By Timothy Lee
May 15, 2018 at 5:00 am ET
President Donald Trump’s Twitter account obviously drives an outsized portion of press discussion these days. In recent weeks, his fusillades have at times focused on online mega retailer Amazon.
When the fallout from that latest tempest settles, however, the likely loser isn’t Trump or Amazon, but rather the United States Postal Service.
That’s the increasingly likely result as the USPS becomes more reliant upon serving an Amazon that may soon move on to better options.
Since 2011 alone, the USPS has amassed $45.4 billion in new debt. Its rationalization for that massive debt is that people have ceased mailing letters since the innovation of email and digital communications. But the USPS continues to increase stamp prices, which by law should cover its costs.
It therefore stands to reason that if the USPS’ monopoly products and services like letter mail must cover its costs, what drives its growing debt are products like package shipments, which have increased in volume in recent years. Indeed, during each quarterly financial update, USPS leadership is never shy to tout its increase in the number of package deliveries generated, yet its debt continues to increase.
It doesn’t take a Ph.D. in economics to understand that if you increase volume of a service that isn’t priced to cover its cost, the natural result will be more debt.
In that vein, Citi Research recently produced an analysis of the USPS’ parcel services, which are a major part of its negotiated service agreement with Amazon. The report determined that every package that the USPS ships is subsidized by $1.46 on average. What remains unanswered is how much total debt USPS is facing on account of this sweetheart deal with Amazon. Based on the information publicly available, however, the amount appears significant.
As just one illustration, the USPS has admitted in recent years that it has modified its infrastructure in order to better handle package delivery service with Amazon in mind. Consequently, this quasi-government agency is currently in the middle of a $37.4 million bid process for new postal vehicles – trucks that can handle packages like those carried for Amazon, as opposed to smaller, lighter, letters.
To wit, Amazon’s business has grown at a staggering rate, and it expects that growth to continue. To accommodate that growth, Amazon began leasing its own cargo planes in recent years and has begun operating its own delivery service from warehouses to customer’s doorsteps. By building its own shipping infrastructure in that way, Amazon’s behavior confirms a recent headline in Business Insider that, “Amazon is ‘more prepared than ever’ to deliver packages without the post office.”
Accordingly, it’s very likely that the USPS needs Amazon far more than Amazon needs the USPS.
As a result, the USPS, and ultimately taxpayers, could be left holding the bag on something that’s not even part of its core mission.
The USPS exists to provide nationwide letter mail delivery. But as noted above, it has put that core mission on the back burner recently in favor of growing package delivery operations. And as a result, for six straight years the USPS has failed to meet service standards for most first-class mail.
When one steps back and considers this issue broadly, a stark contrast becomes obvious. One entity – Amazon – is running a multi-billion-dollar global company that continues to grow into new sectors. The other entity – the USPS – remains a government agency that enjoys monopoly power and subsidies, but continues to run multi-billion-dollar deficits each and every year.
Considering that the USPS is the only entity already delivering to nearly every rural address nationwide, it remains best positioned to continue delivering packages to those addresses at an affordable rate for consumers. In more urban areas, in contrast, the USPS is already being replaced as the delivery service.
Accordingly, the USPS would be better off refocusing on its core mission and competencies, lest it accumulate even more unnecessary debt and suffer greater dysfunction.
So while Trump aims his ire toward Amazon, the USPS is the most likely loser if it doesn’t correct course.
Timothy Lee is the senior vice president of legal and public affairs at the Center for Individual Freedom
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