Back in April, President Donald Trump created a task force to evaluate the operations of the U.S. Postal Service losing money.
The commission was formed shortly after the president issued several tweets
complaining that “the U.S. Post Office will lose $1.50 on average for each package it delivers for Amazon.”
The president has long expressed disdain for Amazon, whose owner, Jeff Bezos, privately owns the Washington Post. Critics suggested that he only took an interest in the postal service because it might make things inconvenient for Amazon.
Trump was wrong about a few key items. For example, USPS loses $1.46 on average across all the packages it delivers, not just those for Amazon.
But at its heart, there was truth to Trump’s statement: the postal service is not always profitable for its delivery services. USPS is facing growing pension and benefits costs. Additionally, when it loses money, taxpayers make up the difference.
The commission Trump created released its findings on Dec. 4. They think the postal service should raise its shipping rates, yes—but also that the United States Postal Service should reconsider its pricing structure altogether, and consider eliminating its promise to deliver commercial packages to every address in the United States.
The Commission’s Findings
The Postal Service “is on an unsustainable financial path which poses significant financial risk to American taxpayers,” said Treasury Secretary, Steven Mnuchin, who chaired the panel, in a statement released on Dec. 4. “Today’s report contains achievable recommendations that fulfill the president’s goal of placing the USPS on a sustainable business model while protecting taxpayers from undue financial burdens and providing them with necessary mail services.”
Importantly, the Dec. 4 report did not say how much the commission wanted USPS to raise its rates.
So while such a change would affect most commercial shippers (and many private individuals, too), it’s unclear how much a change in USPS rates would affect shippers’ bottom lines to deliver packages.
Like many bulk customers of USPS, Amazon has a contract with the shipper. The details of that contract are confidential, so we cannot know for sure how much Amazon pays USPS and how much (if any) money USPS loses because of the e-commerce giant.
Citi Research, which conducted the 2017 report that Trump may have cited in his April tweets, said that if Amazon spent $1.46 more on each package—the amount USPS would need to break even across all its packages—they would have to pay about $2.6 billion more each year.
In a New York Times story from April, analysts said USPS’ package delivery market has seen billions of dollars in growth. For example, the United States Postal Service has grown from $3.3 billion in 2008 to $5.7 billion in 2017.
If Amazon were indeed to spend $2.6 billion more each year, it could grow USPS’ package delivery revenues by almost 50 percent.
What’s more, the task force doesn’t solely blame Amazon for USPS’s losses. Individual Americans are using USPS less often, especially for letters and other person-to-person packages. They write:
“The shift toward digital correspondence and the corresponding decline in USPS mail volumes have been compounded by caps on mail pricing, leading to mail revenue declines of around 4 percent per year. Additionally, the USPS has not been able to sufficiently reduce costs to offset declines in revenue, resulting in net losses totaling $69 billion between FY 2007 and FY 2018.
Although package volumes are increasing due to the rise of e-commerce, package revenues alone cannot offset the decline in mail revenues. Additionally, as the USPS delivers more packages, it is competing with private delivery companies and distorting overall pricing in the package delivery market.”
The Pricing Structure Needs a Complete Overhaul
The commission also suggested that USPS revisit its “universal service obligation,” which requires that USPS deliver mail and parcels to every U.S. address. USPS should distinguish between mail and packages delivered on behalf of American citizens and commercial deliveries, the commission said, and possibly not continue the universal service obligation for commercial deliveries.
That would be hugely important for Amazon (and many other retailers), which rely on USPS for last-mile service to locations that are not convenient for them to reach themselves.
How This Report Affects Shippers
This report is just a set of recommendations. We’ll have to wait and see what the Trump administration decides to do with it. Congress may need to be involved in policy changes, in which case we may be years away from concrete changes that would affect shippers’ day-to-day business practices.
But if changes are made, they will likely affect a wide swath of American shippers. In recent years, the Postal Service has become an essential part of the shipping picture for many companies. Some rely on it for last-mile delivery services to far-flung rural areas. Many small businesses use Priority Mail flat-rate boxes to ship items straight to customers.
Like all shipping carriers, USPS raises its rates regularly. But these would be structural changes, not merely rate adjustments. If changes like these are imposed, shippers may have to make structural changes, too.
The Reveel App uses AI and machine learning to provide an unparalleled look into what’s impacting your bottom line. Through invoice audits, peer benchmarking, and rate modeling/simulations, you can see the health of your operation and assess pricing changes from parcel carriers like FedEx and UPS. Sign up for a free Reveel account today to see how you can leverage automation to synthesize your data, ship more for less, and reduce the time needed to identify issues and action items.
