US Postal Service price hikes could cost Amazon more than $1bn after months of criticism from Trump

Getty ImagesThe US Postal Service has proposed hiking prices.
  • The US Postal Service has proposed price hikes that could be a major blow to Amazon.
  • Credit Suisse estimates the price hikes could cost Amazon up to $US1.1 billion.
  • The price hikes come after months of criticism from President Donald Trump, who argued that the Postal Service gives Amazon an unreasonably good deal.

The US Postal Service’s proposed price hikes could be a major blow to Amazon.

Earlier in October, the USPS proposed a price increase of 12.3% for its lightweight parcel select service. Non-lightweight parcel select prices would increase by an average of 9.3%. The proposed price hikes would go into effect in January 2019 if they are approved by the Postal Regulatory Commission.

Credit Suisse estimates the price hikes could cost Amazon somewhere in the range of $US400 million to $US1.1 billion, CNBC reports.

Parcel select is used by Amazon, as well as companies such as FedEx and UPS, for “last-mile” package delivery. The USPS’ low fixed costs and mandate to deliver mail to Americans make it an ideal option to get a package from a fulfillment depot to its final destination.

Amazon doesn’t seem too worried about the proposed rate hikes, however.

“We’re not expecting a material impact from these rate changes in 2019,” CFO Brian Olsavsky said during the company’s third-quarter earnings call on Thursday.

Trump has criticised Amazon’s deal with the USPS for months.

“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 in July. “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.”

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.”

A USPS spokesperson said in an email to Business Insider earlier this month that the proposed price increase was not a response to Trump’s criticism.

“The price increases reflect the best judgment of the Postal Service Governors, who are seeking to establish new rates that will keep the Postal Service competitive, while also providing the Postal Service with much needed revenue,” the spokesperson said.

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.

However, Amazon isn’t the only company that is getting a great deal from the USPS through the parcel select service. Higher costs will also be a blow to companies like FedEx and UPS.

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