How the Post Office Makes Amazon a Federal Issue: QuickTake
How the Post Office Makes Amazon a Federal Issue: QuickTake
(Bloomberg) -- Since signing a landmark five-year contract in 2013 to deliver packages on Sundays, Amazon.com Inc. and the U.S. Postal Service have declared their business relationship a success. The president firmly disagrees. In a series of Twitter messages in recent days, Donald Trump accused Amazon, the giant e-retailer, of draining the postal service of money it can’t afford to lose. Now Trump is ordering up a task force to review the post office’s business practices.
1. What does Trump say?
On Twitter, Trump said that Amazon is "costing the United States Post Office massive amounts of money for being their Delivery Boy," a situation that puts "many thousands of retailers out of business." He repeated a claim that the postal service loses "$1.50 on average for each package it delivers for Amazon" and said "only fools, or worse" believe the postal service makes money from doing business with Amazon.
2. Does the Postal Service lose money on Amazon deliveries?
The Postal Service says it makes money on the Amazon deal, and it’s legally prohibited from charging shippers less than its delivery costs. E-commerce revenue provides “essential support to pay for the network and infrastructure that enables us to fulfill our universal service obligation,” David Partenheimer, a spokesman for the Postal Service, wrote in a January op-ed. “All users of the mail benefit.”
3. How much does Amazon pay the postal service?
Its contract with Amazon is confidential, but Amazon probably gets a pretty good deal. David Vernon, an analyst at Bernstein Research who tracks the shipping industry, estimated in 2015 that Amazon was paying the postal service $2 per package, which is about half what it would pay publicly traded United Parcel Service Inc. and FedEx Corp. A Citigroup research note released last April estimated that every delivery by the postal service’s parcel business -- not just of products from Amazon -- should cost $1.46 more to reflect its "true economic cost."
4. Isn’t the post office losing money?
Yes, to the tune of $2.7 billion in 2017. But it’s saddled by larger and longer-running issues than its work for Amazon. Beyond email’s assault on the handwritten note, the big financial dilemma is the agency’s yearly obligation to set aside cash to cover health care costs for future retirees. This accounts for billions in losses.
5. Why does Amazon use the postal service?
It employs the postal service to complete what’s called the “last mile” of delivery, with letter carriers dropping off packages at some 150 million residences and businesses daily. It has a network of 35 “sort centers” where customer packages are sorted by zip code, stacked on pallets and delivered to post offices for the final leg of delivery.
The Reference Shelf
- Fact-checking some of Trump’s other claims about Amazon.
- Trump’s tweets took a toll on Amazon’s stock price.
- The U.S. Postal Service is nowhere close to self-sustaining.
- A look at the postal service’s bad business model.
To contact the reporters on this story: Joshua Gallu in Washington at jgallu@bloomberg.net;Mark Milian in San Francisco at mmilian@bloomberg.net
To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net, Laurence Arnold, Molly Schuetz
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