President Donald Trump’s mission to get the United States Postal Service to extract better deals from retailers like Amazon got a boost Tuesday when a review he ordered reported that “packages have not been priced with profitability in mind.”
Although the package delivery business more than covers its costs, the report recommends charging companies shipping consumer goods more to alleviate the Postal Service’s financial distress.
The Trump administration says the review does not target any one business in particular, despite the president’s repeated accusations that Amazon rips off USPS. But if the goal is to get more money out of Amazon, it could backfire.
For years, Amazon has been developing its own delivery and logistics business which includes fleets of 7,000 truck trailers and 40 Prime-branded airplanes.
The company is increasingly relying on its own logistics infrastructure as shipping costs continue to spike with growing demand, particularly from Prime members who expect free 2-day shipping and access to Amazon’s 2-hour Prime Now delivery service. If USPS increases its rates, it could compel Amazon to accelerate development of its private shipping business.
That’s a future feared by Mark Dimondstein, president of the American Postal Workers Union.
“Recommendations would slow down service, reduce delivery days and privatize large portions of the public Postal Service,” he said in a statement Tuesday. “Most of the report’s recommendations, if implemented, would hurt business and individuals alike.”
The most difficult piece of the in-house shipping puzzle is “last mile” deliveries, for which Amazon still needs USPS and private shippers. Amazon typically sorts and transports parcels from warehouses to local post offices, which handle the “last mile” it takes to get packages to doorsteps.
In June, Amazon launched a novel program that supports entrepreneurs who want to set up independent delivery businesses to carry the company’s packages across the last mile in Amazon-branded vans and uniforms. It’s the latest signal that Amazon wants to own the entire shipping process from checkout to doorstep.
GeekWire asked Dave Clark, the Amazon executive overseeing worldwide delivery logistics infrastructure, about the impact the new program might have on its delivery partners, like USPS, UPS, and FedEx.
He said that Amazon has “great relationships with our partners today and I don’t see any reason for that to change as we go out in the future.” But he added, “you will see the amount of Amazon delivery vehicles on the street grow in the years to come. There will be a diverse mix of providers for the foreseeable future.”
Package delivery is a rare profit generator for USPS but the service does negotiate deals, which it calls “workshare discounts,” with corporations that do some of the logistical heavy lifting, like sorting, before handing over parcels to be shipped. It’s likely that Amazon has a pretty good deal, based on the company’s negotiating power, logistical resources, and the landmark agreement Amazon and USPS reached to deliver packages on Sundays back in 2013.
Terms of USPS’s workshare discounts are not publicly available but an independent agency reviews them to ensure that “workshare discounts do not exceed the costs the Postal Service avoids as a result of the worksharing activity.”
Amazon did not respond to GeekWire’s request to comment on the new report.