Wednesday, April 4, 2018

Does the US Post Office Really Lose $1.46 per Package That It Delivers for Amazon?



President Trump is on the warpath in attack mode against Amazon. He claims that the U.S. Post Office loses money every time it delivers an Amazon package.
He is probably wrong.

The reference article that everyone seems to be using who is trying to support Trump's claim is a Wall Street Journal 2017 op-ed written by a money manager, Josh Sandbulte, who disclosed in his byline that he, ahem, held shares in Fed Ex.

It is a cleverly written piece. However, it is also quite distorting. The USPO is mandated by law to deliver mail to every residence in the United States. That is, it needs facilities everywhere whether it delivers Amazon packages or not. These facilities should not be calculated in determining the cost of an Amazon package. Sandbulte is muddy on this point and does a cute dance.

He writes:
But with a networked business using shared buildings and employees, calculating cost can be devilishly subjective.
No kidding.

If facilities and mail trucks are used anyway to deliver first class and junk mail, the only cost the post office should include when considering if it is profitable to deliver Amazon packages is not these mandated costs which will exist anyway (fixed costs) but the variable costs, fuel and employees, for example, to handle the Amazon packages.

If the USPO is charging more than these variable costs, it is making a profit from the delivery of Amazon packages.

Of course, if USPO has added facilities to specifically handle Amazon packages or failed to sell facilities that were not in use for first class and junk mail and devoted them for Amazon distribution, these costs should be considered. But not the fixed costs that are part of the legal mandate.

Sandbulte doesn't break down the fixed costs and variable costs, so there is no way to know from his analysis if the Amazon business is being provided at a profit or loss by the Post Office. And I doubt Trump knows.

My suspicion is that Amazon probably covers variable costs and so the only factor that needs to be known is if fixed facilities would have an alternative use if it wasn't for Amazon packages.

The data just isn't public for us to know this.

All this said, all mail delivery, first class, junk mail and packages should be left to the private sector, where all costs and revenues in the profit and loss sector will be generally properly matched.

-Robert Wenzel 



7 comments:

  1. --- All this said, all mail delivery, first class, junk mail and packages should be left to the private sector, where all costs and revenues in the profit and loss sector will be generally properly matched. ---

    Indeed but if the president was genuinely worried about the profitability of the USPS parcel operation, he would ask for an audit and not attack Amazon directly. This attack is so brazenly and obviously personal that it would be coming even if the USPS was operating in the black, the legal mandate notwithstanding. The evidence of this is the OTHER lie the president is peddling about Amazon: that the business is not charging and collecting state sales tax on behalf of those states where Amazon sells its wares.

    What I find amazing about this is the way outlets like Fox News repeats these same lies with nary a modicum of skepticism or worry, even when facing the reality that a sitting president is talking like a third rate dictator of a Socialist country, attacking one of the most successful companies in the world only because the WaPo published mean things about him. The few dissenting voices here and there are not willing to call the president out on his lies because they still want to believe the lie that there's genius behind the madness.

    What is deafening is the silence from the GOP'ers. They are irremediably stuck with this economic ignoramus, this crass lout, whose policies are completely contrary to what the GOP used to defend, which was free markets and free trade. Perhaps the GOP'ers never understood their own base or never wanted to believe that most people are economic Fascists.

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    1. Well said, Francisco. "Citizen Trump".

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  2. If Trump is worried that the USPO is poorly managed and losing money, he should shut it down and let a private sector firm lose money with Amazon.

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  3. Let me see if I have this straight

    The Post Office has a service to deliver packages that LOSES money when it's used.

    Mind blown. I don't know how this country continues to exist.

    Anyway, this is all about taxes and has nothing to do with the Post Office. Trump wants the EFFECTIVE tax rate raised, and is targeting companies that have successfully lowered their effective tax rates. Amazon is one of those.

    The jist of this from the tax moralists goes like this:

    Some businesses don't have tricky accountants and they've been paying near or close to the full 35% rate. Some do, and have been paying near 0%. That's not fair, say the tax moralists.

    So the plan is to lower the full rate to 21%, reducing taxes for the companies that don't operate tax avoidance schemes. But also removing loopholes so the avoiders get up to 21%

    The tax moralists claim that this will be more fair. And it will raise the effective corporate tax rate generating more revenue for the government (which is somehow good... see for example how the Post Office works)

    Anyway, Trump's tweets are just a sideshow.

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    1. “Tax moralist” is an oxymoron

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    2. Tax moralist is my snarky term for the people who want a tax that's fair to everyone. Like, as if we're all getting rammed in the backside an equal amount, it somehow makes it all better and more moral...

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  4. I reached the same conclusion. I don't think the Post Office actually knows its own cost structure.

    https://otherclub.blogspot.com/2018/04/post-scriptum.html

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