President Trump, Jeff Bezos And The Solution For The United States Postal Service

, Opinions expressed by Forbes Contributors are their own.

The USPS generates 70% of their revenues from mail delivery. (Photographer: Andrew Harrer/Bloomberg)

Amazon today announced a new program designed to encourage entrepreneurs to enter into an agreement with Amazon to open their own Amazon-backed delivery service. In exchange for a $10,000 investment, Amazon will provide up to 40 vans and allow drivers to wear Amazon-branded uniforms. Entrepreneurs can earn up to $300,000 annually according to Amazon.

The goal of the program is to increase Amazon’s delivery network to be on par with that of FedEx and UPS. I worked for Amazon from 2015 to 2017 and one of the biggest challenges confronted by Amazon was last-mile delivery of packages and scaling their network.

As e-commerce grows, so too does the need for drivers to deliver packages. Unlike traditional retail shopping where customers walk into a physical retail store to buy products off the shelf, e-commerce succeeds by shipping products direct to the customer’s home. Last-mile delivery is inherently unprofitable as most delivery trucks have to travel long distances between deliveries. Operating a delivery truck costs money and drivers don’t drive for free. The economics of last-mile delivery improve when delivery vehicles drive less miles and deliver more packages in a smaller radius from where they departed.

A recent example of a company wanting to expand their last mile capabilities to reduce costs and increase customer experience is Home Depot who announced their intention to invest $1.2 billion to open 170 distribution facilities. Home Depot’s executive team understands the importance of investing in logistics to create a competitive advantage.

Photo via Smith Collection/Gado/Getty Images

What I find interesting is the parallel between Amazon’s need for an increased delivery network and Amazon’s public disagreement with U.S. President Donald Trump over Amazon’s supposed abuse of the United States Postal Service.

Is Amazon Friend Or Foe?

President Trump has been vocal in his belief that Amazon is costing the USPS—and American taxpayers—money because the retail giant isn’t paying the post office enough to ship their packages. The President believes the USPS is subsidizing last-mile delivery shipments for Amazon, effectively allowing Amazon to ship their packages at a discount. That Amazon isn’t paying their “fair share” to the USPS is the view of many in Washington, including the President. The USPS reported a loss of $2.7 billion for its most recent fiscal year (ending September 30, 2017) and a 3.6% drop in mail volume. The USPS generates 70% of their revenues from mail delivery.

It is the deeply-held belief of President Trump that something is amiss and that something must be done to correct the problem. I appreciate President Trump taking an interest in wanting to make the USPS profitable but should he view Amazon as friend or foe of the USPS? Is Amazon really the problem? The USPS generated $19.5 billion from shipping packages for companies such as Amazon and other retailers that offer e-commerce. The USPS generated an additional $2.1 billion in revenue because of the increase in package shipping.

To identify the optimal strategy for the USPS, President Trump has requested that a task force conduct a thorough review of the USPS with a goal of answering these questions: Should the USPS implement a new methodology for pricing the delivery of packages? Should the USPS become a self-financing organization? Should the USPS be privatized and sold? The report is due August 10, 2018.

A recent proposal titled “Restructure the Postal Service” presents the argument that USPS should be restructured to convert the USPS from a government-run agency into a privately-owned and operated corporation. The report outlines a litany of digital solutions and operational improvements to make the USPS more efficient.

The report also outlines the myriad of challenges facing the USPS including the fact it has over $100 billion in unfunded liabilities, an aging infrastructure of post offices and sortation centers, a backlog of capital investments and no agreed upon strategy to achieve profitability. Frankly, there is nothing new in the report as there have been multiple government-funded studies over the years focused on identifying ways to improve the USPS.

The Optimal Solution

I believe the optimal solution for the USPS requires one thing: President Trump and Jeff Bezos meet privately and discuss the situation. I believe Amazon should be viewed as a solution for the USPS versus being branded as the problem. I recommend the following as a potential solution for how to improve the USPS:

  1. Amazon has contracts with government agencies, including a 10-year contract with the CIA to meet their cloud technology needs utilizing AWS. Amazon is favored to win several pending cloud computing contracts for additional government agencies. Contract Amazon to run the technology of the USPS on AWS for ten years.
  2. Request Congress to fund the unfunded liabilities of the USPS and remove several archaic rules that prevent the USPS from competing more effectively.
  3. Amazon requires extensive assets if it wants to be able to reduce costs and increase speed of delivery to their customers. The USPS offers both.
  4. Contract Amazon to work jointly with the leadership of the USPS to utilize Amazon’s expertise across logistics and last-mile delivery to identify the optimal transportation and logistics network for mail and package delivery.
  5. Contract Amazon to run the USPS for 10 years with an option to acquire the USPS. If the goal is to take the USPS private, Amazon would be wise to consider acquiring the USPS.
  6. Allow Amazon to make acquisitions that will increase the ability of the USPS to offer shippers and customers increased Last Mile Delivery for heavy/bulky items such as exercise equipment, furniture and appliances as these items require a specialized distribution network. My primary recommendation would be for Amazon to acquire XPO Logistics and integrate XPO’s capabilities into the USPS network. This will effectively increase the ability of the USPS to serve more customers and generate more revenue and profits for the USPS.
  7. Contract the U.S. Government Accountability Office (GAO) and one or more external third-party audit firms to provide oversight of Amazon. This will ensure transparency of pricing and eliminate any concerns that Amazon and any other shipper isn’t paying its fair share.

President Trump is doing his job by asking tough questions about how to solve the riddle of making the USPS profitable. The USPS is the consummate independent entity—regardless of which party controls the White House and Congress, the USPS remains inefficient and a burden.

Taking the USPS private is an admirable idea but execution of such a strategy would be problematic and enormous. The USPS has extensive supply chain, logistics, transportation, last-mile delivery, customer experience and technology challenges.

In addition to Amazon, Walmart, FedEx and UPS come to mind as companies that have the ability to undertake a transformation at the USPS. I am not advocating that Amazon be given preferential treatment. Any company interested in running the USPS should be allowed to throw its hat in the ring. However, based on my research of the USPS and my global logistics experience, the problems of the USPS are so vast it limits the number of companies available to even attempt acquiring or fixing the USPS. It may in fact require multiple companies partnering to acquire and fix the USPS.

I do not disagree with the sentiment that the USPS is broken. But I do disagree with trying to paint Amazon as the primary reason for why the USPS is losing money. President Trump and Jeff Bezos should be able to work together to solve the problems of the USPS.

Mr. President, if the federal government can trust Amazon to keep the secrets of the CIA, I have to believe we can trust Amazon to deliver the mail and packages for all customers. Trust but verify.

Brittain Ladd is a globally recognized consultant/corporate leader in strategy, operations, supply chain management, logistics and Last Mile Delivery.

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USPS Contracts Confirm Trump’s Attacks Against Amazon Are Inaccurate

Top Dems Correct the Record on President Trump’s Multiple Unsubstantiated Claims Against Amazon

Today, Reps. Elijah E. Cummings, the Ranking Member of the House Committee on Oversight and Government Reform, and Gerald E. Connolly, Ranking Member of the Subcommittee on Government Operations, sent a letter to President Donald Trump in response to troubling reports that he is using his authority as president to launch political attacks against Amazon and its founder, Jeff Bezos, and to pressure the Postal Service to raise its rates for Amazon.

cummings

“We are writing in response to troubling reports that you are using the authority of your office to launch political attacks against Amazon and its founder, Jeffrey Bezos, and to pressure the Postal Service to raise its rates for Amazon in retaliation for perceived wrongs against you. We are also writing to correct multiple unsubstantiated claims you have made via Twitter relating to these matters,” the Ranking Members wrote.

On May 18, 2018, the Washington Post reported that, in “multiple conversations occurring this year and last,” President Trump “personally pushed U.S. Postmaster General Megan Brennan to double the rate the Postal Service charges Amazon.com and other firms to ship packages, according to three people familiar with their conversations, a dramatic move that probably would cost these companies billions of dollars.”

 

According to this report, the Postmaster General resisted Trump’s demands and provided him with information showing that “the Amazon relationship is beneficial for the Postal Service.” Despite being provided this information, President Trump continued his Twitter attacks against Amazon on March 31, 2018 and April 3, 2018.

The Oversight Committee has now obtained documents from the Postal Service, in response to a previous letter from Subcommittee Chairman Mark Meadows and Ranking Member Connolly, demonstrating that President Trump’s repeated attacks against Amazon are inaccurate.

The Postal Service produced contracts to the Committee on May 11, 2018 and asked the Committee not to release them because they contain confidential business information. However, Cummings and Connolly released the following information based on a review of the contracts:

“First, Amazon is not receiving any preferential treatment from the Postal Service. It is paying package delivery rates comparable to FedEx and UPS. Amazon is the largest shipper of packages by the Postal Service, and the Negotiated Service Agreement between the Postal Service and Amazon has been reviewed thoroughly by the Postal Regulatory Commission to ensure profitability.

“Second, the Postal Service’s package delivery services with Amazon and other retailers has been one of the few areas of growth in Postal Service revenues, experiencing double-digit increases in recent years and accounting for nearly 30% of its operating revenue in fiscal year 2017.

“Third, the Postal Service’s package delivery services not only help mitigate losses in other areas, but provide the American people with low-cost services for retail purchases. These contracts are constantly renegotiated, sometimes multiple times each year,” the Members wrote.

“It is highly inappropriate to use the authority of your office to attack a political rival and seek to impair his business financially,” Cummings and Connolly wrote. “It is even more inappropriate to launch such attacks using false claims that are not supported by the facts. The allegations you have made about Amazon and the Postal Service are inaccurate, and we ask that you correct the record.”

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Trump has pushed postmaster general to double Amazon’s shipping rates, report says

CBS News May 18, 2018, 6:30 PM

President Trump followed through on his frequent complaint that Amazon is costing the U.S. Postal Service “many billions of dollars” by urging the postmaster general to double the rate the U.S. Postal Service charges Amazon and other companies to ship their packages, the Washington Post reported Friday.
Citing three sources familiar with the conversations between U.S. Postmaster General Megan Brennan and President Trump, the Post also reported that Brennan has not acceded to the president’s wishes for several reasons. For one, the Postal Service has binding contracts with these companies, and a regulatory commission would have to review those contracts. But she has also reportedly told Mr. Trump that the USPS relationship with Amazon is beneficial. In 2017, Postal Service revenues from private shippers including Amazon added up to $7 billion, Politifact noted.
Does the post office actually lose money on Amazon?
If the rates were doubled, it would cost Amazon and private shippers billions, which would likely be passed on in the form of higher prices for shoppers.
The Post’s sources said that Brennan and Mr. Trump have met on this issue several times beginning in 2017 and also had a meeting on it four months ago — none of which appeared on Mr. Trump’s public schedule. The Post also reports that the president has met with Treasury Secretary Steven Mnuchin, then-National Economic Council Director Gary Cohn, Domestic Policy Council Director Andrew Bremberg and other top advisers about Amazon’s business practices, ranging from its shipping rates to whether it pays enough in taxes — both topics that the president has tweeted about.
The White House does not have a comment on the report at this time.
In April, Mr. Trump tweeted, “I am right about Amazon costing the United States Post Office massive amounts of money for being their Delivery Boy. Amazon should pay these costs (plus) and not have them bourne [sic] by the American Taxpayer. Many billions of dollars. P.O. leaders don’t have a clue (or do they?)!”
In fact, packages and shipping have been an area of growth for the Postal Service that has offset the decline in volume of letter and magazine delivery. USPS said in its annual report last year that its revenue growth “is driven entirely by increases in shipping and packages.” It loses money every year largely because of pension and health care costs, and not, as the president claimed, because Amazon is using USPS as its “delivery boy.”
CBS News’ Ed O’Keefe contributed to this report.

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US Postal Service gets whacked with a $1.3 billion loss as it struggles to keep up with Amazon

Joe Ciolli
May. 11, 2018, 8:16 AM 46,190The US Postal Service reported a total net loss of $1.3 billion in the second quarter. It lost $562 million a year ago.
The USPS posted a controllable loss of $656 million in the second quarter, compared with income of $12 million for the same period a year ago. This is an important number because it factors in expenses such as wage increases.
The losses are surprising when you consider package volume increased 5%.
The USPS largely attributed its downward profitability shift to increased compensation costs, suggesting that the company is scrambling to keep up with competition at the peril of its bottom line.The US Postal Service is headed in the wrong direction.
It posted a controllable loss of $656 million in the second quarter, compared with income of $12 million for the same period a year ago. The USPS also incurred a total net loss of $1.3 billion, compared to the $562 million loss it saw in the second quarter of 2017. Those drastic slips are likely to overshadow USPS’s revenue rising 1.4%, to $1.75 billion, on a year-over-year basis.
Perhaps even more troublesome is that the USPS posted such a large loss during a period in which package volumes increased by 5%.
While that uptick most likely explains the $364 million increase in compensation expenses due to what it describes as “additional hours incurred to support the labor-intensive package business as well as contractual wage adjustments,” it also raises the question of why the volume surge wasn’t able to bridge the controllable-income gap.One possible explanation for the wage jump is that the USPS is doing everything in its power to compete with Amazon— including offering workers more hours — at the expense of profitability.
This development is sure to catch the eye of President Donald Trump, who in a tweetstorm earlier this year attacked Amazon for what he says it’s doing to the USPS. In the past, Trump has mentioned changing the company’s tax treatment or going after it on antitrust grounds.
“I have stated my concerns with Amazon long before the Election,” Trump tweeted on March 29. “Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!”
Amazon’s stock climbed 0.2% in premarket trading and is up 38% this year.

 

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