Donald Trump, the President of the United States, has been offering his advice to the United States Postal Service’s (USPS) parcel business. Using his favourite form of communication, he asked over his Twitter account: “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?” He went on to suggest, “Should be charging MUCH MORE”.
Estimates of the proportion of Amazon’s private customer parcel deliveries that are made by the USPS vary between 40-60%, however the USPS does not break out the numbers. It does have some form of agreement between itself and Amazon over pricing levels. This pricing agreement is not public however Bernstein Research has suggested that Amazon is charged an average of around $2 an item for delivery. Bernstein suggests that this is considerably less than similar rates from FedEx of UPS.
The issue of pricing through the USPS network is complicated. Prices for mail are generally set by the postal regulator, something which is a political issue as many US politicians are aware that increases in postal rates are rarely popular amongst customers. The USPS however has more freedom to agree deals in its parcel business, yet even here there is legislation to limit the discounts that can be offered to individual customers. The clear implication is that despite USPS strength in last-mile operations, Amazon has used its purchasing power to get overly favourable pricing.
This situation is not unique. Comparisons might be made with Royal Mail in Britain where Amazon has created its own delivery solution in high-population density areas leaving Royal Mail to deliver in harder and more expensive to serve locations. The difference is that Royal Mail is profitable and growing whereas the USPS is struggling not just with its operations but also with huge pension liabilities. President Trump’s suggestions may well be taken seriously by Congress and the managers of USPS.
Source: Transport Intelligence
Author: Thomas Cullen
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