US Postal Service Loses Money on Every Package

[Endymio]

Since it appears that only anti-Trump postings are now allowed on the main thread, I thought I'd move the discussion to here. The Washington Post -- itself owned by Amazon founder Jeff Bezos -- claims that the USPS does not lose money on Amazon packages, but instead makes a large profit -- $1.6B. WaPo frames the story in the context of an attack on President Trump's veracity, but their original reporting -- and TechSpot's regurgitation of it -- leaves out a few key facts. Independent analysts have for years questioned the USPS's accounting methods. A Citigroup analysis from 2017, for instance, found that the USPS's discounted postage rate given especially to Amazon effectively results in a subsidy of $1.46 per box shipped, a subsidy that the Wall Street Journal called, "A Gift Card from Uncle Sam":

Why the Post Office Gives Amazon Special Delivery

The Post Office justifies the ultra-low rates for Amazon by a special cost-accounting method. The fixed costs of operating the postal facilities themselves, the airplanes and delivery trucks, and the massively expensive health and retirement benefits due postal workers are charged almost entirely to mail. Not packages. Normal packages -- those shipped by you and me -- thus effectively receive a small subsidy. Amazon, however, pays a rate far less than we do. By some analysts estimates, Amazon is able to ship a medium-sized box across the country for less than the price of a first-class letter-- despite the fact that the box weighs more than ten times as much and takes up more than 50 times as much cargo space in the hold of a cargo airliner or the back of a delivery truck. Since all those costs are excluded, it becomes easy to show a profit on packages, even Amazon's fifty-cent specials.

The Post Office justifies this by the following rationale. "We have a legal responsibility to deliver mail, so those postal offices, and those fleets of jets and mail trucks have to be operated regardless, and that army of postal workers paid regardless of whether or not we deliver packages. So we don't charge those costs to packages."

Is this a rational argument? Reasonable people can disagree. However, one thing is indisputable. For WaPo -- or TechSpot -- to claim that it has "debunked" the statement that Post Office loses money on Amazon packages is itself a complete fabrication.

 

[Endymio]

To add additional context to the situation, in late 2018 President Trump forced regulatory changes that allowed Chinese Internet vendors to ship a package from Beijing to Kansas far cheaper than a U.S. vendor could ship that same package across the state:

https://www.bloomberg.com/opinion/articles/2018-10-18/trump-is-right-on-china-s-postal-subsidy

 

[DelJo63]

Hmm; The USPS was N E V E R designed to be a business for profit - - it is a service provided to stimulate commerce.

 

[Endymio]

Hmm; The USPS was N E V E R designed to be a business for profit - - it is a service provided to stimulate commerce.

True enough. However, the US post office didn't begin delivering packages until 1913 -- it's not a constitutional requirement for them.

I think there are three separate positions that can be debated:

1. Package delivery helps the USPS stay in business, and thus should continue, even at a loss.
2. The USPS should focus on mail delivery, and stop trying to compete with Fedex and UPS.
3. The Internet has made the USPS obsolete, and we should work to phase it out in the next decade or two.

One position that is entirely untenable, though, is that it is a lie to say the USPS loses money on package delivery. Any reputable news organization that published such a statement should retract or amend it.

 

[DelJo63]

3. The Internet has made the USPS obsolete, and we should work to phase it out in the next decade or two.

LOL
and just HOW does a website deliver 20-30# packages? -- we get them regularly

 

[Endymio]

LOL
and just HOW does a website deliver 20-30# backages? -- we get them regularly

Not taking a side, but Fedex, UPS, and many other businesses deliver packages also. Amazon too is expanding into package delivery.

 

[Mark Fuller]

The USPS never did anything but lose money long before the advent of the world wide web or Amazon. Like joebeard says it is a not for profit government entity that is ran by whoever is put in power by an elected official. And then there's the fact that it's original intent was to deliver hand written message mail which it still does for people who don't have access to the world wide web or email. And as for the 1913 date I'm not so sure because catalogue businesses like Sears and Roebuck were in business long before that. As for the anti-trump sentiment I did not know that the washington post was a pro Trump publication.

 

[cliffordcooley]

Not taking a side, but Fedex, UPS, and many other businesses deliver packages also. Amazon too is expanding into package delivery.

I don't ever see Fedex, UPS, Amazon or any others delivering daily routes to EVERYONE's house. USPS is needed. Even if it is only for our junk mail. I promise you the other delivery services will not do it.

 

[Mark Fuller]

That pretty much sums it up. No private industry can take the place of a government. And what about investigations about things like theft, fraud and contraband.

 

[Endymio]

I don't ever see Fedex, UPS, Amazon or any others delivering daily routes to EVERYONE's house.

Every single day, no matter what? No, but they'll do something even better -- they'll come every day that you actually have a delivery.

 

[cliffordcooley]

Every single day, no matter what? No

You may not get a delivery every day but either you or your neighbor will. That puts them on a daily route. USPS rarely skips more than two boxes here on our block. If USPS didn't do it, someone else would. None of the other services would want that, not without raising stamp prices.

 

[Mark Fuller]

There's the fact also that there has to be some kind of government officials to police the system.

 

[Endymio]

Rather than debate the pros and cons of phasing out the USPS, I was actually hoping that someone -- perhaps even the author of the original story here -- would respond to or retract the false claim that "Trump lied" when he pointed out that they lose money on every Amazon package.

 

[Mark Fuller]

The USPS is a government beaurocracy that is like a public utility. It is put there to provide a service not make money for profit. No government is completely 100 percent efficient, therefore they'll always lose some money on any service they provide. As for Donald Trump lying I don't know about that. What proof do you have that says he actually lied.

 

[DelJo63]

His lips were moving ...

 

[Mark Fuller]

Well, if an elected official says anything it has to be suspect.

 

[Evernessince]

Rather than debate the pros and cons of phasing out the USPS, I was actually hoping that someone -- perhaps even the author of the original story here -- would respond to or retract the false claim that "Trump lied" when he pointed out that they lose money on every Amazon package.

Fact checks would seem to suggest that the postal service does make money off amazon

Fact Check: Is The Post Office Losing Money By Delivering Packages For Amazon?

President Trump has repeatedly attacked Amazon and the U.S. Postal Service in recent days for acting as Amazon's "delivery boy" and implying the online retailer has been getting a sweetheart deal for delivery of its packages.

www.npr.org

If you read the link you provided, you'll see that Amazon receives lower rates because they bring the package 80% of the way and then inject it into the postal system. If you order anything via prime, you'll see that a parcel stays within Amazon's network for a majority of it's trip.

I googled the USPS quote you provided in your original comment and found nothing. Can you provide the source for that?

I should also point out that all the members on the USPS board of governors including the postmaster general are republican. Why they have not released more information on this instead of having to rely on third parties only leads me to believe the information isn't supportive of their narrative.

 

[Endymio]

Fact checks would seem to suggest that the postal service does make money off amazon (link)

Nothing in that NPR story contradicts the assertion that USPS shows an artificial profit on package delivery by charging its primary costs to mail, not packages. In fact, your own article (though it once again frames the issues as an attack on Trump) indirectly confirms the statement:

[Democratic Senator] Tom Carpenter: "[What's] hurting the Postal Service's bottom line is...health care costs for their pensioners."

None of those health care and retirement expenses are being counted towards package delivery -- nor are any of the other big ticket items in the USPS's budget. When your buildings, jets, mail trucks, and employee overhead all come free of charge, it's easy to show a profit. That's not a real profit, though.

I should also point out that all the members on the USPS board of governors including the postmaster general are republican. Why they have not released more information on this

First of all, this is false. Two are Democrats. Ron Bloom was a senior Obama Administration official and a counselor to Obama. Lee Moak was recommended to the board by Chuck Schumer; he also founded and runs the Moak group, an organization that provides election strategy for Democratic candidates.

Secondly, the USPS signed a secret deal with Amazon with the details sealed (as your own article pointed out). However, once the board turned majority-Republican in 2017, the basic facts about the cost-accounting structure were indeed made public, which is what began the debate.

 

[Mark Fuller]

I don't think Amazon is responsible for 80% of the trip of their packages. In fact I have tracked packages from their origin to my house via the link that Amazon gives for the USPS.

 

[Evernessince]

Nothing in that NPR story contradicts the assertion that USPS shows an artificial profit on package delivery by charging its primary costs to mail, not packages. In fact, your own article (though it once again frames the issues as an attack on Trump) indirectly confirms the statement:

The key word here is assertion, nothing has been proven here yet.

I'd like to have the source for the accounting method and prior mentioned USPS quote. As I stated in my last message, I googled it and it didn't come up with any results.

First of all, this is false. Two are Democrats. Ron Bloom was a senior Obama Administration official and a counselor to Obama. Lee Moak was recommended to the board by Chuck Schumer; he also founded and runs the Moak group, an organization that provides election strategy for Democratic candidates.

My bad. They were all appointed by Trump.

Secondly, the USPS signed a secret deal with Amazon with the details sealed (as your own article pointed out). However, once the board turned majority-Republican in 2017, the basic facts about the cost-accounting structure were indeed made public, which is what began the debate.

I'd like to see those facts if you can link them.

 

[Endymio]

The key word here is assertion, nothing has been proven here yet.

Untrue. Did you read any of those earlier links? Or even the original WaPo story? Even as it attacked Trump, it doesn't deny the basic facts here. Much of that info is behind a paywall, but this Citigroup analysis has the basic facts:

https://ir.citi.com/XInLvxkr5F%2FJvyPr1NMl%2FPcIgrn%2BXqplW8cqbv2ImZxLKrWAiRT%2BcFMjQe6C%2BuQT9n1mvCnznGU%3D

Not that it requires a Citi analyst to see that accounting shenanigans are taking place. Last year, the USPS lost $8.5B delivering mail ... yet we're expected to believe that it made a profit of $1 per package on 1.5B packages -- despite those package rates being far lower? As another analyst put it:

"That I can purchase [a] trombone case online for $20 — and USPS will carry it all the way from California to Washington, DC, for a portion of that price — gives [one] wonder.. Good luck finding a private courier who would charge so little. "

That's the rate for packages that you and I pay. Amazon, of course, gets a rate discounted far below that. The USPS charges so far below costs for packages, in fact, that in 2017 UPS sued them for anticompetitive behavior. The cost attribution model the USPS uses is also referenced in the Supreme Court decision, though the USSC ultimately failed to hear the case:

Supreme Court Docket: UPS vs. Postal Regulatory Cms.

 

[Evernessince]

Untrue. Did you read any of those earlier links? Or even the original WaPo story? Even as it attacked Trump, it doesn't deny the basic facts here. Much of that info is behind a paywall, but this Citigroup analysis has the basic facts:

https://ir.citi.com/XInLvxkr5F%2FJvyPr1NMl%2FPcIgrn%2BXqplW8cqbv2ImZxLKrWAiRT%2BcFMjQe6C%2BuQT9n1mvCnznGU%3D

Well for starters, that's s report done by citigroup that it provided to select clients. It's even refereed to as such in the disclosures at the end. Citigroup itself refers to the report as a product, not something objective or fact seeking. That's pretty obvious, they seem to be more angry that USPS was hampering UPS and FedEx stock growth than anything. A lot of data in that report is irrelevant as well given that many of their complaints, like the cost of first class and priority, have changed since then. In 2018 USPS increase the prices of 1st class parcels by an average of 0.30 across the board and in 2019 it increased the price of priority mail and added a surcharge to first-class packages based on the number of regional zones a packing will be crossing. On average first class parcels that used to cost $2.61 in 2017 now cost anywhere from $3.21 to $5.62. Priority has increase an average of 30%.

Second, the institutional cost rate has change since that assessment was published: https://webcache.googleusercontent....cd=1&hl=en&ct=clnk&gl=us&client=firefox-b-1-d

Third, the documents cites UPS as it's source for what the real institutional costs should be:

"When the PAEA was passed, competitive products were assigned a 5.5% share of the USPS’ institutional costs and this percentage has remained unchanged despite the 15% CAGR volume growth and 850 bp revenue share growth posted by competitive products over the past several years. In 2015, UPS filed several in-depth papers with the Postal Regulatory Commission which examined several areas of putatively flawed economic logic in the USPS’ determination of “appropriate share” for its various products. In its findings, UPS argued that competitive products share of institutional costs today are 24.6% versus the 5.5% determined over a decade ago. "

Of course, there is a HUGE conflict of interest there given that UPS stands to gain marketshare from the USPS massively increasing pricing.

That's the rate for packages that you and I pay. Amazon, of course, gets a rate discounted far below that. The USPS charges so far below costs for packages, in fact, that in 2017 UPS sued them for anticompetitive behavior. The cost attribution model the USPS uses is also referenced in the Supreme Court decision, though the USSC ultimately failed to hear the case:

Supreme Court Docket: UPS vs. Postal Regulatory Cms.

Again, UPS is not a realiable source for information on the USPS's accounting model. You have 2 links now that have relied now on that clear conflict of interest. UPS clearly wants USPS to raise prices, which is not surprising given how overpriced their shipping service is. I've used FedEx and USPS many of times and both charge around the same rates. FedEx is cheaper for longer distances while USPS is cheaper for items under 1 LB. UPS not being able to compete is clearly just a problem they alone have.

We all know Amazon receives subsidies but there are many factors that need to be considered. First we need to know what the average package injection point and then the average cost USPS charges amazon. Just saying something like "Amazon pays half of what the regular person does" isn't helping without context. I'd also like to point out that FedEx gives absolutely massive discounts to it's big customers as well. To me this seems like a lot of sour grapes from UPS from losing out to FedEX, USPS, and I've even been seeing more DHL lately as well.

 

[Endymio]

.

Once again, you're diving into the trees and missing the forest. Your sources, my sources -- they all confirm that USPS is using an incremental cost-accounting model that excludes their major expenses from being charged to packages. My original statement is amply demonstrated. Now-- on to your specific points:

Of course, there is a HUGE conflict of interest there given that UPS stands to gain marketshare from the USPS massively increasing pricing.

Yes. However, the federal court of appeals agreed with UPS on their analysis of the USPS's accounting model. They merely did not find that it was illegal.

You have 2 links now that have relied now on that clear conflict of interest.

The Citi report has no conflict of interest. Nor do the WSJ and Bloomberg articles I cited. Furthermore, the anti-Trump organization American Oversight, which authored the report in the original WaPo story, most definitely has a conflict of interest in the other direction -- and yet even they confirm that USPS is charging only incremental costs to packages.

In 2018 USPS increase the prices of 1st class parcels by an average of 0.30 across the board...On average first class parcels that used to cost $2.61 in 2017 now cost anywhere from $3.21 to $5.62.

They did not increase the price for Amazon. The average cost per Amazon package is $2.54, and some Amazon packages ship for under $1.00.

Recently I sent a legal envelope halfway across my state; USPS charged me $7.45 -- and they lost money doing it. A total of $8.5 Billion lost last year alone. The last Amazon package the USPS delivered to me was at least 25 times larger by volume, ten times heavier by weight -- and yet the USPS claims that the meagre $2.50 they charged not only made them a profit, but an astounding profit margin of 41%? (These numbers are from the WaPo story itself, I point out, not the older Citi study)

With glaring discrepancies like this, it hardly takes a crack team of Deloitte cost accountants to tell us what's going on. But every accountant -- and every analyst, and every federal court -- that has looked confirms it. The fixed cost of all the USPS massive network of warehouses, post offices, cargo jets, delivery trucks, and their enormous bill for employee health and retirement benefits -- are not being accounted for in delivering Amazon packages. Only the incremental costs are. Thus, we find up with an artificial profit.

 

[captaincranky]

Hmm; The USPS was N E V E R designed to be a business for profit - - it is a service provided to stimulate commerce.

But it was expected to break even. USPS has / had (?) been off budget for decades.

I thought Benjamin Franklin, the 1st postmaster of the US, implemented it to allow communication over distance

After all, the telegraph wasn't invented unit the 1830's. and it had to hard wired.