Trump, Amazon and the Postal Service: The story behind the tweet

On Friday morning, President Donald Trump determined to tackle the U.S. Postal Service.

“Why is the US Put up Workplace, which is dropping many billions of a yr, whereas charging Amazon and others so little to ship their packages, making Amazon richer and the Put up Workplace dumber and poorer?” he wrote on Twitter. “Must be charging MUCH MORE!”

The tweet gave Trump the chance to slam Amazon (AMZN), which has been a frequent target of his ire. However with the tweet, the president additionally waded right into a long-running, Byzantine debate over how a lot the Postal Service ought to cost for its companies.

Briefly: Trump is probably going proper that the Postal Service prices lower than it actually prices to ship packages, and Amazon is considered one of its greatest clients. However that is not the foundation of the company’s fiscal issues.

To start with, the U.S. Postal Service is in contrast to every other enterprise. It has a authorities sanctioned monopoly over first-class mail, which it’s obligated to ship to each nook of the US for the price of a stamp.

On the similar time, it competes with FedEx and UPS to ship parcels — however its charges are accepted by a board appointed by the president, and virtually each facet of its operations are ruled by Congress.

With e-mail changing snail mail, that first-class mail enterprise has declined dramatically — it is down by 40% since peaking in 2000. In the meantime, the parcel supply enterprise has exploded. However the Postal Service hasn’t been in a position to compensate for collapsing mail volumes as a result of a 2006 regulation that capped value will increase on the price of inflation and likewise restricted the proportion of its price range that might be dedicated to its parcel enterprise.

Related: UPS unveils Saturday delivery — and 6,000 new jobs

Nonetheless, the Postal Service may be capable of eke out a revenue if it weren’t for one more means through which Congress has tied its palms: It requires the agency to pre-fund its retiree well being advantages and rely them as working bills. In fiscal 2016, the Postal Service introduced in $69.four billion in income, was responsible for $5.eight billion in retiree well being advantages and reported a $5.6 billion web loss.

It is sensible to look to package deal supply as a method to flip these fortunes round.

An analyst note by Citigroup from April discovered that costs must go up by $1.41 per package deal in 2018 — or about 40% — to mirror the true value of supply. (These calculations are primarily based on an evaluation by UPS (UPS), which together with FedEx (FDX) stands to realize enormously if the Postal Service raises its costs, so they need to be taken with a grain of salt.)

That might be a giant hit to Amazon, which is without doubt one of the largest customers of that parcel supply service. The Citigroup analysts estimate that will add $2.6 billion to its present delivery prices, a rise of about 28%. Amazon didn’t reply to a request for remark.

Perversely, that might find yourself benefiting the Seattle retail behemoth. In response to Citigroup, Amazon already will get bulk pricing reductions due to its huge quantity, and is quickly constructing out its personal distribution community, which is able to give it extra supply choices down the road. For that cause, the Citigroup analysts predict Postal Service value hike would damage different retailers greater than Amazon.

“Such a situation ought to additional improve Amazon’s value benefit to customers,” Citi’s word reads. “Whereas the upper delivery prices would doubtless damage Amazon’s margin within the short-term, elevated buy frequency and buyer density ought to profit margins over time.”

Related: Trump budget would hit tens of thousands of federal workers

So, is any of this going to occur?

Within the quick time period, partially. The Postal Regulatory Fee simply completed a year-long review of rate-setting coverage, and really useful that the Postmaster Basic be given the authority to lift charges a pair proportion factors above inflation, which might convey the company nearer to breakeven.

In the meantime, the Postmaster Basic has urged passage of legislation pending in Congress that will give the company extra management over its operations and relieve it of the burden of pre-funding well being advantages. Trying ahead, a coalition of unions and public curiosity nonprofits have advocated for permitting the Postal Service to supply different companies, corresponding to banking, by means of its huge community of publish places of work.

Trump has sway over the Postal Service. He is made three board nominations, who’re at the moment awaiting Senate motion. By regulation, it is speculated to have 9 appointed members, and currently it has none.

Correction: An earlier model of this text incorrectly acknowledged the variety of nominations the president has made to this point to the Postal Service board.

CNNMoney (New York) First printed December 29, 2017: three:04 PM ET

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