For every Amazon package it delivers, the Postal Service loses $1.46
For every Amazon package it delivers, the Postal Service
loses $1.46
by Brian McNicoll September 01, 2017 12:01 AM
An old salesman joke: A salesman says, "We sell
below cost." A customer asks how he can do that. "Simple," he
says. "We buy below cost."
For a day or so last week, Jeff Bezos passed Bill Gates
as the richest man in the world. And that's pretty much how he did it.
Bezos runs Amazon, which is primarily a shipping
business. It relies on the U.S. Postal Service to deliver two-thirds of its
packages. In many places now, it locates a depot near a post office, presorts
the packages, and delivers them to the post office. The Postal Service, which
has a monopoly on last-mile delivery, does the rest.
The Postal Service is happy because it can report healthy
increases in sales in the package delivery department. Postal employees are
happy because it means work seven days a week — the Postal Service operates on
Sundays almost solely to deliver for Amazon.
And Amazon is happy because it has a deal that takes
advantage of a loophole in the law that gives it a taxpayer-subsidized deal
none of its competitors could get or match.
That's how it is that, according to a recent piece in the
Wall Street Journal, "The U.S. Postal Service delivers the company's boxes
well below its own costs."
Bezos can sell shipping below cost because he buys it
below cost. He buys below cost because of what the Journal piece termed
"an unappreciated accident of history."
The Postal Service has a legal monopoly to deliver
first-class mail and non-urgent letters. It is the only entity that can put
something into a mailbox or through a mail slot. It is legally obliged to
provide the service at the same level and price nationwide. That means, even
with mail volume down 40 percent since 2006, the Postal Service still must
visit 155 million mailboxes every day.
Since 2007, the Postal Service has been required to
allocate 5.5 percent of its fixed costs to package delivery and to incorporate
that into its pricing. That figure made sense then, but today, 25 percent of
the Postal Service's business is package delivery. And thanks to features of
the Amazon deal – such as Sunday delivery, grocery delivery, even delivery from
fish markets to local restaurants – the expenses have climbed.
In fact, they've climbed so much, according to a recent
analysis by Citigroup, that the Postal Service should be charging Amazon $1.46
more per package than the $2 or so it does now. "Amazon now enjoys low
rates unavailable to its competitors," the Journal story said. "It's
as if Amazon gets a subsidized space on every mail truck."
It's not just the free ride in the truck. It's the $200
million three years ago to furnish carriers with 270,000 Internet-connected
handheld scanners needed for real-time package tracking. It's the $5 billion or
more to replace the Postal Service's 190,000 delivery vehicles with new ones
better equipped to handle packages.
The Postal Service has followed this formula to $60
billion in losses since 2007. It expects to lose about $6 billion more this
year. But first-class mail volume is down, junk mail is about the same,
packages continue to grow 8 percent or so per year, and Postmaster General
Megan Brennan's position is that "we're obviously looking to get
additional customers who are interested in that type of customized
delivery."
There is no question the Postal Service must change to
survive. What we need from it has changed. We now pay bills online. We email
rather than write letters. We evite rather than send invitations. At the same
time, we buy online and need the Postal Service to deliver.
But its finances are not in order. The Postal Service has
had one profitable quarter in the last five years. Even with monopoly
protection on its most valued service, it has fallen more than $120 billion
behind in pension and retiree health expenses and has chewed through a $15
billion line of credit from the Treasury.
The Postal Service has made significant gains in
automation and other cost-cutting moves. But the deals it is operating under
are unsustainable. It's about selling something over and over and over again to
your biggest customer — who also is one of your biggest competitors in spaces
such as same-day delivery — for $2 when you should be charging 75 percent more.
If you're in a deal where you lose money and your partner
profits wildly, maybe deal-making is not for you. When tax dollars are at stake
— and they are, regardless of Postal Service protestations — we have an
interest in assuring the deals the Postal Service makes serve it and not the
richest, or second-richest, man in the world.
https://www.washingtonexaminer.com/for-every-amazon-package-it-delivers-the-postal-service-loses-146
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