US Postal Service Reforms Could Impact Amazon

December 5, 2018
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The White House has recommended reforms for the United States Postal Service this week, a move which could increase shipping rates and erode the operating profits of retailers like Amazon (NASDAQ: AMZN). In a report prepared by the current administration, it is recommended that rates be increased on certain packages, including commercial packages that are not classified as essential mail.

Postal Service Reports Huge Loss for 2018

The fiscal year has ended for the USPS, and the federal agency reported staggering losses of $3.9 billion.

The report from the White House said that “Although the USPS does have pricing flexibility within its package delivery segment, packages have not been priced with profitability in mind.”

President Trump wants the USPS to increase its rates on commercial packages so that retailers like Amazon will stop profiting from the federally subsidized service. Trump has in the past been highly critical of Amazon, saying that the company damages the U.S. economy.

In a tweet at the end of last year, he asked “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!”

In a Tweet earlier this year, the President said that Amazon uses “our postal service as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!”

The report this week said that the USPS should be allowed to charge more for e-commerce goods and any other commercial shipments. Packages, rather than standard mail, represent a steadily growing segment for the USPS. Being able to charge market rates could help to offset the losses that are currently being made.

Amazon and Others Could Pay More for Delivery

Amazon is one of the largest shippers in the United States, using the USPS and other private services to deliver e-commerce goods around the country. Higher postal rates would significantly increase the amount that Amazon spends on fulfillment of its orders. In 2017, Amazon spent $21.7 billion on shipping. This year the bill is expected to be higher, due to a free shipping promotion for the holiday season.

Amazon’s shares slipped -5.78% during Tuesday trading, and part of the loss can be attributed to the potential for higher shipping rates in the future. If the USPS does decide to increase rates, Amazon would need to reassess its order fulfillment strategy to keep investors happy.

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