- Amazon could be forced to raise the price of Prime membership if President Donald Trump gets the US Postal Service to raise its rates, according to analysts at Credit Suisse.
- Another scenario laid out by the analysts would see Amazon absorbing a hit to its bottom line.
- Trump has ordered a review of USPS’s pricing practices, and the outcome is unclear.
Prime membership could get more expensive if Amazon is forced to pay the US Postal Service more to deliver packages.
President Donald Trump has repeatedly called out Amazon in recent weeks, arguing that the retailer must pay the USPS more per package because it is ripping off the service.
Amazon largely uses the USPS, which has low fixed rates and a mandate to deliver mail to all Americans, for its so-called last-mile delivery – sorted packages are dropped off at a post office to be delivered to customers’ homes along postal workers’ usual routes.
Credit Suisse analysts said in a recent note to investors that if Trump gets his way and the USPS hikes its rates, Amazon could be forced to pass on that increased cost to consumers.
The bank says a $US20 hike in annual Prime subscription fees for an estimated 104 million US Prime members could offset most, if not all, of any increased payments to the USPS. It’s likely that Amazon would then accelerate and prioritise its own delivery services like Seller Flex and Prime Now that do not rely on the USPS.
Another scenario is that Amazon would absorb any increased cost from using the USPS to deliver packages. Credit Suisse estimates this could amount to a hit of $US1 billion to $US1.8 billion to Amazon’s bottom line.
What will happen is anyone’s guess at this point, as a few important variables are unknown, such as whether the USPS will indeed hike its rates, how much such an increase would be, and how many packages the agency currently delivers for Amazon.
Either of the scenarios laid out by Credit Suisse could affect Amazon’s ability to provide the service customers expect while also keeping Wall Street happy – a dance it has been doing for years. Credit Suisse says Amazon’s dependency on the USPS is a worrisome silver bullet that could damage the company’s ability to delight its customers.
Trump on Thursday ordered the creation of a task force to look into the USPS’s financials.
“The USPS is on an unsustainable financial path and must be restructured to prevent a taxpayer-funded bailout,” the order, signed by Trump, reads.
Patrick Donahoe, a former postmaster general, has said Amazon’s deal with the USPS is profitable for the agency. But the USPS is still most likely undercharging businesses – not just Amazon – to ship packages.
Business Insider Emails & Alerts
Site highlights each day to your inbox.