Post Office vs. Amazon – the real reasons USPS is losing money

Late last year, President Trump took aim at the Post Office and Amazon, tweeting, “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? Should be charging MUCH MORE!

In another tweet, on March 31, the President goes on, “While we are on the subject, it is reported that the U.S. Post Office will lose $1.50 on average for each package it delivers for Amazon. That amounts to Billions of Dollars.”

President Trump might be overlooking the real challenges at the United States Postal Service (USPS), and Amazon isn’t on the list.  The President argues that Amazon is getting the better end of the deal in the agreement with the USPS  and insinuates that taxpayers may in effect be subsidizing a private sector company. But, there is a bit more to the story.

FedEx and UPS and a bunch of other companies use the Post Office for last mile delivery.  The Post Office has the most formidable infrastructure in place in the United States designed to deliver everywhere, every day.  Standard delivery covers the map six days a week.  The Post Office delivers some high priority mail packages on Sunday, as well as some Amazon packages. 

That last mile capability is what we call a competitive advantage, and the Post Office is mining it for all it’s worth.  And in reality, the small package segment of the USPS business model is actually a money maker. There is a really important concept in accounting called “contribution margin,” and the President Trump needs to consider it.

The Post Office is losing money, and has for years; largely driven by shifts in the market.  Junk mail – once a cash cow for the Post Office - is tanking.  First class mail – supplanted by email - is tanking.  eBills and ePayments – it’s been months since I last wrote a physical check – have totally reengineered the way we do business. 

However, . Postal Service expenses continue to exceed revenues and they have limited ability to control overhead.  Challenges include a unionized government workforce, high pension and healthcare costs mandated by Congress, regulatory obstacles, and the inability to close underperforming (money-losing) post offices, to name a few.  

The Post Office is significantly constrained in their ability to react appropriately, in a business sense.

Federal Statute establishes the USPS Board of Governors to “direct the exercise of the powers of the Postal Service, direct and control its expenditures, reviews its practices, conduct long-range planning, approve officer compensation, and set policies on all postal matters.”  By law, there should be nine members on the Board of Governors, nominated by the President and subject to Senate confirmation.  These nine select both the Postmaster General and the Deputy Postmaster General, for a total of 11 seats. 

At the present time, all nine of the Senate-confirmed seats are vacant with just three nominations pending Senate confirmation.  There are still six more nominations to go, and Congress is still on the hook to confirm the three that have been made.

Good luck with recruiting willing participants for the Board of Governors.  We’d all like to see the President tap his network and recruit some serious players for the board, but there are challenges.  Pay is limited to a rate of no more than $300/day for forty-two days, plus an annual salary of $30,000, or a maximum total annual pay of $42,600.

So, the President’s recent attention on the business acumen of the folks at the Post Office is a little off target.  Post Office profitability challenges are tied to far more issues than Amazon.  In reality, the President and Congress are significantly contributing to the problem. 

Might we respectfully suggest that the President and Congress exercise some leadership and sound business management acumen to fill the void and position the Post Office for success?

Disclosure:  the US Postal Service is a current client with one of my consulting businesses.  You might consider that a conflict of interest or you might believe that gives some credibility to my opinions.  That judgement is in the hands of the readers.