There has been a lot of news regarding the U.S. Postal Service, Amazon, and Trump in the past couple of weeks. Today we’re breaking down exactly what is going on.
The Postal Service has more than one company that it gives deep discounts to when it comes to shipping prices, but it is true that Amazon has an agreement with the Postal Service. Under this agreement Amazon delivers many packages to the USPS, and the USPS delivers the packages on the last leg of their journey.
These contracts must cover all of the costs of the Postal Service. Regulators have approved the contract with Amazon, which means the Postal Service is not losing money by working with Amazon in this way.
Amazon handles a large portion of the delivery of its packages itself. Packages are sorted by zip code and carrier route before being dropped off, so the USPS is only handling a small portion of the work when it comes to these deliveries, making it more cost efficient than it may at first appear.
The Postal Service
Trump’s claims that the Postal Service is losing a lot of money are not incorrect. They reported a loss of 1.8 billion in 2017 compared to 2016.
This is due to a number of factors, including the decline in First-Class and Marketing mail volumes. The obligation to pre-fund retirement benefits has also had a huge impact in the USPS’ revenue.
The Postal Service was losing money before Amazon became such a big contender in the packaging business. While there certainly has to be an overhaul in postal reform, Amazon is far from the only contributing factor in the loss of USPS profits.
Trump claims that the USPS should be making more money off Amazon, and they certainly could. USPS is charging below market rate for parcel delivery, not even accounting for whatever discounts they give to Amazon. With how much business the USPS garners from Amazon, surely they could be making more money with a shallower discount.
But Trump is incorrect in saying that the Postal Service is losing money because of this deal with Amazon, simply because the law states that any contracts with the USPS must at least break even. Beyond that, Amazon brings in a lot of consistent business for the USPS.
Trump’s Task Force
Trump has issued an order demanding that the Postal Service’s finances be evaluated, following his many tweets regarding the USPS and Amazon. This task force will be used to examine the USPS’ finances, including the Postal Service’s operations.
Investigations by this task force will include many parts of the USPS business model, including parts of their business plans that involve companies such as Amazon.
Trump insists that there needs to be action to make the USPS profitable again. There have been no details about when this task force will be created or when changes may be implemented.
So What Does It All Mean?
While all this finger pointing may seem childish, this task force could actually be great for the Post Office. Studying the USPS financial situation can bring about great solutions that can help the USPS.
Technology simply means there is less first-class mail, and with the requirement to pre-fund benefits the USPS is going to struggle to operate in the black. The rise in e-commerce has helped some, but not fully. Hopefully this task force can find problems that can be solved down the line.
In the short term, however, very little, if anything, is likely to change when it comes to day-to-day operations.