After more than a year of complaints that Amazon doesn’t pay the U.S. Postal Service a fair rate to deliver its packages, President Donald Trump has created a task force to review the agency’s business model.
The executive order Trump signed March 12 claims USPS is “on an unsustainable path” and must be restructured to avoid a taxpayer buyout.
Treasury Secretary Steve Mnuchin will chair the board as it looks at how USPS prices its package delivery services, and will submit a report to the president within 120 days.
USPS suffered a $540 million net loss in the first quarter of fiscal 2018, and has reported net losses for the past 11 fiscal years.
Kevin Kosar, a senior fellow and the governance project director at the R Street Institute, says the president’s task force will look at ways USPS can adapt its business model — which by its own admission, is “flawed” — to continue to operate in the long-term.
“The whole model of the Postal Service, as it was created 1971, was that this is supposed to be a self-funding entity. What we see now, and what the executive order flags, is that this thing may not be able to do that, and it may end up being bailed out by taxpayers,” Kosar said.
Unlike other government agencies, USPS receives no annual funding from Congress, and largely operates on the revenue it generates from delivering mail and packages. But since 2010, the Postal Service has seen first-class mail, one of its biggest profit drivers, decrease by nearly 25 percent.
“The long-term picture is very problematic. It’s just not clear how the organization is going to earn revenue in excess of the cost of running it,” Kosar said.
Meanwhile, the Postal Service has continued to see double-digit growth in its package market.
Ten years ago, USPS took in about $1.5 billion in parcel revenue. In recent years, it’s earning $20 billion in parcel revenue.
The president maintains that USPS is losing “A FORTUNE” delivering packages for Amazon, but by law, that shouldn’t be the case.
Only fools, or worse, are saying that our money losing Post Office makes money with Amazon. THEY LOSE A FORTUNE, and this will be changed. Also, our fully tax paying retailers are closing stores all over the country…not a level playing field!
The 2005 Postal Accountability and Enhancement Act forbids the Postal Service from using market-dominant products — products it has a monopoly over, like letters, cards and standard mail — to subsidize its package business, where it faces intense competition from shippers like UPS, FedEx and DHL.
In addition, the Postal Regulatory Commission, which oversees USPS rate-setting, has reviewed the agency’s agreement with Amazon and determined that the terms of the contract are fair.
However, Rick Geddes, a professor of policy analysis and management and the director of Cornell University’s infrastructure policy program, said the review process lacks transparency.
“The Postal Service makes these agreements with big mailers, but those agreements are secret, so we can’t see exactly what the agreement is that the Postal Service has made with Amazon,” Geddes told Federal News Radio in an interview.
An analysis conducted last year by Citigroup determined that USPS loses about $1.46 on every package delivered. However, due to the lack of public information about the Postal Services deals, Geddes said it’s hard to verify those claims.
“It’s very difficult to know, because we don’t get to see the full data on these issues,” he said.
Kosar said it’s hard to get good data that clarifies whether parcels are making money or not. Part of the problem, he said, is how to compare the costs of a letter carrier delivering a package versus a letter.
“How do you break up the cost of his time and attribute to that parcel? Do you divide it by the total number of things that he’s carrying that day? Do you divide it by the amount of labor it takes to lug a big, heavy box? Do you attribute it to the truck, if you have to use a truck instead of walking on foot? It gets into this complex accountancy stuff,” Kosar said. “While the spirit of the law was that we should be able to clearly define these lines of business and attribute the costs and revenues to each side, that’s really hard to do.”
Each year, the PRC does an annual compliance determination, which looks at whether each type of mail and package product covers its share of the costs. But Kosar said the president’s task force will take a deeper dive into the USPS business model.
“The Trump task force certainly has mandate way beyond what the PRC has. It’s supposed to think about the more basic problems with the Postal Service’s model,” such as declining mail volume, Kosar said.
Fredric Rolando, president of the National Association of Letter Carriers, said 90 percent of the Postal Service’s losses are the direct result of a congressional mandate to pre-fund retiree health benefits.
“NALC looks forward to working with the administration and Congress to address this issue and to restore financial stability to the agency while protecting the employees and the universal network that is so critical to Americans and their businesses, large and small,” Rolando said in a statement.
For years, USPS has defaulted on mandated payments to the retiree health benefits fund. By the end of fiscal 2017, USPS owed the fund more than $38 billion.
Meanwhile, the Postal Service has called on Congress and the Trump administration to pass postal reform legislation that would eliminate the pre-funding mandate by requiring all future retirees to participate in Medicare Part B.
“Congress structured the Postal Service to pay for our universal retail, processing and delivery network entirely through the sale of high-quality mail and package products and services, without receiving any tax revenues to support our operations,” the Postal Service said in a statement. “To ensure that we can continue to provide prompt, reliable and efficient universal postal services in a self-sufficient fashion in today’s increasingly digital world, fundamental statutory reforms to the structure under which we are required to operate are needed.”