Does the USPS Lose $1.50 on Every Amazon.com Package?
Authored by: Matt Palumbo
President Donald Trump has made it clear that he’s no fan of Amazon.com, attacking them numerous times on his twitter account in recent weeks. In large part, Trump’s disdain for Amazon.com is a disdain for the firm’s founder and CEO Jeff Bezos, who also personally owns The Washington Post.
“The Fake News Washington Post, Amazon’s ‘chief lobbyist,’ has another (of many) phony headlines,” Trump complained through Twitter on April 4th. The week prior, Trump attacked Amazon directly, writing that it is reported that the U.S. Post Office will lose $1.50 on average for each package it delivers for Amazon.” In another tweet, Trump added that Amazon would have to pay $2.6 billion extra in shipping costs if the USPS raised their rates to market levels.
While we are on the subject, it is reported that the U.S. Post Office will lose $1.50 on average for each package it delivers for Amazon. That amounts to Billions of Dollars. The Failing N.Y. Times reports that “the size of the company’s lobbying staff has ballooned,” and that…
— Donald J. Trump (@realDonaldTrump) March 31, 2018
So, is it true? After reviewing the source for the claim, my verdict is “half-true.” There’s truth to the sentiment of Trump’s statement, but could be perhaps better described as a classic example “truthful hyperbole” (a term Trump himself coined).
So, What is Trump Referring to?
Amazon has negotiated a “last mile” delivery plan with the USPS, which delivers 2/3rds of their packages. Under this system, Amazon presorts packages and delivers them to a local USPS, which completes delivery.
The statistic Trump is quoting comes from an analysis by Citigroup, which found that the USPS should be charging Amazon $1.46 more per package than the $2 or so they currently do for packages categorized as “competitive products.”
It’s this claim that’s been misinterpreted as a “1.46 loss,” when in reality’s it’s a “$1.46 undercharge.” The USPS is selling above cost – but below the market price.
Under the Postal Accountability and Enhancement Act of 2006, the Postal Office’s “competitive products” must “cover attributable costs and contribute to institutional costs.” In other words, there’s already a law on the books to prevent the USPS from selling below cost. How pathetic is it that it’s necessary for such a law to exist in the first place?
What the Citigroup study is specifically arguing is that the USPS will need to charge $1.46 more on their Amazon packages to cover their operating costs, and to prefund the Postal Service Retiree Health Benefits Fund, which hasn’t been done since 2012. Not like it makes much of a difference, but the $1.46 estimate is for fiscal year 2017. To break-even, the Office would need to charge $1.41 for 2018, and $1.36 in 2019.
Additionally, this is the case for all”competitive products.” The USPS is undercharging across the board, not just Amazon.
In the end, it is taxpayers subsidizing the USPS for undercharging. While the post office doesn’t receive federal funding, we the taxpayer are on the hook for their pensions. They’ve also borrowed $15 billion from the Treasury Department’s Federal Financing Bank – the maximum allowed by law. Who else but the taxpayer does anyone think will inevitably be bailing the USPS out?
While Trump’s claim is “half-true,” it does underscore a larger point about the inefficiency of government. If a private firm learned they should be charging nearly double for a good or service than they already do, they’d do so in an instant. To quote from Citigroup: “We contend that the USPS does not act as a rational price-setter.”