President Donald Trump this morning again called on the U.S. Postal Service to increase the amount it charges Amazon to deliver packages, seeking to turn the tech giant into a subplot in a broader national debate over USPS funding and operations.
The statement comes amid Congressional scrutiny of a Trump appointee’s actions, as the new postmaster general, to reduce USPS processing and delivery capacity. Trump questions the security of mail-in ballots in the upcoming national elections. Democrats allege the president is making a deliberate effort to slow delivery of mail-in ballots to impact the election results.
Trump made the comment about Amazon in response to a reporter who asked if he was worried that cutbacks in USPS processing capacity under Postmaster General Louis DeJoy would impact people who rely on the Postal Service for medications.
“If you look at the Post Office, for years, that’s all people complained about,” Trump said. “We’re gonna run it well, and we’re going to not lose so much money. One of the things that the Post Office is losing so much money on is delivering packages for Amazon and these others. Every time they deliver a package they probably lose $3-$4. That’s not good. They have to raise those prices, not for the people to pay, but for Amazon and those companies.”
President Trump says the U.S. Postal Service "have to" raise prices for delivering packages for Amazon.
USPS has become a focal point for Congress and the 2020 election https://t.co/sCnjaLeWXv pic.twitter.com/OBMxnYS1rl
— Bloomberg (@business) August 17, 2020
It’s the latest in a series of comments by Trump about the issue.
Amazon spent $13.7 billion on shipping in the second quarter, up 68% from the same period the prior year, even as its overall profits doubled to $5.2 billion.
The U.S. Postal Service’s latest financial results show it running a loss on the delivery of packages. However, the bigger financial challenge for the USPS has been a Congressional mandate to fund employee benefits in advance. In addition, analysts say package revenue helps cover fixed costs that the USPS would incur regardless.
In the Postal Service’s fiscal 2019, revenue from packages covered about 97% of associated costs, down from 103% cost coverage in the prior year, the most recent U.S. Postal Service annual report shows. This was despite above-average price increases for the costliest package delivery services, the report says.
Since then, package delivery volumes have soared due to the COVID-19 pandemic. USPS revenue from Shipping and Packages grew to more than $8.3 billion in the second calendar quarter, from $5.4 billion in the same period the prior year, according to its most recent quarterly report.
Despite the rising revenue, costs associated with package delivery make it a difficult business for the Post Office to run profitably.
“As a result of the pandemic, and to a lesser extent, secular mail declines, the Postal Service’s sales from mail services, its most profitable revenue stream, continued to decline during the third quarter,” the USPS says in its quarterly report.
“Meanwhile, the Postal Service’s sales from Shipping and Packages, its most labor-intensive revenue stream, experienced substantial growth as a result of the surge in e-commerce driven by the COVID-19 pandemic. While the shift led to overall higher revenue results for the quarter, Shipping and Packages produces a lower contribution margin per piece due to the higher associated labor and transportation expenses.”
The specifics of Amazon’s contract with the USPS haven’t been made public, but there are indications that it’s profitable for the postal service.
Federal regulations require negotiated service agreements (known as NSAs) between the USPS and companies such as Amazon to at least cover their attributable costs, and the Postal Regulatory Commission terminates those contracts that don’t. (See page 74 of this report.) Amazon’s contract would have been subject to termination if it wasn’t covering its costs.
Amazon has increasingly been delivering its own packages, in addition to replying on the USPS, UPS, and other carriers. Advocates say the mandate for the U.S. Postal Service to serve the entire country, including rural routes, makes it a vital service even amid the expansion of these commercial delivery services.
The company isn’t commenting on Trump’s remarks.
Previously: The problem with Trump’s claim about Amazon and the U.S. Postal Service
