Industry

After Bashing Amazon, Trump Orders Postal Service Review

After Bashing Amazon, Trump Orders Postal Service Review

By Toluse Olorunnipa & Margret TalevPresident Donald Trump ordered the creation of a task force to review business practices at the United States Postal Service, a move that could affect one of the president's favourite corporate targets: Amazon.com Inc.

President Trump has frequently complained that the USPS continues to lose money, in part, due to a "money-losing" bulk rate delivery contract it has with Amazon to deliver packages. The executive order never mentions the word "Amazon", but there's little doubt that Trump's ongoing feud with Jeff Bezos - who also owns the Washington Post, which POTUS calls "fake news" - is the impetus here.

In an executive order announced late Thursday, Trump said the USPS is on an "unsustainable financial path" and directed a task force to study its operations and finances. It will have 120 days to submit a report with its recommendations.

Amazon has a confidential agreement with the Postal Service under which it delivers large numbers of packages directly to the post office nearest to where they need to be delivered. But most analysts say that the massive number of packages shipped by Amazon is helping USPS finances as the volume of first-class letter delivery and other types of mail continues to decline.

Amazon declined to comment on the executive order or Trump's Twitter tirades against the company.

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Citigroup previous year found that Postal Service prices would have to go up by $1.41 per package - about 40% - to reflect the true cost of delivery for all its customers. Revenue from packages grew by more than $2 billion from the prior year, by far the most of any service category.

The USPS actually set a record on December 18, 2017, when more than 37 million packages were delivered - the most packages delivered in a single day in its more than 200-year history. Amazon and the Postal Service signed a five-year deal in 2013 to deliver packages on Sundays, and both entities have declared the arrangement a success.

The firm estimates that 40%-50% of Amazon's shipping costs in the USA are associated with the USPS and, assuming a 15%-20% increase in shipping costs, there are $1-$1.8 billion in potential shipping costs Amazon may have to absorb in 2018. However, experts have countered that the while the service does lose money delivering first class mail, e-commerce package deliveries are profitable.

The agency is also drowning in "higher than normal" costs of retiree benefits, including pensions and health care. It defaulted on other prefunding payments, and its prefunding obligations still totaled $38 billion as of the end of the last fiscal year.