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Amazon and other companies are facing a postal-service price hike after months of criticism from Trump

12 October 2018

From Business Insider:

The US Postal Service is hiking prices for its service utilized by Amazon after facing months of criticism from President Donald Trump.

On Wednesday, the USPS proposed a price increase of 12.3% for its lightweight parcel select service. Non-lightweight parcel select prices would increase by an average of 9.3%. The proposed price hikes would go into effect in January 2019 if they are approved by the Postal Regulatory Commission.

Parcel select is used by Amazon, as well as companies such as FedEx and UPS, for “last-mile” package delivery, CNBC notes. The USPS’ low fixed costs and mandate to deliver mail to Americans make it an ideal option to get a package from a fulfillment depot to its final destination.

. . . .

The Amazon Washington Post has gone crazy against me ever since they lost the Internet Tax Case in the U.S. Supreme Court two months ago,” Trump tweeted in July. “Next up is the U.S. Post Office which they use, at a fraction of real cost, as their ‘delivery boy’ for a BIG percentage of their packages.”

. . . .

“The price increases reflect the best judgment of the Postal Service Governors, who are seeking to establish new rates that will keep the Postal Service competitive, while also providing the Postal Service with much needed revenue,” the spokesperson said.

The USPS reported a net loss of $2.7 billion on $69.6 billion in revenue in 2017. Raising prices on shipping packages is seen as one way to address this problem. Since Amazon is one of the USPS’ biggest customers in the package-shipping business, Citi estimates that raising prices could cost the e-commerce giant billions of dollars.

However, Amazon isn’t the only company that is getting a great deal from the USPS through the parcel select service. Higher costs will also be a blow to companies like FedEx and UPS.

Link to the rest at Business Insider

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39 Comments to “Amazon and other companies are facing a postal-service price hike after months of criticism from Trump”

  1. My god, he really is that stupid …

    This is that $15/hour game all over again, it will hurt others far more than it will hurt Amazon.

    I’ve already had some Uber/Lyft type driver drop off an Amazon package and Amazon has been playing with other delivery services/systems. All this might do is cut the USPS out of some expected income.

    FedEx, UPS and DHL will raise their rates as well and deliver where/when handing it off to the USPS isn’t cheaper than doing it themselves.

    So, the winner here? Trump – until next year when his changes take their toll and we see what the real damage is.

    Loser? The USPS – whose carriers have to check every box whether they have a pickup/delivery there or not.

    Hurt? FedEx, UPS and DHL. Amazon ‘maybe’ to a lesser extent as Jeff’s little company has plenty of cash to divert for shipping in the short term while Jeff figures a better way to update/upscale the shipping end – which will then hurt FedEx, UPS, DHL and the USPS even more.

    It will be interesting to see the new numbers this time next year …

    • I’ll be a loser in this one, too. My small business relies on USPS. Their rates go up every January, forcing me to raise mine, and more people decide they don’t really need my niche product, historical sewing patterns.

      • I love your patterns. I used your Georgian stays pattern to make a fully boned set while I was an interpreter at a historical site, and your instructions are some of the best I’ve seen in the historical patterns I’ve used. So often they seem to rely on already knowing what to do in order to figure out the instructions, but yours are very clear, and incredibly historically accurate.

      • (the first Anonymous 😉 )

        Hate to say it, but it might now be time to offer people that will take it a discount for electronic delivery like an email and they can then print it as needed. (my mom does these for her knitting.)

        And you won’t be the only one hit, so it will be interesting to see how much more business will stop going to the USPS.

  2. It will be interesting to see the new numbers this time next year …

    What are the numbers this year? Lacking them, how does one make a reasonable evaluation?

    • “What are the numbers this year? Lacking them, how does one make a reasonable evaluation?”

      “The USPS reported a net loss of $2.7 billion on $69.6 billion in revenue in 2017.”

      So 3.879% loss? It will be interesting to see if 12.3% & 9.3% increases help – or hurt that loss.

      • With such little info, we won’t know what caused next year’s results. Lacking information, there is no reason to expect a variance from this year to be due to any specific factor.

      • > The USPS reported a net loss of $2.7 billion on $69.6 billion in revenue in 2017.

        But it’s not that simple: USPS collects fees, which go to the Treasury as part of the General Fund. Congress then allocates them a budget, often less than their operating costs.
        Congress keeps the rest of the money.

        So USPS is “barely making it” when they’re pulling in money by the bucketload.

        You could think of it as a “hidden tax.” Everyone wins, except the schmucks paying postage.

  3. Color me underwhelmed. Postal costs for consumers go up regularly. Why shouldn’t they go up for businesses once in awhile?

    • Ah, but it’s Amazon!
      Everybody keeps looking for a magic bullet.

      In the meantime, Amazon keeps building up Prime Air. And they keep on dealing with local delivery contractors, looking to spawn a host of small last-mile delivery companies that will compete with USPS and UPS and FedEx.

      Shipping costs is something Bezos has known to be an issue for years. And he’s been addressing it steadily. Other than the politics of the matter, it’s a non-issue.

      • Yes – many of the packages in my neighborhood are delivered by Amazon Flex drivers, or by white vans that must be some sort of small subcontractor. That works well in dense areas. The USPS probably works better in more spread-out areas where a driver is required to cover the route no matter what. I’m sure Jeff will manage somehow.

    • They are using cost accounting vs financial accounting.

      Suppose OBrien Speedy Express wants to make a deal with the USPS. I tell them the total of all the direct incremental costs for delivering my packages is $10 (sorter, truck, gas, driver). So, they make money by charging me $11. That’s a very basic cost accounting example.

      But, when the financial accountants look at it, they say the USPS has a huge overhead, and OBrien Speedy Express is not carrying any overhead burden. I tell them, “So what? Increase the price of stamps for first class mail. That will cover it.”

      This kind of thing goes on everyday at zillions of companies as they try to price and assign costs to cost centers. Gets pretty heated.

      • Sorry. Cost accounting IS financial accounting. I had to take a year of it to get my accounting degree.

        And there’s no reason the US taxpayer should be subsidizing Amazon.

        • “And there’s no reason the US taxpayer should be subsidizing Amazon.”

          The US taxpayer was never subsidizing Amazon. That was just ADS from those that can’t find anything actually wrong/illegal to hang Amazon on.

          Amazon uses the same rates FedEx, UPS, DHL and everyone else is using with the USPS. And as I and several other people have pointed out, Amazon stands to be one of those affected the least by this change.

        • No. I agree we won’t find cost accounting under GAAP, and it’s not a requirement for most accounting degrees, but it is firmly rooted in economics.

          Financial accounting considers all costs an organization incurs, and will often distribute overhead to cost centers. That’s fine.

          Cost accounting will work at the margin and look only at incremental direct costs associated with a venture. We won’t find it in GAAP, and perhaps the name is misleading. Cost accounting is not synonymous with accounting for costs.

          Under financial accounting, a cost center may spend $10 in direct costs on a unit, and then will be charged a pro-rata $5 representing overhead burden for a total charge of $15. That’s fine, too.

          But consider the situation where the unit can be sold for $12. Should the firm do it? Some would say, “NO, because we will lose $3 on each unit.”

          Others would say, “Yes, because it will entail no additional capital costs or increase to plant and equipment. After doing this, the firm will have $2 it didn’t have before.”

          The two approaches are not in competition. One is used to account for all the financial activity of a firm. The other is an economic decision tool.

          Under the economic cost accounting model, taxpayers aren’t subsidizing Amazon because Amazon rates cover all direct costs associated with providing service to Amazon. So, adding the Amazon service did not cost taxpayers any incremental money.

          However, it quickly becomes a political model, with one side using financial accounting with full allocation of overhead to make decisions, and the other using cost accounting at the economic margin. That’s where we are today. And that’s where lots of companies have been for a long time.

          I have no position on what they should do because I don’t have the numbers.

  4. Persons who suffer from ADS also tend to suffer from TDS. Who will they side with when their bete noires fight?

    • No ADS from me, though I do have more than a touch of TDS – though most likely less that the HDS I would have had … 😉

  5. Does he actually believe Amazon LOST the Internet Tax Case? They were already COLLECTING sales tax in every state that requires it. It hurt Amazon’s COMPETITION.

    Dolt.

    • They collected tax in every state that 1) had a sales tax, and 2) where Amazon had a physical nexus. They began paying in more states as their facilities spread to those states.

      • And many smaller competitors find themselves facing higher transaction processing costs…unless they sign up for Amazon merchant services or equivalent.

        Those guys are like Kahn: shooting at Kirk and killing everybody but him.

        • Agree. The smaller the firm, the fewer places where they had a nexus and were eligible for taxes. A small player who had a single office in one state only paid in one state. Now they pay in all states with sales tax (44?).

      • I think you are mis-remembering this.

        they started really pushing in having more facilities in other states after they decided that they were going to have to start collecting the sales tax. (cause they were being sued by many who wanted them to start collecting the tax & could see the writing on the wall)

        their complaint at that point was if they have to do it in every state then all other internet ordering systems need to do it too…. sounds fair on the surface of it, doesnt it?

        • I think it’s the reverse. Amazon had to place facilities where they were needed to improve their delivery. When the benefit of having the freedom to place facilities where needed outweighed the cost of collecting tax, they build warehouses.

          • First it was free two day delivery and then same day delivery driving the move to more and more distribution centers. And in several states they negotiated exemptions as part of a deal to build the warehouses so the warehouses came first.

            Plus the support for a federal law cost them nothing: they knew Congress couldn’t pass the bill. It took SCOTUS overturning their own precedent to enable it and by then they were in 40-some states.

      • Wrong. There’s no Amazon presence in my state, but I pay sales tax on my Amazon orders. That started before the law required it BUT NOT BY MUCH. So I have to agree that this was a government win. Amazon saw the writing on the wall and tried to spin it by not waiting until they had no choice.

        • I agree they collect in your state. Since the 1992 USSC Quill Corp. v. North Dakota, we had been operating under the doctrine that a state could not compel a retailer to collect state sales tax unless the retailer had a nexus in the state. That meant a state with a sales tax could not require out of state firms collect tax unless they had a nexus in state.

          However, as internet sales grew, pressure from states to collect tax grew. There were several suits from states, and Illinois even declared any resident of Illinois who was an Amazon associate constituted a nexus. That’s when Amazon started cutting off associates.

          In New York, they collected the money into an escrow account pending the outcome of the NY suit. In Texas, Amazon was trying to say a facility in Fort Worth(?) wasn’t a nexus. They settled for appx $260 million.

          The suit that finally changed it all was the recent South Dakota v Wayfair where the USSC overturned Quill and opened the way for states to compel tax collection.

          So, under Quill, Amazon was not required to collect, but they began slowly moving in that direction on a voluntary basis after seeing the writing on the wall. At the same time, most other retailers operated under Quill.

          Meanwhile, Amazon was expanding and discontinued the practice of avoiding placing facilities in states to avoid collecting tax.

          If we look at the larger picture, one could say the government was prevented from meddling with the growth and innovation that characterized the early days of the internet. How this will play out now, given the thousands of taxing authorities in the country is unknown.

          But, the definitive decisions are Quill and Wayfair. One prohibited compelled collection, and one subsequently allowed it. Under Quill a company could opt to collect. Under Wayfair they must collect.

        • “Amazon saw the writing on the wall and tried to spin it by not waiting until they had no choice.”

          Like they did that $15/hour bit.

          “Wrong. There’s no Amazon presence in my state, but I pay sales tax on my Amazon orders. That started before the law required it BUT NOT BY MUCH. So I have to agree that this was a government win.”

          And a loss for all small businesses doing any internet business across state lines.

          In both cases it hurt those trying to compete with Amazon far more than it hurt Amazon. And it hurt lots of companies that don’t compete with Amazon. Walmart and McDonald’s come to mind on that $15/hour bit.

  6. It’s Trump vs. Bezos. They’re well matched.

    • Not really, one knows how to run a business, the other how to run a business into the ground … 😉

    • Bezos brought the fight to Amazon and its stockholders with his personal political activity.

      The wisdom of that decision can’t yet be evaluated.

      • Not really, he just let his paper print what they wanted. The attacking of someone for telling the truth is making the other look like the twit we saw on those silly game shows. 😉

        • Bezos owns the paper, and he is responsible for it’s activities.

        • Bezos owns the paper, and he is responsible for its activities. When an owner directs an action, he is responsible. When he allows and condones an action he is responsible. He doesn’t get to pass the buck to his paid employees.

          Bezos chose the fight. Now he has to deal with it. People may look back on it and say how brilliant he was. Or, they may look back on it and say he was an idiot. We don’t yet have the perspective to say.

          • “We don’t yet have the perspective to say.”

            It must have been hard for even you to type that, your hands shaking as you laughed. 😉

            The one choosing to fight is the twit champion of the world. He’d look a lot more sane if someone locked him out of twitter for a week.

            “Bezos chose the fight”?

            No, but he doesn’t back down or trad-pub would have him wrapped around their little finger long ago. And the two things that upset Trump the most is that he looks like an idiot as a businessman when compared to Bezos and there’s nothing he can legally do to bring Jeff down.

            MYMV

            • I lack the perspective to say if Bezos choice to enter the political arena will have a positive or negative effect on Amazon and its stockholders. Others may contend they have that perspective, but I would ask how they know what the future effect on Amazon will be?

              Anyone know what the effect of blockchain on Amazon will be in ten years? I lack the perspective.

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