The Amazon blame game took another turn this week when President Trump spun the wheel back around to the U.S. Postal Service. Amazon.com Inc. is a convenient scapegoat for just about any issue. The mail is no different.
Amazon isn’t killing the post office. Since signing a landmark contract in 2013 to expand their business relationship and deliver packages on Sunday, revenue has ticked up; losses are down; and shipping is just about the only growth segment in the mailbag.
The Postal Service is saddled by larger issues. Sure, there’s the internet, and nobody is sending postcards anymore, but the big financial dilemma is the agency’s yearly obligation to set aside cash to cover healthcare costs for future retirees. This accounts for billions in losses. U.S. mail is also required to cover every American, employing carriers who roam neighborhoods six days a week (or seven, if Amazon has a package ready).
The Postal Service has said it actually makes money on the Amazon deal. E-commerce revenue provides “essential support to pay for the network and infrastructure that enables us to fulfill our universal service obligation,” David Partenheimer, a spokesman for the Postal Service, wrote in a January op-ed. “All users of the mail benefit.”
Amazon rebuilt its delivery network around the Postal Service several years ago. The company operates “sortation centers” that complement warehouses and organize packages by ZIP Code before sending them to post offices for the final leg of delivery. In Kenosha, Wis., Amazon has a million-square-foot warehouse, connected to a 500,000-square-foot sort center with a covered conveyor belt that resembles an airport skybridge.
Ending the U.S. mail relationship would probably be a bigger setback for Amazon than for the Postal Service. On a dark day in late 2011, when the postmaster general proposed cutting 100,000 staffers and shutting thousands of post offices, EBay Inc. shares dropped more than 6%. Amazon’s deal came soon after, and radical cuts were avoided — probably not a coincidence.
So the e-commerce giant got the Postal Service off life-support, but any benefit beyond that is minimal. Nothing short of a complete overhaul of the mail system, some kind of bankruptcy-style financial restructuring or reneging on those healthcare promises would turn the Postal Service into a sustainable business.
What measures can Trump actually take against the online retail giant?
He could push for probes of consumer protection, privacy and antitrust issues. He could also step up his support for allowing states to collect sales tax on third-party purchases from Amazon, or seek to have the Postal Service charge more to deliver packages. And he could thwart Amazon’s aspirations to win a multibillion-dollar Pentagon contract for cloud services.
Trump’s ability to act has limits. Inquiries by the Justice Department or the Federal Trade Commission could take years and bear a high burden of proof. The FTC and other enforcement agencies guard their independence, as does the board of governors of the Postal Service.
Changes to the tax law would require cooperation from Congress, which just passed a tax overhaul and may have limited appetite to reopen negotiations.
A sudden increase in Postal Service rates would cost Amazon about $2.6 billion a year, according to an April report by Citigroup. That report predicted United Parcel Service Inc. and FedEx Corp. would also raise rates in response to a Postal Service hike. The Postal Regulatory Commission, which sets rates, has one vacant seat among its five commissioners, who are named by the president.
Amazon, which has sought government contracts beyond the Postal Service, could face opposition to its bid to become the sole supplier of the Defense Department’s multibillion-dollar cloud-services award, which is slated to be made in September and for which Amazon is seen as the front-runner.
The company’s 2013 cloud deal with the CIA for $600 million has put it in pole position to win the award, which could last up to 10 years and put the company ahead in the race for future contracts as the Pentagon pushes to modernize its technology.
The Pentagon’s announcement earlier in March that it would choose one vendor for the contract has prompted criticism from Microsoft Corp., International Business Machines Corp. and industry groups representing rivals such as Oracle Corp. Lawmakers tasked with funding the Pentagon have asked the department to justify the single-source award in language accompanying the recent spending bill.
Trump could issue an executive action that says the government can only contract with smaller firms, although the president’s comments could bolster Amazon’s case if it decided to bring a court challenge, said John Hudak, a senior fellow in governance studies at the Brookings Institution.
“The president’s own rhetoric about Amazon probably hinders his ability to use executive action,” Hudak said.