After a tweet on March 29, 2018, dented the company’s stock price, today’s pair of tweets revisited the topic. Trump said the company is making the postal service lose “Billions of Dollars.” He also said the Post, which Bezos bought in 2013, is “used as a ‘lobbyist’ and should so REGISTER.” If the postal rates were to increase, Trump continued, Amazon would pay $2.6 billion more to ship its goods. “This Post Office scam must stop,” he concluded. “Amazon must pay real costs (and taxes) now!” The tweets came as Trump left his Mar-a-Lago estate, where he is staying for the holiday weekend, and headed out to play golf. He added one more unrelated broadside before tee-off, assailing California Gov. Jerry Brown for issuing pardons for select convicts, calling him “Moonbeam” and tagging Fox News in the tweet.
Those who follow Amazon’s business pointed out that the tweets do not accurately describe the state of the postal service. The entity indeed has lost money every year for the past decade, but not due to shipping, which has contributed increasing revenue as the country continues to migrate toward e-commerce. Instead, pension and benefit costs have done the most damage to the balance sheet, especially after a 2006 law mandated the pre-funding of retiree health benefits for 75 years. The president’s tweets alluded to a Citigroup report that said that the true cost of Amazon shipping is about 50% higher than what it currently pays, but that was under an adjusted model re-allocating the pension and benefit costs. Many conservatives have seized on the statistic as evidence of what they depict as Amazon skating by without paying its fair share.
You don’t have to hate Donald Trump to know that he’s a liar. His latest series of tweets about Amazon swindling “the United States Post Office” is particularly deceptive. You can tell because his latest tweet starts with the phrase, “I am right.” Trump is not right. The Postal Service is actually best buddies with Amazon, because Amazon supplies it with a buttload of business. Some might even joke that Amazon is the reason the Postal Service still exists. It shouldn’t be a surprise that Trump is all orange-in-the-face over Amazon. The whole Twitter tirade really seems like an attempt at being a subversive condemnation of the Washington Post, which is owned by Trump enemy Jeff Bezos. But the effort is entirely backward. The US Postal Service’s financial woes are, by now, well-documented: In November 2017, the Postal Service took a net loss of $2.7 billion. Magnified over years, that figure represents a cumulative net loss of more than $63 billion since 2007. That is “many billions of dollars.”
But break down the losses, and the situation is a bit more nuanced. Delivering packages, it turns out, is a growth business, and it actually makes the Postal Service money: The revenue from packages increased $2.1 billion and was up 11.8 percent for fiscal year 2017. The problem is the revenue from first-class mail, still the biggest source of the USPS’s revenue is declining. The thing that really eats up the Postal Service’s revenue: financial obligations to employees’ health and retirement benefit programs. A 2006 law mandates that USPS pre-fund 75 years of retiree health benefits. That requirement costs billions. So packages are the Postal Service’s positive note in an otherwise dismal financial report and are at the very least not the only reason the organization is hemorrhaging money.
Could USPS charge Amazon more?
USPS really does make deals with Amazon. It all starts with how the postal system works: According to Kevin Kosar, vice president of policy for the R Street Institute, a right-leaning, pro-free-markets think tank, USPS is basically two separate entities: the monopoly side and the market side. The monopoly side processes regular, first-class mail, wedding invitations, baby announcements, birthday cards, and bills. There isn’t much competition for sending an ordinary letter. The market services are parcel services, which competitors like UPS and FedEx also provide.
An independent agency, the Postal Regulatory Commission, oversees and reviews the rates the US Postal Service sets for both the monopoly and competitive sides, basically reviewing and giving the okay for any changes, including a one-cent stamp price increase. Within those parameters, the USPS enters into individual agreements with different companies for its competitive services, what are known as negotiated service agreements, or NSAs. The NSAs set the rates for shipping, which can be more favorable to companies that mail or ship in bulk. They’re sometimes called “workshare discounts.” “The prices that the company pays is going to be haggled and based on how much [the companies] prepare whatever is being shipped before handing it over to the Postal Service,” Kosar told Vox back in December.
That preparation includes making sure goods are packaged in the right size boxes, or parcels are outfitted with a barcode that works with the post office, basically anything that makes the USPS’s job easier and cuts down on some logistical and processing costs. And a massive company like Amazon, with the infrastructure and resources to do what the Postal Service needs, will probably get a more favorable deal. “Obviously bigger companies are better at doing this, that’s how they eke out nice little margins, but driving those costs down,” Kosar said. So in some ways, there’s a mutual benefit. Amazon gets a good deal from USPS, which ships millions (but not all) of its packages, and, in return, the postal system gets help streamlining its operations. The Postal Regulatory Commission reviews these deals with Amazon and other retailers to make sure they meet certain cost requirements, and competitive products as a whole have to bring in enough money to cover a portion of the post office’s institutional costs. In a report released just Thursday, the same day of Trump’s tweet, the Post Office Regulatory Commission found those NSAs brought in a $7 billion in profits in the fiscal year 2017.
The issue here is that is all competitive products get lumped together. In other words, how much of that $7 billion comes from Amazon’s business is a big question mark. Nobody knows exactly what kind of agreement Amazon has with the Post Office because it’s not available to the public. Such a deal might very well be profitable to the USPS. But there’s also the possibility that it could be even more profitable. Or to use a Trumpian phrase, maybe the USPS isn’t actually making the best deals.