” The Postal Service is a joke due to the fact that they’re distributing plans for Amazon and other Internet companies. And whenever they bring a bundle, they lose cash on it.”
President Trump is threatening to veto financial help for the beleaguered U.S. Postal Service unless it treks the rate it charges for delivering packages– which he said need to be quadrupled.
Note that he discussed Amazon by the name. The Washington Post, naturally, is owned by Jeff Bezos, the founder and president of Amazon. The president is frequently displeased by reporting in The Post, which he periodically labels the “Amazon Washington Post” even though The Post is not part of Amazon. Bezos has owned The Post since 2013 as a personal investment via Nash Holdings LLC.
Be that as it may, it’s definitely worth fact-checking whether the Postal Service loses cash providing plans for e-commerce merchants, as Trump claims.
The Postal Service is losing money in general, mostly because the increase of email has actually greatly cut flat-mail volume, and because Congress requires it to prepay pension and health advantages. One problem is the USPS needs to charge the exact same rate for first-class mail delivery anywhere in the nation, no matter how remote.
However the USPS consistently says package shipment is a bright area in its earnings image, increasing every year.
” As a portion of operating profits, Shipping and Plans created around 32%, 30%and 28%for the years ended September 30, 2019, 2018 and 2017, respectively,” USPS said in a 2019 regulatory filing “As a portion of overall volume, Shipping and Bundles represented 4.3%, 4.2%and 3.8%for the years ended 2019, 2018 and 2017, respectively.”
Of course, income is not revenue. And we do not understand the details of the agreements between USPS and Internet sellers. However USPS states it has actually been raising prices: “Rates for these Competitive services increased approximately 7.4%, 4.1%and 3.9%in January 2019, January 2018 and January 2017, respectively.”
Amazon uses the Postal Service for the last mile approximately of a bundle’s journey. However the Postal Service states there are indications Amazon might emerge as a competitor.
” The primary competitors of our Shipping and Packages services are FedEx Corporation and United Parcel Service, Inc., along with other national, local and local delivery business and crowdsourced providers,” USPS stated in the regulatory filing. “We see extra competitors coming from existing clients, such as Amazon.com, Inc., that are testing and sometimes carrying out ‘last-mile’ services.”
In its newest 10- K filing with the Securities and Exchange Commission, Amazon stated it had invested $277 billion in 2018 and $379 billion in 2019 on shipping expenses and was looking for methods to “alleviate expenses of shipping with time.”
Note using the expression “competitive services” in USPS documents. Under a 2006 law, USPS has 2 line of product– services such as first-rate mail in which it holds a monopoly and competitive items in which it takes on companies such as FedEx and UPS. Under that law, USPS is prohibited from losing money in the competitive services deliveries.
” By law, costs for each Competitive service need to cover ‘attributable costs’ (indicating the Postal Service’s expenses attributable to such product through dependably identified causal relationships), and Competitive services collectively should contribute an appropriate share to the institutional expenses of the Postal Service, currently 8.8%,” the regulative filing says.
Indeed, the USPS’s newest public cost and revenue filing shows that in the competitive services sector, first-class package services covered 148 percent of running costs, while ground parcel post covered 189 percent of running expenses related to these deliveries. That would recommend revenues are being made.
So, the law says USPS can not lose money on package services, and USPS states expenses are being covered. How can Trump claim the company is losing cash?
We contacted the Treasury Department for an explanation, as Treasury Secretary Steven Mnuchin is handling this issue for Trump. Mnuchin was at Trump’s side when the president made these remarks, and he indicated he agreed USPS must charge more to e-commerce merchants.
Basically, Treasury’s answer is that USPS’s estimation approaches are off-kilter and offer a misleading image of profits and losses– even as it concedes that USPS is following the law.
” It is appropriate that the law just requires them to contribute to institutional costs and therein lies the issue,” said a Treasury authorities. “Judges maintain that the USPS’s accounting functions within the law. Nevertheless, the law likewise requires the USPS to be self-sufficient and to not receive appropriations. In order to attain sustainability without continuous appropriations, the bundles require to cover their proportional share of institutional costs instead of merely contribute to them.”
The official added: “USPS’s expense allocation method was initially established 45 years ago to align mail rates with marginal mail costs when USPS ran on a break-even basis. It was never ever created to completely disperse expenses to products or to determine the profitability of products, let along to distinguish expense drivers between mail vs. plans. As such, it does not reflect the motorists of its costs today– the fast decline in mail and quick rise in bundles over the last decade.”
The main pointed to the sections of a 2018 task force report, produced after Trump grumbled e-commerce merchants– in particular, Amazon— were getting too sweet of a deal from USPS. “Modernizing the USPS’s cost requirements and allocation method is a key principle required to reform the USPS,” the report stated “This modernization will offer the USPS the information it needs to notify vital management choices, government policies, and regulative reporting.”
Especially, the report did not say e-commerce merchants were making the most of USPS. But it did state USPS might exploit its prominence in rural locations. “The Job Force recommends that USPS price its competitive products in a manner that is not geared simply toward optimizing volume, but instead toward generating income that can be used to fund its capital expenditures and long-term liabilities,” the report stated “Additionally, the Task Force advises that in any of its prices choices, the USPS think about the possible market distortions that could drive industry participants out of the marketplace.”
The Treasury authorities said: “Till USPS modernizes its expense allowance method, utilizing standard company practices, it will not have the ability to figure out the real success of products.”
( One private-sector analysis that attempted to determine whether the USPS subsidized Amazon turned out to be based upon out-of-date numbers. Recalculated figures by Josh Barro of Business Insider found barely any subsidy.)
The Pinocchio Test
Routine readers understand the burden of evidence rests with the speaker. The president says USPS loses money on every bundle it delivers for e-commerce merchants. However that seems an analysis originated from his gut– or his animus towards Amazon– than any advanced analysis of the numbers.
USPS, by its own computation, says profits from bundle shipments far goes beyond expenses. With Amazon perhaps seeking to bypass USPS, the agency needs to beware not to price itself out of the marketplace– and thus face a larger monetary squeeze. Moreover, under the law, USPS is restricted from losing cash in the package-delivery sector.
The Treasury Department, while acknowledging USPS’s calculations satisfied requirements with the courts, states USPS’s method is flawed. We acknowledge federal government accounting often can be opaque and various from private-sector accounting. But the Postal Service’s organisation design also is burdened by rules set by Congress and hence can not quickly be compared to private service.
In the end, Treasury can disappoint us USPS is actually losing cash on its contract with Amazon, as Trump claims. It can assert only that USPS does not know whether it earns a profit.
Trump makes 4 Pinocchios. We enjoy to revisit this fact inspect if any evidence supporting his position emerges.
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