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Wednesday, January 3, 2018

The Postal Service Is the Problem, Not Amazon

USPS is in financial turmoil due to the agency's internal mismanagement and bloated bureaucracy.

President Donald Trump really hates the Post Office, it appears. The long lines, the snooty clerks, and the awful smelling buildings. All I can think is “yuck.” However, he seems to hate Amazon more for using the only postal delivery system in the United States.

This past Friday, Trump sent off the old year with a series of Twitter tirades that indicted retail e-commerce giant Amazon for taking advantage of lower shipping rates through the U.S. Postal Service (USPS). He alleged that, due to the low shipping rates that firms like Amazon receive, USPS is in dire straits financially and that rates should be increased to remedy the loss.

“Why is the United States Post Office, which is losing many billions of dollars a year, while charging Amazon and others so little to deliver their packages, making Amazon richer and the Post Office dumber and poorer[?]” Trump tweeted. “Should be charging MUCH MORE!”

Is It True? 

The only upside to Trump’s remarks, however, is that they are only half true.

Amazon as a company is considered to be one of the largest customers for USPS. Industry analysis has even declared that Amazon’s overall shipping costs are less when they use postage circulation.

Trump’s remarks about the USPS losing money exclusively to Jeff Bezos’ digital empire are entirely misguided. With this, you can expect a company like Amazon to receive lower rates due to the millions of packages they ship each year in the U.S alone.

The process of having special rates for one particular company is known as establishing a workshare discount. These discounts are determined by excessive haggling between the USPS and individual companies on the basis of many different factors that include corporate size, the amount of shipping a firm will do, etc. Discount agreements like these are reached quite regularly, proving that it is a common practice.

So, to make things clear: Trump’s remarks about the USPS losing money exclusively to Jeff Bezos’ digital empire are entirely misguided for a variety of reasons. And the misguided judgment from this author will remain the same even if Trump understands the inner workings of the USPS and merely tweeted his remark to play the “tough guy” against Bezos.

Amazon Is Not the Problem

On the other hand, USPS is in financial turmoil due to the agency’s own internal mismanagement and bloated bureaucracy.

Billions upon billions of dollars in unfunded pension liabilities and consistent quarterly losses have arisen over a period of several years — unrelated to Amazon’s short-term meteoric rise to online shopping supremacy.

The delivery of first-class-mail and other paper letters is a monopolized service. On one front, higher labor costs and the crisis of unfunded retirement benefits is one of the most crucial items that the USPS must pay for on its annual shopping list.

A 2009 report from the Congressional Research Service indicated that the salaries of workers — among other services and line items for the USPS — would see dramatic increases in the years to come. To little or no surprise, costs have done just that.

With $6.9 billion in health care costs for future retirees added to the $120 billion (and growing) in unfunded pension liabilities, the Postal Service’s financial livelihood is relatively uncertain. This, in total, accounts for up to 169% of the fiscal year 2016 revenues, according to analyses previously conducted by the Government Accountability Office (GAO).

The other component of the Postal Service’s overall loss is found on the business side of the agency — not just the management and administrative sides.

One Part Monopoly, One Part Competitive Firm

Within the USPS, the “business side” of the government-run enterprise is broken down into two separate businesses: a monopoly side and a market side, according to Kevin Kosar of the free-market-leaning R Street Institute, in comments for Vox. The monopoly side being the letter delivery service and the market side being the parcel delivery service that competes with private sector counterparts like FedEx, UPS, DHL, and other package delivery companies.

Because e-mail and digital communication technologies have evolved to be the most commonly used methods of communication, paper letter delivery has severely dropped.

For example, the delivery of first-class-mail and other paper letters (like your paper credit card bills or your ex-girlfriend’s wedding invitation) is a monopolized service. Because the federal law only promulgates specific letter delivery activities to the USPS, there is no competition, which only leaves room for a monopoly to grow while indirectly and directly forcing costs to rise.

On this basis, financial livelihood from this side of the business is wildly ineffective, inefficient, and costly. In particular, 2017’s third quarter was one of the worst for the USPS as the agency’s growing costs worsened with a $2.1 billion net loss incurred from failing to meet statutory obligations and having internal organizational investments going past due.

Price controls cause a series of problems in the marketplace and among the financial health of any size entity. Parcel delivery from the Postal Service is more market-friendly because of the existing competition in the private sector. With no surprise though, the service’s parcel delivery products are the only valuable aspects of the entire operation. Yet, costs have become so overbearing that even success on one side of the business can’t compensate for the continued net-losses.

The overall net loss has stacked up to $63.6 billion from 2007 through June 30, 2017, according to the Postal Service in August. For the fiscal year 2017, USPS marked an additional $1.8 billion loss in total revenues due to declines in First-Class and Marketing Mail volumes — both monopoly services.

The financial state of the Postal Service is also not benefited when an outside regulatory authority controls fee rates for services (all shipping fees, prices for postage stamps, etc.). Price controls alone can cause a series of problems in the marketplace and among the financial health of an entity of any size.

Moving Forward With The Postal Service’s Problems

Nevertheless, Amazon is hardly the perpetrator that Trump described. Due to institutionalized difficulties within the agency and the lack of competition, the Postal Service, in a way, dug their own grave with the help of Congress and the executive branch.

The U.S. Postal Service is nothing more than a bloated government agency at the end of the day. In no capacity, either, does the federal government have the ability to create economic value through goods and services. Instead, what we are left with is a state-owned monopoly that is immune to the impacts of the free market. It’s unnatural. It’s non-competitive. It’s anti-market. And, lastly, you can’t fix something that will always remain broken. The Constitution doesn’t mandate a federal postal system.

Plus, it should be noted that the Constitution doesn’t officially mandate that the federal government should maintain a postal system. Though our founding document does provide Congress with authority to manage a postal system, there is no explicit declaration saying that it must be done.

Instead, “The Congress shall have [the] power to establish post offices and post roads,” per the postal clause. The power, thus, is presented as an enumerated power of Congress or, in other words, a suggestion.

Reprinted from Turning Point News

  • Michael McGrady is a libertarian-leaning freelance journalist whose work has been featured or cited in publications like the South China Morning Post, The Wall Street Journal, and the Washington Examiner (and many others globally) while serving as an editor for Turning Point News and the executive director of McGrady Policy Research, a political consultation and general marketing firm from Colorado Springs, CO.