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Treasury task force proposes sweeping USPS changes, Amazon and e-retailers on edge

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A Trump administration review of the struggling U.S. Postal Service proposes sweeping changes in its operations that is raising alarm bells for Amazon [Nasdaq: AMZN] and other major businesses. The report, requested last April by President Trump, prescribes raising prices for many types of commercial package deliveries.

The task force, led by treasury secretary Steven Mnuchin, spent weeks meeting with companies and trade associations in affected industries like retail and package delivery. Officials from the Office of Management and Budget and other federal agencies have also been involved.

Among other things, the report says package deliveries “have not been priced with profitability in mind.” It adds that USPS should have the authority to charge market-based prices for mail and package items that aren’t deemed essential services. It’s the commercial delivery portion of USPS’s business, however, that has become the most profitable.

A number of aspects of the report should be welcomed. USPS needs attention and leadership. The report calls for stronger oversight by the Postal Service Board of Governors, which sat empty until last April. It also suggests the agency consider other revenue streams, such as renting out unused real estate to businesses, charging outside shippers for access to people’s mail boxes, and issuing hunting and fishing licenses. Some of the proposed changes, including increasing package prices, can be enacted without intervention from Congress, but other proposed changes would require lawmakers to act.

The main focus of attention is on Amazon, however, and the proposal to increase prices on the commercial (or non-essential) delivery items. This is no doubt because of the president’s open animosity toward Amazon—which is owned by Jeff Bezos, who owns the Washington Post, which the president despises.

The administration on Tuesday denied targeting Amazon, saying the report’s recommendations would hit the coffers of all retailers with a large volume of online sales.

“None of our findings or recommendations are linked to any one customer or competitor of the Postal Service,” said a senior administration official. “We based our analysis on the needs of the entire economy and all its businesses.”

The president told The Daily Caller last month, however, that Amazon is “getting the bargain of the century…I think that’s why I’ve asked for a review.”

Amazon did not comment yesterday, and has chosen a policy of not responding directly to the president’s tweets. The Package Coalition, however, a group that includes Amazon, the National Retail Federation and several big direct-mail firms, said in a statement it is concerned that the task force’s recommendations would harm consumers, large and small businesses, and rural communities “by raising prices and depriving Americans of affordable delivery services.” 

The USPS has lost $65 billion over the last 11 fiscal years, and things aren’t trending much better. The USPS’s package business is the one segment experiencing strong and steady growth. Its sales grew by $445 million, a revenue growth of 9.5%. Ironically enough, this is part of the much-maligned Amazon agreement, the terms of which are confidential, but which USPS calls “mutually beneficial.”

“The continued secular decline in First Class mail, rising costs and legislative and regulatory constraints resulted in larger losses this quarter,” said CFO Joseph Corbett earlier this year after the Q2 earnings report. 

As FreightWaves previously reported, the core issues the Postal Service faces revolves around structural changes in the economy and large institutional costs. For years, it relied on traditional first class mail and mailed advertisements to generate much of its revenue. But as people switched from letters and envelopes to email, and businesses switched from “marketing mail” to email spam, volumes have plummeted. This remained an issue throughout 2017. Despite the decline in mail volumes, USPS is still mandated by law to visit every address daily.

Also, they continue to struggle with high pension costs the likes of which no company would ever willingly tolerate. By law, the USPS is mandated to pre-fund their pensions, accounting for a large share of the losses over the past decade.

“No one is overseeing the postal system. It is a rudderless ship,” said former chairman of the Postal Service Board of Governors, S. David Fineman in a statement in May of this year. Fineman served on the board from 1995-2005. The Senate has not approved any nomination to the board in eight years, Fineman noted. The last appointed member stepped down in December 2016 after his term expired. The board needs a quorum to make major business decisions like approving postal rate increases.

While the Postal Service continues to be kicked like a political football, consumers may end up paying one way or another. If not through increased delivery rates on retail items, then possibly through a tax bailout if nothing is done structurally for the company as a whole.