Market Overview

Treasury Report Recommends Post Office Raise Rates On Amazon Parcels

Treasury Report Recommends Post Office Raise Rates On Amazon Parcels

A new report out of Washington on the U.S. Postal Service could be bad news for, Inc. (NASDAQ: AMZN).

What Happened

A report on the state of the USPS requested by President Trump back in April was released this week by the Treasury Department. The report concludes that the USPS isn't correctly pricing the costs of its commercial parcel delivery service to achieve profitability and suggests raising prices on e-commerce companies like Amazon.

Why It’s Important

Trump has repeatedly targeted Amazon and its CEO Jeff Bezos since he took office. The USPS reported a net loss of $2.7 billion in 2017, and Trump has blamed Amazon for its struggles.

“I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!” Trump tweeted back in March.

Congress sets the formula used by the USPS to price packaging delivery, but that formula hasn’t been adjusted since 2006. When the current law was written, it assumed package delivery would make up about 5.5 percent of Postal Service revenue, but the rise of e-commerce companies like Amazon has pushed that percentage to about 25 percent.

In 2017, Citigroup estimated that the average fee the Postal Service charges for a parcel delivery is about $1.46 too low.

What’s Next

Amazon, United Parcel Service, Inc (NYSE: UPS), FedEx Corporation (NYSE: FDX) and others will be watching closely to see if the Postal Regulatory Commission, which regularly reviews USPS rates and fees, will implement the methodology changes recommended in the Treasury Department report.

If so, Amazon and other e-commerce leaders could take a significant cost hit in years ahead. Higher rates may also encourage Amazon to be more aggressive in pursuing its own shipment infrastructure, such as its Amazon Air fleet of planes and delivery drones.

Related Links:

Analysis: Neither Trump Nor Congress Can Do Much To Alter Amazon's Post Office Rates

Analysis: US Postal Service, Built To Deliver Letters, Struggles To Compete In Package Delivery


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