December 29, 2017 at 2:01 PM
President Trump on Friday called for the U.S. Postal Service to raise the shipping rates that it charges Amazon.com, the online retailer, in a deal that he said disadvantages the federal agency.
“Why is the United States Post Office, which is losing many billions of dollars a year, while charging Amazon and others so little to deliver their packages, making Amazon richer and the Post Office dumber and poorer? Should be charging MUCH MORE!” Trump tweeted Friday morning.
Moments after the opening bell, shares of Amazon fell by roughly 0.4 percent. That slide continued throughout the day, with the stock price finishing down 1.4 percent.
Trump is probably referring to a partnership between the Postal Service and Amazon in which the Postal Service carries Amazon packages in the last leg of their journeys to customers' doorsteps. It's just the latest in a series of digs by the president at Amazon, whose chief executive, Jeffrey P. Bezos, owns The Washington Post.
In this case, Trump's tweet misses some nuances of the arrangement between Amazon and the Postal Service but underscores a real debate about whether the USPS is charging Amazon — and other retailers — enough to deliver packages. Parcel delivery has become an increasingly important part of the Postal Service's business as first-class mail has continued a long-running decline.
Spokesmen for the Postal Service and Amazon didn't immediately respond to requests for comment Friday. In July, Amazon told Fortune magazine that the Postal Regulatory Commission, which oversees the Postal Service, “has consistently found that Amazon's contracts with the USPS are profitable.”
Amazon defended its program in July after Josh Sandbulte, a hedge fund manager with a stake in FedEx, wrote a Wall Street Journal op-ed asserting that the Postal Service effectively subsidizes Amazon, losing an average of $1.46 for each shipment it delivers. The op-ed cut against a view that rising volumes of e-commerce shipping might lift the Postal Service's long-struggling finances.
Sandbulte largely based his op-ed on an April report from analysts at Citigroup arguing that the Postal Service's employee benefits were acting as a drag on the USPS's profitability.
“We contend that the USPS does not act as a rational price-setter in the parcel market,” the report said. “Remedying this could be the key to the organization regaining operating solvency. . . . To this day, price still does not cover all-in costs.”
The report said the average cost of parcel shipments might jump from $3.51 to $4.97 if the USPS appropriately priced the service. It also said that since the Postal Service pricing provides strong downward pressure on competitors UPS and FedEx, those companies also probably would increase prices.
The Postal Service recorded a net loss of $5.6 billion in 2016, which it blamed on employee health-care costs.
Although Amazon is the biggest user of the parcel delivery service, the Citigroup analysts warned that Amazon would also be best positioned to absorb any increase in shipping costs, because of its size and extensive leverage in the shipping market. Other major users of delivery services, such as Best Buy and Staples, would be more exposed.
James O'Rourke, a management professor at the University of Notre Dame who studies the Postal Service, said the USPS's essential problem is that it faces costs few other carriers do. Unlike UPS or FedEx, much of whose business revolves around moving parcels from one hub to another, the Postal Service is far more involved in delivering parcels over the “last mile” of a trip. This can be costly, especially in rural and suburban areas.
What's more, the Postal Service pays for employee health care and retirement plans, while its competitors have shifted more of that responsibility to employees. An act of Congress waiving those obligations would make the Postal Service profitable again almost overnight, O'Rourke said.
One of the Postal Service's biggest immediate obstacles to raising prices might be Trump. That's because the body that sets postal rates, the nine-member Postal Service Board of Governors, has only two serving members and lacks a quorum to make decisions. The board cannot raise rates without Trump nominating political appointees to fill the remaining slots, O'Rourke said.
“There is a level at which government operates that elected officials sometimes don't fully grasp,” O'Rourke said. “And this is true whether you're talking about USPS, the State Department or Interior. There are people four and five levels down who make the government of the United States work every day.”
In its response to the Wall Street Journal op-ed in July, Amazon said it had invested hundreds of millions of dollars in package facilities across the country that support the Postal Service’s delivery operation.
“This investment resulted in more efficient processes as well as thousands of jobs and related economic benefits in local communities,” the company said in the statement released to Fortune.
Trump has periodically criticized Amazon since before he took office. In 2016, Trump said that the company could face “a huge antitrust problem” if he was elected because “Amazon is controlling so much.” As recently as this summer, Trump twice asked a hedge fund manager whether he thought Amazon was a monopoly. (The manager, whose fund owns Amazon stock, said no, according to CNBC.)
Trump has also charged that the Internet retailer hurts competitors and local governments by failing to pay sales taxes. The company did not collect sales tax for years, but it does now.
Trump has argued that Bezos is using The Washington Post to advance his financial interests, such as by using any business losses at The Post to deduct Amazon's corporate taxes. Tax experts say such a maneuver is not possible.
“There is no way for Amazon to use The Post's tax situation to offset its taxes,” said Philip Hackney, a tax law professor at Louisiana State University.
The Post’s editors and Bezos have declared that he is not involved in any journalistic decisions. The Post is owned by Bezos personally, not by Amazon.
It was not clear what drove Trump’s interest in the shipping relationship between Amazon and the Postal Service on Friday morning. Shipping is in the news with the holiday season, and several cable networks mentioned Amazon and Bezos as part of features Friday morning, though they did not appear to mention the Postal Service issue.