- Amazon isn’t to blame for the Postal Service’s woes, but it will need to innovate to survive – TechCrunch
- USPS and Amazon
- One-Two Punch of Email and a Financial Crisis
- Innovating within a Risk-Averse Government
- Unsanitized: Does Amazon Rip Off the Postal Service?
- Odds and Sods
- We Can Be Heroes
- Today I Learned
- Is Amazon really ripping off the US Postal Service?
- The Postal Service is bleeding money — but its parcel services are doing okay
- Could USPS charge Amazon more?
- USPS’s problems are much bigger than Bezos
Amazon isn’t to blame for the Postal Service’s woes, but it will need to innovate to survive – TechCrunch
At the heart of our current President’s criticism is a claim that Amazon is making a mint and leaving a *failing* U.S. Postal Service holding the bag.
It’s not a new critique from the er-in-Chief, but it is one that’s worth unpacking given the crippling effect technologies have had on the USPS — where email is even more reliable than a carrier undeterred by “snow nor rain nor heat nor gloom of night.“
Is it failing?
“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?” This infantile question was posed by President Trump on in December 2017. While it’s not clear what exactly prompted Trump’s criticism, the tweet did spark a wave of debate as to whether the Postal Service is indeed failing and, if so, whether Amazon is to blame.
First of all, it’s true that the Postal Service is “losing billions of dollars a year” – $2.7 billion in 2017, to be more precise. In fact, the Postal Service has been losing money for over a decade.
And the USPS does have a curious relationship with Amazon. While competitors UPS and FedEx charge the e-commerce giant $7-$8 per package, USPS only charges for $2 for the service.
However, as with most stories, that of USPS is more complicated.
USPS and Amazon
The USPS-Amazon relationship may be seen as “dumb” by the 45th president, but to many it’s a piece of shrewd business on the part of the Postal Service.
As of 2017, Amazon was USPS’s biggest customer, and an intelligent way for the independent agency – that traditionally made its money by having a monopoly on first class mail – to get a piece of the increasingly profitable package delivery pie.
It’s not the first time that the Postal Service has tried to muscle its way in on the growing package delivery industry. Back in 2010, the entertainment company Netflix accounted for $600 million from its DVD subscription service.
Of course, the Netflix DVD delivery service is fast fading and being replaced by on-demand streaming; and Amazon look to be preparing their own delivery service. It seems that the USPS may have to prepare itself to be jolted by another wave of disruption.
One-Two Punch of Email and a Financial Crisis
The Postal Service’s first major battle against the age of innovation came with the rise of email, and it didn’t take the beating that you might expect.
Despite the fact that in 2002 the majority of Americans used email, the Postal Service still managed to make profit between 2003 and 2006.
During this time, people were still writing letters, sending greetings cards and, perhaps most importantly, bills were still sent by post.
It wasn’t until the 2007 global financial crisis that the Postal Service took a hit that, arguably, it still hasn’t recovered from. After thousands of businesses suffered from the crisis, they started to cut back on expenses wherever possible, and one such place was mail.
Back in 2000, nearly two-thirds of bills were delivered by USPS, and the total revenue from bill payments in this year was estimated at between $15 and $18 billion.
Between 2006 and 2010, USPS volume fell by 42 billions pieces, with 15 billion of those being caused by electronic billing.
And if that weren’t enough, the rise of social media further confounded USPS’s problems. Between 2010 and 2014, postcard volume fell by 430 million.
As more and more people began logging into , Instagram and Snapchat to send virtual Christmas cards and birthday wishes, fewer people were sending mail, and therefore fewer profits for the agency that had had its fair share of knocks in the 21st century.
Photo courtesy of Flickr/André-Pierre du Plessis
Innovating within a Risk-Averse Government
To suggest that those in charge at the Postal Service have been idly watching as new technologies disrupt and threaten the agency would be unfair.
It is an organization that looks to engage with the latest technology.
For instance, in 2014, it released a white paper on the impact that 3D printing could have on the industry and how the Postal Service could benefit; and again in 2015 it released another on the Internet of Things.
Both papers were clearly commissioned with a degree of prescience, being published before either technology had begun to pervade the public consciousness.
Unfortunately, though, forward-thinking initiatives such as these have been blocked before they can enter the action stage.
USPS’s status as a quasi government entity may have its benefits, such as a monopoly on all first class post, but in return Congress has a say in how the agency is run.
It can outline the products and services provided by the Postal Service, and set its prices. However, un other Federal agencies, USPS receives no funding, and hasn’t done since 1982.
At the heart of the troubled USPS-Congress relationship lies the problem. A big existential question mark hangs over the Postal Service’s head: what exactly is it? With 2.7 million people working for it, it’s the biggest employer in the US (Walmart, by comparison had 2.
2 million as of 2017). It also delivers to remote locations that private companies FedEx and UPS won’t touch. For these reasons, it exists necessity.
There are also those who want to see the Postal Service fully privatized or even abolished, believing it to be an outdated relic of nostalgia.
Understandably, those within the Postal Service are equally unsure as to what they should be. On one side, they’re being encouraged to innovate and drive up profits, and on the other they’re being blocked making the changes necessary.
As it stands, the USPS motto “neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds” still holds true. Their resilience through massive shifts in consumer behavior is nothing short of remarkable.
They are at the service of the American people, and so it’s up to them to decide what they want it to be. Although it may be true to say the Post Office is losing money thanks to Congress and cutting Amazon a more-than-fair deal, its importance is far more nuanced and complex than he gives it credit. And without the Postal Service, it would be more than just Amazon that would be losing out.
As the world moves to more and more virtual communication channels it will be fascinating to see USPS evolve.
Unsanitized: Does Amazon Rip Off the Postal Service?
I believe I was the first to report that Ronald Stroman, the deputy postmaster general and number two in the hierarchy, was forced his job on Monday.
That has now been widely reported and the USPS made it official in a regulatory filing Wednesday, but I mentioned it Tuesday on . I didn’t have much else to add; Louis DeJoy, the Trump donor and new postmaster general, was always going to get his own number two.
But Stroman, who’s still listed on the USPS website, was an important figure, the top deputy at the postal service since 2011.
The Lawyers’ Committee for Civil Rights Under Law called for oversight hearings, saying in a statement that “Stroman’s untimely departure signals deepening chaos and disruption inside the Postal Service at a critical moment during the 2020 election season.”
One of Trump’s allies said the quiet part loud about Stroman’s departure. J. Christian Adams, a notorious voter suppression architect, exulted in his demise, saying he “was working at cross purposes with @realDonaldTrump on #VoteByMail… got booted, the hard way.”
Adams is just talking his book though; more than anything, the putsch inside the Postal Service (remember vice chair of the Board of Governors David Williams has also resigned) is about trying to hit Amazon in the pocketbook by raising rates on package delivery, because of animus with Jeff Bezos over his ownership of the Washington Post. Sure enough, the Postal Service is now reviewing its package delivery contracts, succumbing to the influence of the Trump administration, which is dangling a $10 billion line of credit over its head while revenue craters during the coronavirus crisis.
The use of government to punish a perceived enemy is obviously inappropriate. But one thing is being glossed over here: is the Postal Service getting ripped off by Amazon, as Trump claims? And the answer to that is “maybe.”
Read all of our Unsanitized reports
First of all, it’s important to note that we’re talking about a relatively small number of packages. Amazon (and all ecommerce sites, and even rival shippers UPS and FedEx) borrow the Postal Service’s universal infrastructure to every mailbox in the U.S. for “last mile” service.
In hard-to-reach areas that last mile could be hundreds of miles, and it’s extremely cost-prohibitive for the Amazons of the world to do it themselves. Of course, those hard-to-reach areas are home to fewer people, and in metro areas Amazon has built out its own shipping network; it delivers roughly half of its own packages.
Amazon generally delivers the cheap-to-deliver packages itself in dense, urban zip codes, and pushes the more expensive ones onto USPS.
Even there, you have to subtract out 70 to 80 percent of the volume, because those packages weigh less than one pound.
The USPS has discounted contracts with big customers for bulk shipping—known as “Negotiated Service Agreements”—but all packages under one pound fall under a “Parcel Select Lightweight” contract, which is uniform among all shippers.
There’s no discount given to Amazon or anyone for those. (Volume does not equal value; it’s more expensive to ship larger packages.)
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So at issue is a small portion of rural or remote delivery, and a portion of the packages on those. Amazon is pretty clearly getting subsidized on that subset of its shipping.
While 20 percent of all packages go to rural areas, Amazon’s internal service only ships about 11 percent to rural zip codes. USPS picks up the slack there.
It could be as much as four times the price for Amazon to deliver a rural package than a suburban or urban one. That’s the level of the subsidy, on a fraction of total packages delivered.
If you believe Amazon has no other way to reach those customers with its own delivery network, then yes, they could stand to pay higher prices.
“Amazon should pay the actual cost of those rural routes, that is where the USPS should play hardball,” says Shaoul Sussman, a fellow with the Institute for Local Self-Reliance.
Sussman believes that USPS will end up shipping orders in those areas even if Amazon stops using the postal infrastructure. “What will happen is that sellers on the platform will simply begin to buy postage directly from USPS,” he says.
The Postal Service could also stop prioritizing Amazon packages and offering Sunday delivery, which they do for no other client. If they denied Sunday delivery on that subset of packages, Amazon wouldn’t have many options.
Now, this wouldn’t break Amazon. The cost would ly be absorbed by third-party sellers and customers, and again, it’s not that many packages.
I think Amazon is more in trouble with smaller e-commerce and local delivery services, as everyone catches up to their networks and learns delivery amid the pandemic.
Your corner store will always be able to deliver faster than the Amazon warehouse, if they pay attention to it.
But could the Postal Service make some more money from Amazon without affecting their revenue? Yes.
Odds and Sods
I was on the BradCast with Brad Friedman talking pandemic response, you can listen here.
I had a long conversation on The Discourse podcast, we covered a number of topics, it was fun. Listen here (it may be paywalled for a couple more days).
At the Prospect, Alex Sammon writes that we are at the dawn the BlackRock era, as the asset manager giant is poised for post-pandemic dominance. Terri Gerstein explains how cities and states can step up on occupational safety and health enforcement, in the absence of federal action.
Brittany Gibson interviews the Republican Secretary of State in Washington, where they have all vote by mail. And Sarah Jaffe highlights the strange phenomenon of “negative PTO,” where workers overdraw their paid time off and have to pay it back to the company, even if they’re laid off.
All of our coronavirus stories can be found at prospect.org/coronavirus.
We Can Be Heroes
The Heroes Act gets a vote in Congress today, and I am still marveling at the incoherence of it all. The manager’s amendment released last night only adds to the confusion. I have no idea what anyone’s trying to accomplish here.
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For example, the bill scales back the K Street bailout, by prohibiting 501(c)(4) dark money groups that run political ads from getting PPP forgivable loans.
But the (c)(6) trade groups are still eligible (technically their registered lobbyists cannot be part of the payroll equation, but their other employees, directors, and support staff can).
This is at least straightforward corruption: data from the Democratic Policy Center shows that trade association PACs “have donated at least $191 million to current lawmakers.” So of course they’re getting a free money kickback.
The other big change is less explainable. The initial bill had up to $10,000 in student loan forgiveness for all borrowers, a position taken by presumptive Democratic nominee Joe Biden. The Congressional Budget Office scored this around $250-$300 billion, more than the House leadership expected.
(We know how many people have student loans and we know how much $10,000 is, I don’t understand the surprise.) So Democrats scaled it back to cover only “economically distressed” people, kind of an impossible standard.
(If you’re making $50 in payments a month, or if you were laid off after March 12 because “economic distress” is defined pre-pandemic, you don’t qualify.)
This would save less than half the cost. So $100 billion or so. In a $3 trillion bill. That’s roughly 3 percent of the cost. A $3 trillion bill is appropriate but a $3.1 trillion bill isn’t? Only when it’s $3.1 trillion will criticism about “runaway spending” follow? What?
This puts Nancy Pelosi to the right of Joe Biden for the dumbest reason imaginable.
Meanwhile the bill subsidizes COBRA for laid-off workers who lose health insurance, an unbelievably expensive proposition (about 50 percent more per person than putting the unemployed on Medicare, according to the Political Economy Research Institute at UMass). So cost is only a concern when you’re not propping up the private insurance industry.
This bill, pitched as a messaging effort, has now been made toxic for swing-district members. Every ad in the fall will come from it.
Either they say no, and they are accused of voting to fire cops and teachers, or they say yes, and are accused of voting to bail out lobbyists and insurance companies. (And slumlords and debt collectors.
) There’s no vision of what to accomplish; it’s a grab-bag of wish list policies and attempts at compromise with special interests, of moonshot spending and carefully trimmed and means tested measures.
What will happen is that this entire bill will be thrown out except for a fraction of the state and local fiscal aid, paired with capital gains tax cuts or whatever the Trump administration decides they want, and this sorry exercise will have done nothing but hurt re-election chances and expose Pelosi’s preoccupations. What a waste.
Today I Learned
Is Amazon really ripping off the US Postal Service?
Joe Raedle/Getty Images
Donald Trump went after the US Postal Service on Friday, claiming that the mail carrier is “losing many billions a year” charging low package rates, “making Amazon richer” and the Postal Service “dumber and poorer.”
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!
— Donald J. Trump (@realDonaldTrump) December 29, 2017
It is not clear, exactly, what prompted Trump’s tirade Friday morning. It might be the general package-heavy Christmas season, or it might have to do with a Washington Post story detailing the White House’s worries for 2018. Amazon’s Jeff Bezos owns the Post, and its critical coverage of the president has inspired his ire before.
The #AmazonWashingtonPost, sometimes referred to as the guardian of Amazon not paying internet taxes (which they should) is FAKE NEWS!
— Donald J. Trump (@realDonaldTrump) June 28, 2017
Amazon’s stock took a slight dip after Trump’s tweet, which also suggested the Postal Service should be charging “MUCH MORE.”
But is Trump right that Amazon is ripping off the Postal Service?The question of whether it should or could charge more is complicated. The Postal Service does lose billions each year, and has for the past decade.And it’s ly that Amazon gets a good deal, given that it ships millions of boxes a year.
But the Postal Service’s problems are deeper than just delivering packages. Larger institutional problems in the age of email and two-hour delivery are really to blame — but also much, much harder to fix.
The Postal Service is bleeding money — but its parcel services are doing okay
The US Postal Service’s financial woes are, by now, well-documented: In November 2017, the Postal Service made a net loss of $2.7 billion. Magnified over decades, that figure represents a cumulative net loss of more than $63 billion since 2007. That is “many billions of dollars.”
But break down the losses, and the situation is a bit more nuanced. Delivering packages, it turns out, is a growth business, and it actually makes the Postal Service money:The revenue from package increased $2.1 billion, and was up 11.8 percent for fiscal year 2017. The problem is the revenue from first-class mail — still the biggest source of the USPS’s revenue — is declining.
The other issue that drags down the Postal Service’s revenue: high labor costs plus the financial obligations to employees’ health and retirement benefit programs, which cost billions.
So packages are the Postal Service’s one positive note in an otherwise dismal financial report, and are at the very least not the only reason the organization is hemorrhaging money.
Could USPS charge Amazon more?
USPS really does make deals with Amazon. It all starts with how the postal system works: According to Kevin Kosar, vice president of policy for the R Street Institute, a free-market think tank, USPS is basically two separate entities: the monopoly side and the market side.
The monopoly side processes regular, first-class mail — wedding invitations, baby announcements, birthday cards, and bills. There isn’t much competition for sending an ordinary letter.
The market services are parcel services, which competitors UPS and FedEx also provide — and which means more competition.
An independent agency, the Postal Regulatory Commission, oversees and reviews the rates the US Postal Service sets for both the monopoly and competitive sides, basically reviewing and giving the okay for any changes — including a one cent stamp increase.
But USPS, Kosar explains, also cuts individual deals with companies that mail or ship in bulk — what are called “workshare discounts.”
“The prices that the company pays is going to be haggled and how much [the companies] prepare whatever is being shipped before handing it over to the Postal Service,” Kosar said.
That preparation includes making sure goods are packaged in the right size boxes, or parcels are outfitted with a bar code that works with the post office — basically anything that makes the USPS’s job easier and cuts down on some logistical and processing costs.
And a massive company Amazon, with the infrastructure and resources to do what the Postal Service needs, will probably get a more favorable deal. “Obviously bigger companies are better at doing this, that’s how they eke out nice little margins, but driving those costs down,” Kosar said.
So in some ways, there’s a mutual benefit. Amazon gets a good deal from USPS, which ships millions (but not all) of its packages, and, in return, the postal system gets help streamlining its operations.
Those discounts can be pretty generous. Kosar says that, in hindsight, the Postal Regulatory Commission has sometimes reconsidered its deals as maybe too good, and unions are often critical of these agreements.
So maybe Trump is somewhat right — the USPS is not the best at making deals. Beyond that, some have argued that USPS should be charging more for its packages across the board.
A Wall Street Journal op-ed in July 2017 by Josh Sandbulte, a money manager who closely watches the shipping industry, also suggested the Postal Service is probably effectively subsidizing Amazon and other online retailers.
Sandbulte’s claim is how the Postal Service sets its prices. USPS is not allowed to set prices so low that it loses money on delivering packages.
(If it could, it could undercut competitors FedEx or UPS.
) But the formula for how it sets its prices was created by Congress in 2006, and doesn’t account for the fact that packages are a much bigger share of the USPS’s business than they used to be.
Sandbulte drew his conclusions a Citigroup analysis that suggested the average USPS parcel should cost about $1.46 more per package across the board than it does right now. (Sandbulte works for a firm that owns FedEx stock. Sandbulte could not be reached for comment.)
That discount, if it exists, exists for all USPS customers. It’s just that Amazon sends a lot of packages.
And that’s the bottom line here. Amazon is a giant and, as Kosar calls it, “is in a class of its own” when it comes to shipping. Amazon really, really doesn’t need the United States Postal Service to do business.
It can and does use a variety of delivery services — and probably can play those services off each other. In other words: Amazon doesn’t need the USPS. The same isn’t necessarily true for the USPS.
(The Postal Regulatory Commission and Amazon did not return requests for comment.)
Which means maybe the USPS is a little bit “poorer” than it could be. As for “dumber” — well, in some ways, the USPS is following the playbook that made Amazon, well Amazon.
“Paper mail is a dying business; the margins are not going to increase,” Kosar said. “They need to move into something that’s more high margin.”
Parcels might be the way to recoup some of those losses, especially if the USPS ups those prices a bit over time — essentially taking early hits for long-term gains.
“That would make perfect business sense in their eyes,” Kosar said. “Amazon was willing to take losses year after year … and it worked. It worked.”
USPS’s problems are much bigger than Bezos
Ultimately, the Postal Service’s financial woes extend far beyond Amazon and its parcel services. And on this, Trump — who again, is president and oversees the executive branch — and the Republican-controlled Congress can actually have some say.
The Postal Regulatory Commission (which currently has a Republican majority) approved a jump in stamp prices 2 percent beyond the rate of inflation, as part of a larger review of postage rates. This could pave the way for increased shipping rates in the future.
This is a bit of a testy issue, as Kosar explains that some of the postal system’s competitors believe USPS could use this increased revenue to help keep those parcel prices low — essentially using its monopoly (first-class mail) to underwrite its competitive business.
Either way, federal regulators are seriously putting postage prices under scrutiny.
And Congress could also help ease some of the USPS’s financial pressure by reexamining some of its retirement and health obligations.
According to CBS News, a 2006 law requires the Postal Service to prefund 75 years’ worth of retiree health benefits — which critics say contributes to its disastrous financial situation.
But even these potential remedies miss the larger points. “What do we want from the Postal Service in the 21st century?” Kosar asks. “And we haven’t had that conversation.”
The USPS is trying to save itself with its parcel services, but that’s a temporary, not long-term solution to profitability — here or anywhere else.
Finland, for example, launched a pilot program to mow lawns to make up some revenue. Sen. Elizabeth Warren (D-MA) and others have advocated the USPS get into banking.
Those ventures might not work — but these are realities the Postal Service has to face.
After all, even Amazon can’t save the post office forever: it’s working on moving on to drones.
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