Amazon’s sweetheart deal with the USPS

USPS package

Back in 2013, the New York Times reported that the United States Postal Service (USPS) would start making Sunday deliveries for online retail giant Amazon. It initially served as an effort by USPS to stop the financial bleeding of the agency that was happening as Americans sent fewer and fewer letters. With a reported annual loss totaling about $16 billion, deals with profitable companies like the one Jeff Bezos leads looked like a step in the right direction as far as USPS’ efforts to eliminate losses.

But according to a report published by Josh Sandbulte in the Wall Street Journal, USPS has been picking up the tab for Amazon. The WSJ contributor, whose expertise is in the shipping industry, detailed how Congress prevents USPS, through the Postal Accountability and Enhancement Act, from changing the parcel price. This law is designed to avoid “unfair competition” with FedEx and UPS. Section 3626 of Title 39 United States Code has become one of the provisions often quoted whenever limits imposed on USPS are being researched.

The report implies that Amazon gets the better end of the deal through the $1.46 subsidy. It is as if the Postal Accountability and Enhancement Act served as a loophole for Amazon to exploit.

“The U.S. Postal Service delivers the company’s boxes well below its own costs,” Sandbulte mentioned. “Like an accelerant to the fire, this subsidy is speeding up the collapse of traditional retailers in the U.S. and providing an unfair advantage for Amazon.” He further labeled that $1.46 subsidy as “a gift card from Uncle Sam.”

USPS has been shifting to package delivery as first-class mail delivery has decreased by 40% from its peak.

With USPS picking up part of the tab for Amazon, it means that the retailing behemoth can drop its prices. FedEx and UPS receive no such deal from shipping, having to bear their share of the system costs to deliver packages.

Despite shipping with both UPS and FedEx as well, the bulk of Amazon’s deliveries are still sent through USPS. Amazon though is not the only client USPS has, but with 40% of the business coming from Amazon, Sandbulte claims the Postal Service is “picking winners and losers in the retail world.”

But before Sandbulte’s claims are taken at face value, an article in Fortune.com noted a conflict. Sandbulte, it turns out, is a co-president of investment firm Greenhaven Associates, which has a financial stake in FedEx stock, MarketWatch.com said.

It is a fact that Amazon itself didn’t miss. In a statement released to Fortune.com, Amazon’s response explained how its partnership with USPS “is reviewed annually by the Postal Regulatory Commission.” It credited the PRC for the decades spent in “reviewing and approving USPS costing and pricing practices.” According to Amazon, it was the PRC that discovered these contracts with USPS are, in Amazon’s term, “profitable.” The response ended with Amazon reiterating its contribution to the U.S. economy resulting in “more efficient processes as well as thousands of jobs and related economic benefits in local communities.”

That closing statement served as a stark contrast to Sandbulte’s claim of how Amazon is killing traditional retailing with the way USPS subsidizes parcel costs.