal with USPS, which Bloomberg has reported to be $2 per package, has enabled Amazon to significantly undercut its retail competitors.

The piece from The Capitol Forum laid out three separate pathways by which USPS could proceed. First, it could re-up the lucrative contract with Amazon at the same rate—something that would continue to grease Amazon’s wheels with a sweetheart, and oftentimes unfair, federal government contract.

Second, the USPS could hike prices just a little bit on Amazon. The Capitol Forum wrote, explaining the second option:

There is substantial evidence that points to an outcome in which USPS negotiates a higher price based on improved assessments of the costs of delivering Amazon’s packages. Again, USPS is mandated by law to ensure that the price for services—at a minimum—exceeds the costs of those services, making the assumptions that go into those cost calculations very important. USPS has been under considerable pressure from myriad stakeholders, including Senator Claire McCaskill, GAO, UPS, and President Trump, to improve its accounting of costs in the shipping space, particularly when it comes to the Parcel Select program. As mentioned earlier, Citigroup has an analysis that suggests that USPS, using more accurate accounting metrics, would raise its price for packages by 41 percent. Citigroup’s analysis was based on an assumption that USPS would view its package services costs at 24.6 percent of overall Postal Service costs (what USPS wonks refer to as “institutional costs”) rather than 5.5 percent.

At that 41 percent rate hike, Amazon would likely pay—per The Capitol Forum’s analysis—about $2.82 per package rather than just $2 per package. While this would be a step in the right direction for the USPS, The Capitol Forum lays out a third pathway much more in line with President Trump’s way of thinking, which is that Amazon should pay much more than they are so the USPS doesn’t keep subsidizing its business.

The Capitol Forum wrote about option three:

Facing pressure from the president, USPS could decide to ‘charge Amazon MUCH MORE’ by focusing on USPS’s strong negotiating position as it enters talks with Amazon. In fact, GAO’s report on the Parcel Select program explained that USPS is supposed to negotiate deals with its competitors that align with the goals of the Postal Service. In other words, it is a minimum requirement that services be priced to match their costs. Beyond that minimum price requirement, USPS has substantial flexibility to negotiate strategically with Amazon. One recent example of USPS moving in a strategic direction regarding its deals with private industry is the USPS effort to institute new program-integrity rules called ‘marketplace requirements’ on its negotiated agreements in USPS’s ‘reseller program,’ which allows outsourced sales forces access to discounted shipping rates.

Additionally, several factors indicate that USPS is in a position of strength heading into negotiations. In the regulatory filing cited earlier, UPS said that Amazon ships more than 40 percent of its packages through USPS. Citigroup’s analysis noted the problem with this type of reliance on one shipper.”

The current Postmaster General, Megan Brennan, has been serving since 2015. The Postal Service is unique among federal agencies in that it is one of the only ones spelled out in the U.S. Constitution. The role of the USPS has shifted over the years. In the early years of the nation, the Postmaster General position would typically go to a close ally of whomever was president. In modern years, what happens is the president appoints board members of the USPS board of governors, and then the board of governors selects the Postmaster General.

Technically, the USPS is still a federal agency, even though it raises its own budget that it spends—so technically President Trump could order USPS to renegotiate this contract with Amazon the way he wants it negotiated. That would undoubtedly set up some kind of lawsuit, similar to the ongoing legal battle the administration is fighting over the president’s authority over the Consumer Financial Protection Bureau (CFPB), but the president and administration would likely win.

President Trump confirmed on Thursday morning that he is upset with Amazon’s special treatment.

That came on the heels of a report from Axios on Wednesday that Trump was unhappy with Amazon.

“He’s wondered aloud if there may be any way to go after Amazon with antitrust or competition law,” a source who has spoken with the president told Axios.

“Trump’s deep-seated antipathy toward Amazon surfaces when discussing tax policy and antitrust cases,” Axios’s Jonathan Swan wrote. “The president would love to clip CEO Jeff Bezos’ wings. But he doesn’t have a plan to make that happen.”

Trump has been looking specifically for a way to go after Amazon on the USPS contracts, Swan reported.

“Trump tells people Amazon has gotten a free ride from taxpayers and cushy treatment from the U.S. Postal Service,” Swan wrote.

But now, with this looming USPS contract renegotiation, a plan is emerging for Trump to target Amazon and Bezos.

Trump could, by directing the Postmaster General to renegotiate this contract with Amazon to a much more favorable amount per package for USPS, save USPS—which has its own budget problems—and level out the playing field in private industry altogether so Amazon no longer gets a sweetheart handout from the federal government.

The story from Swan sent Amazon’s stock price tumbling on Wednesday.

Now that it appears there is a pathway for President Trump to–this year–do exactly what he has said he always wanted to do with Amazon’s sweetheart USPS contract, Amazon and Bezos may be headed for even darker waters.

All of this of course comes as the Pentagon considers a major contract for Amazon to handle the entire U.S. defense and intelligence apparatus’s cloud computing. That potential contract is coming under fire from Trump allies as well:

If Amazon were to lose out on the Pentagon contract and Trump ends the sweetheart USPS shipping deal, Amazon would lose something like $10 billion a year in revenue from the Pentagon contract, and at least hundreds of millions–if not billions, depending on the exact number of packages Amazon ships through USPS–more from the USPS contract. It’s unclear exactly how many packages a year Amazon ships, but about 40 percent of them go through USPS.

A December piece from Vox detailed the cozy relationship between USPS and Amazon, noting that Trump is “somewhat right” when he criticizes the deal.

“Amazon gets a good deal from USPS, which ships millions (but not all) of its packages, and, in return, the postal system gets help streamlining its operations,” Vox wrote. “Those discounts can be pretty generous. Kosar says that, in hindsight, the Postal Regulatory Commission has sometimes reconsidered its deals as maybe too good, and unions are often critical of these agreements.”

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