FACT CHECK: Does Amazon Cost The Postal Service A ‘Fortune’?
President Donald Trump tweeted several times that the U.S. Postal Service (USPS) loses money when it delivers Amazon packages.
I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!
— Donald J. Trump (@realDonaldTrump) March 29, 2018
“I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!” he tweeted Thursday.
While we are on the subject, it is reported that the U.S. Post Office will lose $1.50 on average for each package it delivers for Amazon. That amounts to Billions of Dollars. The Failing N.Y. Times reports that “the size of the company’s lobbying staff has ballooned,” and that…
— Donald J. Trump (@realDonaldTrump) March 31, 2018
“While we are on the subject, it is reported that the U.S. Post Office will lose $1.50 on average for each package it delivers for Amazon,” he said Saturday.
Only fools, or worse, are saying that our money losing Post Office makes money with Amazon. THEY LOSE A FORTUNE, and this will be changed. Also, our fully tax paying retailers are closing stores all over the country…not a level playing field!
— Donald J. Trump (@realDonaldTrump) April 2, 2018
“Only fools, or worse, are saying that our money losing Post Office makes money with Amazon. THEY LOSE A FORTUNE, and this will be changed,” Trump tweeted Monday.
USPS revenue from packages is increasing, and Amazon says the agency makes a profit by delivering its packages. But some analysts question USPS’ accounting methods and speculate that it delivers packages at a loss, using its monopoly on mail to subsidize packages.
Trump’s claim that Amazon costs the USPS money can’t be sufficiently validated or disproven. Amazon’s agreements with the agency are confidential. Publicly available information on its finances is not detailed enough to determine whether the Postal Service even makes a profit delivering packages in general.
The USPS does lose billions of dollars each year, in part due to mandatory contributions to employee retirement accounts. The independent agency relies on the sale of postage and products to fund its operations, and it borrows money from the U.S. Treasury to cover losses. Congress appropriates only a small amount of taxpayer money to provide free mail for the blind and official mail for overseas voters.
Postal Service revenues from marketing mail, magazines and first-class mail are falling due to digitization. Package delivery is one area where USPS revenues are going up.
“It is one of the few bright spots for the Postal Service,” James O’Rourke, a management professor at the University of Notre Dame who studies the USPS, told The Daily Caller News Foundation. “If I were to offer a considered opinion here, I would say package delivery service is both profitable and sustaining.”
But other policy analysts aren’t convinced that the Postal Service is making a profit on package delivery.
“How much it actually costs USPS to deliver parcels and whether these costs exceed the revenue in total or in particular instances is unknown,” Kevin Kosar, vice president of policy at the free-market R Street Institute, told TheDCNF.
Amazon, like other companies, has a negotiated service agreement with the USPS where it gets discounted postage because it ships a large number of packages. The details of that agreement are confidential, so the exact amount that Amazon pays to send packages is not public.
“The Post Office arguably needs Amazon more than Amazon needs the Post Office,” The Wall Street Journal editorial board wrote Thursday. “The Post Office could drop Amazon as a delivery partner, but it would likely have to raise prices elsewhere or endure higher losses.” Some argue that Amazon’s deal to expand USPS package delivery on Sundays is further evidence that the relationship benefits the USPS.
Amazon says the Postal Regulatory Commission (PRC) has found that its contracts with the USPS are profitable. A PRC report released Thursday found that all but four of the Postal Service’s 846 negotiated service agreements with various companies bring in enough revenue to cover their costs.
But many analysts are suspicious of the PRC’s method for evaluating profit for all packages, not just those from Amazon.
Trump appeared to reference a 2017 analysis from Citigroup that argues that the Postal Service does not adequately estimate the costs of delivering a package and therefore under-charges for postage. Fair pricing, said the analysis, would raise the price of each parcel by $1.46. That would amount to billions of dollars in annual revenue.
“First-class mail effectively subsidizes the national network, and the packages get a free ride,” Josh Sandbulte, co-president of a money management firm that holds FedEx stock, wrote in a Wall Street Journal op-ed last year.
The Citigroup analysis, though, is not public. Neither Kosar nor O’Rourke could speak to its validity.
Another 2015 study paid for by the United Parcel Service (UPS), a USPS competitor, says that the USPS uses its special privileges and monopoly on letter delivery to subsidize package delivery.
O’Rourke dismissed the arguments by UPS and Citigroup. “First-class mail is not subsidizing anybody,” he said, noting that revenue from first-class mail is declining steadily.
But Kosar is more skeptical of the USPS’ accounting and suspects that it underestimates the cost of delivering packages. “Transporting and lugging a box does cost way more than toting a letter,” Kosar said.
The law mandates that revenue from competitive products like packages cover their associated costs so that the USPS doesn’t unfairly undercut private package delivery services. Package revenues are required to exceed 5.5 percent of the USPS’ fixed costs. This “appropriate share” was determined in 2007; shipping and package volume increased 73 percent from 2008 to 2017, but the requirement remains the same.
Since the USPS today receives less money from traditional mail and more money from packages, it presumably spends more on delivering packages than it did a decade ago. Yet package revenues still only have to cover the share of fixed costs set in 2007.
“Is the Postal Service really that lean and efficient?” Kosar said. “It doesn’t intuitively make a whole lot of sense.”
The PRC is in the process of adjusting its calculation on the share of fixed costs that package revenues must cover. UPS supports increasing the percentage, while Amazon opposes any increase.
Kosar said that unless an independent agency like the PRC, Government Accountability Office or USPS Inspector General releases some hard numbers, the questions that Trump is raising are not going to go away.
Even if it wants to, the USPS cannot currently raise shipping prices because there are too many vacancies on its board of governors, which sets postage rates. The board needs at least four more confirmed members to have a quorum for meetings. Trump has nominated three individuals who are pending Senate confirmation.
The White House did not respond to a request for comment.
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