- President Donald Trump has doubled down on his claims that Amazon is abusing its relationship with the US Postal Service, saying in a tweet Monday that the company was turning the USPS into a “delivery boy.”
- The USPS’ low fixed costs and mandate to deliver mail to Americans make it an ideal option for “last mile” delivery, something that has served Amazon well.
- Amazon, however, is far from the only American company that benefits from the USPS’ current pricing plan.
President Donald Trump is doubling down on his claims that Amazon is abusing its relationship with the US Postal Service.
“The Amazon Washington Post has gone crazy against me ever since they lost the Internet Tax Case in the U.S. Supreme Court two months ago,” Trump tweeted on Monday. “Next up is the U.S. Post Office which they use, at a fraction of real cost, as their ‘delivery boy’ for a BIG percentage of their packages.”
The tweet is part of a months-long battle that Trump has waged against Amazon, focusing on the e-commerce giant’s use of the USPS for deliveries.
In April, Trump ordered the formation of a task force to investigate the USPS and what he called its “unsustainable financial path.” The order said the USPS had lost $US65 billion since the Great Recession and needed to be “restructured to prevent a taxpayer-funded bailout.”
“Only fools, or worse, are saying that our money losing Post Office makes money with Amazon,” Trump tweeted earlier in April. “THEY LOSE A FORTUNE, and this will be changed. Also, our fully tax paying retailers are closing stores all over the country … not a level playing field!”
And when later asked about the issue by reporters, Trump said, “Amazon has the money to pay the fair rate at the post office, which would be much more than they’re paying right now.”
Trump, however, is ignoring some key points in his battle with Amazon.
The post office’s problems
Trump’s argument isn’t constructed entirely out of thin air.
The USPS reported a net loss of $US2.7 billion on $US69.6 billion in revenue in 2017. Raising prices on shipping packages is seen as one way to address this problem. Since Amazon is one of the USPS’ biggest customers in the package-shipping business, Citi estimates that raising prices could cost the e-commerce giant billions of dollars.
Trump has so far failed to acknowledge, however, that Amazon isn’t the only company that is getting a great deal from the USPS.
“They get a little bit of special treatment, just because they pump in so much of the volume … It’s really no different than anyone else pumping that much volume into the network,” Logan Purk, an analyst at Edward Jones, told Business Insider earlier this year. “But I don’t think it’s this fleecing that the president thinks it is.”
The USPS’ low fixed costs and mandate to deliver mail to Americans make it an ideal option for “last mile” delivery, or a package’s journey from a fulfillment depot to its final destination.
Amazon and other companies, like FedEx and UPS, drop off sorted packages, and postal workers deliver them on their usual route. It’s a unique setup that allows the USPS to charge lower rates than competitors.
Additionally, the USPS offers lower prices because its primary function isn’t to generate profit.
“Similar to public plazas and mass transit, the USPS’ first priority is to serve civilians,” Business Insider’s Leanna Garfield reported. “It’s also notoriously hard for cities and states to not lose money from maintaining subways and publicly owned parks, which is why those services are heavily subsidized by tax dollars and user fares. The USPS does not receive federal money, but Congress still controls the service’s budget and operations.”
Raising prices could hurt American businesses across the board
Any person or business using the USPS to ship packages is getting a better deal than they would get at competitors, thanks to the USPS’ unique model.
If Trump’s task force makes the USPS raise prices, these costs will affect not just Amazon but any business that ships packages. And as USPS prices increase, FedEx and UPS will be able to charge customers more and still remain competitive.
“A free hand on package pricing at the post office has been good for consumers, good for the post office, and good for online sellers like Amazon,” Business Insider’s Josh Barro wrote in an op-ed article that identified issues with Trump’s argument.
Amazon did not immediately return Business Insider’s request for comment on Trump’s latest tweets.
Amazon is a one-of-a-kind company in many ways, but when it comes to saving money under the USPS’ price structure, it’s far from unique.
As the company that ships the most goods, Amazon is saving the largest amount of money – but the e-commerce giant also has the funds to deal with an increase. Other companies may not be as fortunate.