Does Amazon have a sweetheart deal with USPS?

The US Postal Service has lost significant sums of money every year for at least a decade.  President Trump claims that USPS's contract with Amazon has made things worse.  This article in VOX provides some insights to help analyze Trump's claim.  Key takeaways:

1. Shipping and packages is the only major component of USPS's revenue stream that is increasing, growing by $2 b in 2017 over 2016.  
2. First class mail and marketing mail revenue are down by $3 b over the same period.  
3. USPS costs are largely fixed.  Delivery takes place over the same routes every day; the same sorting and shipping operations take place each day as well, subject to some seasonal fluctuations.  
4. Unlike any private company, USPS must pre-fund its pension and retiree health benefits for the next 75 years.  This costs $6b annually and accounts for most of USPS annual losses.  

As long as the Amazon contract covers the variable costs of weekend deliveries, USPS comes out ahead.  Could USPS charge Amazon a higher rate?  That depends on whether Amazon could find close substitutes for package delivery.  I would not underestimate them.  

No more Saturday mail

Although it has a monopoly on mail delivery and mailbox use, USPS continues to lose money and has recently announced plans to stop Saturday delivery.  Some commentators, including WP's Katrina vanden Heuvel, have noted that USPS faces extraordinarily high pension costs because of a law requiring full funding of pension and health care benefits (a law that applies to no other government or corporate entity).  But the ultimate problem is that USPS must break even, despite falling revenues and labor costs that it can't/won't control. 

Cornell professor Rick Geddes wrote a piece for CNN.com that gets to the more fundamental issues facing USPS and some imaginative ways of dealing with them.  He suggests the following steps be taken:

• End the monopolies so that USPS has to face competition, which will make it lower costs and improve service.  All 27 EU members have already done this.  
• Create incentives for USPS to become a global competitor in the mail and package delivery market.  That would mean the ability to enter new lines of business and make strategic alliances.  

USPS has assets, including a nationwide network of post offices (that could sell other things besides stamps), trucks and sorting centers.  Some could be sold to generate funds for investments elsewhere. 

One final thought: it seems like most of the mail I get these days is catalogs and solicitations, that use a lot of paper and fuel as they make their way to my mailbox.  Is it possible that, given the full environmental costs, the postage on these items is too low?  Maybe we could get by on three days of delivery?

Time for a post office bailout?

The US Postal Service is scheduled to run out of money sometime early next year.  We all know this will not actually happen, because Congress will intervene before then.  But what can be done?  Thanks to the internet, the volume of mail has decreased by 22 percent over the last five years.  UPS and FedEx have taken away most of the USPS market share on parcels.  Labor contracts and political pressure make downsizing difficult.  So far USPS has adjusted by raising rates every year or two; it's a good bet that another rate increase is not too far away.  

Megan McArdle raises the fundamental issue here:

Congress has given the Post Office two incompatible mandates.  It is to make money like a business . . . but it is not to have any of the freedom that businesses have to, say, close branch offices, cut its delivery area, or change delivery schedules.

This is, to put it mildly, lunatic.

Congress will make it difficult to close post offices or reduce service.  Unions (and some Congresspersons) will make it difficult to lower costs to become competitive. 

Should there continue to be a government monopoly on first class mail?  I don't know about your first class mail, but most of mine consists of catalogs and solicitations.  FedEx, UPS and other services could step in and figure out a way to make a profit.  Why not give them the opportunity?