Trying to separate the facts from fiction when it comes to Trump and Amazon

In recent days, much has been made of President Trump’s comments, via Twitter (of course), squarely aimed at global e-commerce behemoth Amazon and how it apparently takes advantage of the United States Postal Service (USPS).

In a recent Tweet, Trump said that Amazon is costing the USPS “massive amounts of money for being their  Delivery Boy. Amazon should pay these costs (plus) and not have them bourne by the American Taxpayer. Many billions of dollars. P.O. leaders don’t have a clue (or do they?)!”

But if you thought he was stopping there, then you would be wrong, as in the following days he added on, saying that “only fools are saying that our money losing Post Office makes money with Amazon. THEY LOSE A FORTUNE, and this will be changed. Also, our fully tax paying retailers are closing stores all over the country…not a level playing field!”

OK, I promise, or will at least try to, not to offer up additional Tweets verbatim as we all get the idea here.

I am right about Amazon costing the United States Post Office massive amounts of money for being their Delivery Boy. Amazon should pay these costs (plus) and not have them bourne by the American Taxpayer. Many billions of dollars. P.O. leaders don’t have a clue (or do they?)!

— Donald J. Trump (@realDonaldTrump) April 3, 2018

A research report issued this week by Morgan Stanley helps to separate the facts from the fiction, when it comes to Trump’s take on the relationship between Amazon and the USPS.

“Some investors are concerned that AMZN’s USPS contract (reportedly up for renegotiation this year) could be impacted by the executive branch of government or renegotiated with materially worse terms for AMZN, causing shipping costs to rise and profits to fall,” Morgan Stanley said.

It added that Amazon and the USPS have a mutually beneficial relationship in which Amazon needs their delivery service and the USPS needs Amazon’s volume to cover its highly fixed cost structure and service its outsized pension, adding that it does not believe the USPS contract with Amazon is unprofitable.

What’s more, the firm made it clear that the USPS needs Amazon and is likely to ask for better contractual terms, saying it believes Amazon pays in the neighborhood of 50%-to-60% costs lower per package than USPS’s average ground rates due to volume discounts, coupled with Amazon comprising around 24% of total USPS package volume, which is key to “generating profitability across the USPS’s foxed cost structure.”  And it also pointed out that the feeling is mutual, with Amazon needs to USPS, too, as the USPS delivers an estimated 45% of Amazon’s domestic volumes and 23% of its total volume.  

It is also worth noting, contrary to Trump’s belief that the USPS is losing money for delivering Amazon packages that in its most recent earnings statement for the fiscal first quarter that its Shipping & Packages group saw revenue climb 9.3% to $505 million.

USPS said that Shipping and Package volume for the quarter increased by around 7%, to 1.718 billion.

And while not directly mentioning Amazon by name, it is pretty easy to peel the onion and see in its comments that Amazon is a huge part of this group’s success.

“Our Shipping and Packages business has continued to show solid revenue and volume growth as a result of our successful efforts to compete in shipping services, including ‘last-mile’ e-commerce fulfillment markets and Sunday delivery, although the rate of growth is slowing,” USPS said in its Form 10-Q statement. “Volume also experienced end-to-end growth as consumers continued to utilize online shopping, which provided a surge in package volume with a record number of packages delivered during both the calendar year 2016 and 2017 holiday seasons. To accommodate this surge in volume and to avoid service disruptions during the holiday season, we increased Sunday delivery service for some of our customers in limited U.S. markets and added non-career employees for the season in accordance with our labor agreements.”

With a fair amount of differing takes on Trump’s views on Amazon’s relationship with the USPS, I thought it would be good to talk to some of the brightest minds in the parcel sector to help shed some light on the situation.

Jerry Hempstead, president of Hempstead Consulting, explained that the profitability of any package is really hard to determine.

“In the case of Amazon (and FedEx Smartpost, UPS SurePost, DHLecommerce, Newgistics) and all the high volume users of Parcel Select ( the last mile service of the USPS) , Hempstead said the rates charged are negotiated, noting that these rates are reviewed and approved not by the USPS but by the Postal Regulatory Commission (PRC).

“The PRC has strict rules of cost coverage and profit contribution,” he said. “They don’t approve deals they determine are not profitable. Parcel Select is a service with little operating cost to it because of users (like Amazon). For the President (the USPS comes under the Executive Branch and 10 of the board of governors and the PRC are composed of presidential appointments) to make a claim that Amazon is scamming the USPS of billions of dollars, in my humble opinion, misinformed. He may have spoken without a complete understanding of the genesis and methodology of the USPS menu of Parcel offerings, how pricing works, and how Amazon has helped the USPS get more efficient over the last twelve years.”

Rob Martinez, president and CEO at Shipware, an audit and parcel consulting services company, said that it appears President Trump is misinformed, highlighting a Tweet from President Trump stating that the USPS is subsidizing Amazon’s shipping at the taxpayer’s expense even though the USPS is not supported by taxpayer funds.   

“If Trump were truly interested in helping fix the USPS (which does categorically need fixing through legislative relief due to the disastrous Postal Accountability and Enhancement Act), he could support the Postal Service Reform Act of 2018, a bipartisan bill introduced in the Senate to stabilize, preserve and improve the Postal Service and finish his job by appointing a Postal Governing Board that still sits empty after more than a year on his watch,” said Martinez.

Needless to say, a few Tweets by President Trump without commensurate action by the White House does not really push the needle much in either direction, but it is fair to say that things are clearly heightened. With so much volatility on so many different fronts these days, one thing many consumers have seemingly taken for granted is ordering packages online, primarily through Amazon, but that may not be as lasting, depending on where things go from here.