Amazon has been in the news even more than usual this spring.
First was their high-profile search for a second North American headquarters. The request for proposals sent cities in the U.S. and Canada scrambling to offer tax breaks, boast about their universities and identify huge parcels of land Amazon could occupy. A decision is expected this year.
Second was a series of tweets from President Donald Trump criticizing the U.S. Postal Service for charging Amazon too little, and arguing that the company doesn’t bear its share of tax burdens.
On the @POTUS feed in early April, Trump wrote:
- 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!
- 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… does not include the Fake Washington Post, which is used as a “lobbyist” and should so REGISTER. If the P.O. “increased its parcel rates, Amazon’s shipping costs would rise by $2.6 Billion.” This Post Office scam must stop. Amazon must pay real costs (and taxes) now!
Will these tweets result in policy changes? Here’s what shippers need to know.
What Should We Make of Trump’s Tweets?
It’s true that the e-commerce giant has often shied away from taxes. Amazon only began collecting state sales taxes for its third-party sellers last year, and only in states with laws requiring it to do so. As of its Nov. 2017 announcement, this included only its home state of Washington with two other states pending. Amazon has also threatened to stop adding jobs in Seattle if the city moves forward with certain taxes on businesses.
But what about Trump’s primary point of contention that the USPS should be charging Amazon more for package delivery?
The details of the USPS’s contract with Amazon are confidential, so we do not know exactly what they spend. Several reports suggest that Trump’s tweets are based in part on an April 2017 Citi Research report that suggested in order for the USPS to truly break even, its average package cost should be $1.46 higher.
In April 2018, the authors of the report said Trump was misinterpreting it. $1.46 is what USPS loses on average across all packages, not just Amazon’s.
However, Citi Research estimated that if the USPS charged rates similar to FedEx and UPS, Amazon would pay $2.6 billion more each year. That would nearly make up for USPS’s 2017 losses. The agency posted $69.6 billion in revenue in 2017 with a net loss of $2.7 billion.
The Citi Research report also said the primary driver of the USPS’s losses are its ballooning pension and benefits costs. It’s possible that Amazon is actually helping USPS stay afloat. The New York Times reported in April that package delivery has grown from $3.3 billion in 2008 to $5.7 billion in 2017. Analysts quoted said package delivery is actually a bright spot for the agency with volume and revenue expected to keep growing.
But what differentiates the USPS from its competitors in the private sector is that when the agency is in the red, taxpayers make up the difference.
What Will Amazon Do?
The Seattle Times reported in May that Trump privately urged the Postmaster General to double its rates on Amazon and other major shippers.
Whatever happens with the USPS, Amazon is already diversifying its last-mile delivery strategy. First, Amazon expanded the number of items available for Prime’s two-day delivery by launching Seller Fulfilled Prime in 2016. This allowed merchants to list their products as Prime if they could assure delivery in two days. Then the company rolled out Seller Flex. This parcel service picked up packages from third-party merchants and delivered them to the customer’s home.
Amazon is now reportedly developing its own parcel service called Shipping With Amazon. This would be a third-party service in which couriers would pick up merchandise from Amazon.com sellers and deliver it to Amazon warehouses, where it would join the company’s existing distribution network that relies on USPS, FedEx, UPS and other traditional carriers for now.
Still in the works are drone delivery and expansion of parcel lockers. Analysts widely believe that Amazon hopes to take responsibility for most or all of its delivery needs in the not-so-distant future that would take that revenue away from USPS anyway.
Will Your Shipping Rates Change?
FedEx and UPS have long maintained a duopoly in the shipping industry, but there are many signs that that is changing. Among them are the growing market reach of USPS and Amazon’s development of its own delivery service. Traditional carriers including DHL, are also challenging the dominance of the Big Two.
Increased competition is good for shippers. Parcel carriers will have to offer even more flexible and transparent last-mile delivery service to outdo one another. That means retail and manufacturing companies can look forward to more service options to choose from, more negotiating power and better rates generally.
But customer demand is certainly not slowing down. Package volume continues to increase and customers expect more packages delivered faster. Many retailers have been following Amazon’s lead toward free two-day shipping for more than a decade. They need to ensure their carriers can continue to meet those rising expectations.
Many shippers have designed carrier strategies that rely on UPS or FedEx as well as the USPS. If USPS rates increase as a result of the president’s feud with Amazon, shippers may need to adjust their approaches.
In April, Trump created a task force to evaluate the USPS’s operations. The group has six months to make recommendations. Shippers should keep an eye out for them around October aligning conveniently with carrier contract negotiation season.