Moneybox

Donald Trump Insists Amazon Is Ripping Off the Postal Service. It’s Not.

PETERBOROUGH, ENGLAND - NOVEMBER 15:  Parcels are processed and prepared for dispatch at Amazon's fulfillment centre on November 15, 2016 in Peterborough, England. In the lead up to Christmas, Amazon is experiencing the busiest time of the year.  (Photo by Dan Kitwood/Getty Images)
So many packages.
Dan Kitwood/Getty Images

Is Amazon exploiting the U.S. Postal Service?

Donald Trump clearly seems to think so. In a Wednesday morning tweet laying into the online retailer, the president claimed that Amazon uses USPS “as their Delivery Boy (causing tremendous loss to the U.S.)”

This is, of course, just one of the many bones Trump has to pick with the everything store, which the president mostly seems to despise because its CEO and founder, Jeff Bezos, owns the often-critical Washington Post. But it’s not the first time Trump has tweeted about what Amazon pays for shipping, and if you aren’t well-versed in deep-cut controversies surrounding postal economics, it can appear like an odd fixation.

The conventional wisdom is that Amazon has actually been a rare boon for the financially battered Postal Service. While its revenue from traditional snail mail has continuously slipped since the advent of email, its business delivering packages has surged, thanks in large part to the Amazon-led boom in online shopping. Like many giant bulk shippers, Amazon likely has a discount deal with USPS. But that’s nothing to get worked up about.

Indeed, this is pretty much what Trump’s friends have been telling him, according to Axios:

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

“The whole post office thing, that’s very much a perception he has,” another source said. “It’s been explained to him in multiple meetings that his perception is inaccurate and that the post office actually makes a ton of money from Amazon.”

So where did Trump get the idea that Amazon is ripping off the Postal Service? One can only speculate. But chances are it has something to do with the fact that for years now, private shipping companies like UPS have been trying to convince lawmakers and regulators that the post office should be charging more to deliver packages—which, of course, would let UPS and other competitors charge more as well, or create an opening for them to siphon off some more of the post office’s business. In July, the Wall Street Journal published an op-ed by Josh Sandbulte, a hedge fund manager with a stake in FedEx, titled, “Why the Post Office Gives Amazon Special Delivery.” In it, he argued that USPS should be charging an average of $1.46 extra for every package it ships in order to cover its true costs. He cited a research note from Citibank, which in turn was based on numbers produced by UPS.

The argument that these companies are making is, unsurprisingly, pretty self-serving. It starts with the fact that the Postal Service has massive fixed costs, because moving mail to every corner of the country is expensive. It requires a network of processing centers, post offices, layers of management, truck fleets, and a huge force of mailmen and women to drop those credit card offers in your mailbox every afternoon.

In theory, the Postal Service could cover all of these fixed costs by simply splitting the expense evenly among all of its different services. But it doesn’t do that. In 2007, a federal commission ruled that package prices only had to cover 5.5 percent of the Postal Service’s fixed costs. The other 94.5 percent were baked into the price of sending traditional mail. The accounting standards have stayed the same since, even as package delivery has come to comprise a larger and larger portion of the Postal Service’s business.

You can see why USPS likes it that way. It has a monopoly on sending traditional first-class mail, which lets it raise postage without worrying too much about losing business (email and online billing is a much bigger threat than other terrestrial mail carriers). On the other hand, it competes with the private sector on carrying packages. Raising prices there could encourage big shippers like Amazon to switch services.

You can also see why this ticks off FedEx and UPS. They feel as if they’re competing in the package business with a giant, government entity that can essentially cross-subsidize its logistics infrastructure with the money it makes off of Mr. Rogers stamps. UPS has argued that the Postal Service should have to factor 29 percent of its fixed costs into its package shipping rates, roughly in line with how much of its activity business packages now account for.

But are they right? That’s not so clear. The postal service has to maintain a huge footprint in order to fulfill its basic job of delivering mail to each and every address in this country six days a week. If Amazon decided to start sending all of its packages via drone tomorrow and USPS found itself shipping half the number of packages it does today, it would still need to keep the vast majority of its current infrastructure and staffing in place—which is why loading those costs onto birthday cards and bank statements makes a certain amount of sense.

Like a lot of debates about internal accounting, this one gets sort of weird and metaphysical. But the most important part to keep in mind is that, if the postal service raised its prices by as much as the industry wants, Citi thinks it could be a $15 billion to $19 billion “revenue opportunity” for FedEx and UPS. Whether he realizes it or not, Trump seems to have fallen for an industry lobbying campaign that would have you spend more to ship your Christmas presents.