Following a tweet from President Trump today where he called out Amazon and the United States Postal Service, Breitbart News investigated Trump’s claims.
“Why is the United States Post Office, which is losing many billions of dollars a year, while charging Amazon and others so little to deliver their packages, making Amazon richer and the Post Office dumber and poorer? Should be charging MUCH MORE!” Trump said in a tweet posted on Friday.
Trump’s claim that the USPS is losing billions of dollars is entirely correct, in 2016 the USPS announced a $5.6 billion net loss and in 2017 stated a $2.7 billion net loss, making this the eleventh year that the Postal Service has announced a loss. The total from 2007-17 amounts to a staggering $65.1 billion in losses. Things do not seem to be looking up for the organization anytime soon, with the USPS predicting in their public 2018 Integrated Financial Plan that they would suffer a net loss of $5.2 billion in 2018. With mail volume at a 29 year low and amassing large amounts of debt, the Postal Service is facing a tough time ahead.
However, a bipartisan bill has been proposed that would help the Postal Service. The USPS operates under a law from 2006 that restricts how much they can charge for stamps, how much they must pay into retiree health funds, and other general restrictions on business operations. Some elements of that law expired in 2016, such as the one stating that USPS must pay $5.4 billion to $5.8 billion into retiree health funds, but this new bill would see the law revamped entirely to help the Postal Service compete in the modern age. “Once enacted, and together with aggressive management actions, the Postal Service can meet all of our obligations and continue to improve the way we serve the American public,” said Postmaster General Megan Brennan in testimony to Congress.
Another element hampering the Postal Service is the price it charges to deliver packages for e-commerce giant Amazon. A Citigroup analysis in July of 2017 found that a subsidy of $1.46 was attached to every Amazon package delivered by USPS due to the Postal Service delivering the company’s packages below their own costs. It was determined in 2007 by the Postal Service and its regulator that a minimum of 5.5 percent of the Postal Service’s fixed costs must be allocated to package deliveries. Ten years later, despite 25 percent of USPS’s revenue coming from packages, the percentage of fixed costs allocated to packages has not increased enough to become profitable.
According to Citigroup’s analysis, if these costs were fairly redistributed and allocated, the average parcel would cost around $1.46 more to deliver. Amazon has used a method called “postal injection” to save money on their own deliveries, delivering pre-sorted Amazon packages to local post office delivery depots for “last mile” deliveries to be made by the USPS at a greatly discounted price. With Amazon warehouses located near many USPS depots, Amazon has managed to outsource almost two-thirds of their deliveries to the United States Postal Service.
So is President Trump right in saying that the USPS should be charing Amazon much more? Based on the current figures relating to the number of packages the USPS delivers for Amazon, the price they charge for delivery, and the Postal Service’s current financial state, the answer is clearly yes.
The progress of the proposed Postal Service Reform Act that would give USPS greater control over their business dealings can be followed here.