Higher postal fees will cost Amazon more than $1 billion in 2019, estimates Credit Suisse

  • The proposed uptick in shipping and mailing fees at the U.S. Postal Service could cost Amazon more than $1 billion in 2019, according to Credit Suisse.
  • Analyst Stephen Ju cut his 2019 pro forma earnings per share estimate by nearly 19 percent to $34.99.
  • If the post office receives approval from the Governors of the Postal Service, package and box rates should rise by a range of 5 percent to 11 percent.
  • But Credit Suisse is still positive on the stock. The analyst reiterated his outperform rating and bumped his price target to $2,400 from $2,100.

Jeff Bezos, chief executive officer of Amazon

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Jeff Bezos, chief executive officer of Amazon

The proposed uptick in shipping and mailing fees at the U.S. Postal Service could cost Amazon more than $1 billion in 2019, according to Credit Suisse, which cut its near-term estimates for operating profit on the e-commerce behemoth.

“As we roll forward the sensitivity analysis to 2019, we arrive at a potential incremental Shipping Expense range of $400 million to $1.1 billion range with the assumption that 40 percent to 50 percent of U.S. packages are shipped via the Postal Service,” analyst Stephen Ju wrote Monday.

Modeling a number of factors including the potential increase in carrier costs, rising labor expenses as a result of Amazon’s minimum wage increase and moderating shipping volume, Ju cut his 2019 pro forma earnings per share estimate by nearly 19 percent to $34.99.

Amazon’s stock rose 0.3 percent Monday morning.

The Postal Service announced on Oct. 10 it filed notice with the Postal Regulatory Commission — the body tasked regulatory oversight of the agency — of proposed price changes to take effect Jan. 27, 2019, if approved. If the Governors of the Postal Service OK the proposed price hikes, package and box rates should rise by a range of 5 percent to 11 percent.

Postage for 1-ounce letters is expected to rise to 55 cents from 50 cents.

Meanwhile, Amazon announced earlier this month that it will be raising minimum wage for all U.S.-based employees to $15 per hour starting Nov. 1. Shares of Amazon, up 51 percent this year, have fallen off more than 10 percent since it announced the plans to buoy its minimum wage.

Though met with angst on Wall Street and applause on Capitol Hill by the likes of Sen. Bernie Sanders, I-Vt., some have pointed to the advent of robotics and artificial intelligence in the workplace to ease fears of rising labor costs.

Still likes the stock

“Starting in the second half of 2016, Amazon started to report a meaningful increase in capital expenditures primarily for robotics in its U.S., Europe, and Japan-based fulfillment centers,” Ju wrote. “This should over time allow Amazon to demonstrate greater leverage and offset the aforementioned minimum wage hikes.”

Despite the rising costs in the near-term, Ju remains positive on Amazon and its stock overall. The analyst pointed to continued profit margin expansion in Amazon’s e-commerce segment as it grows its infrastructure, better cash flow as a result of improving advertising and upside to Amazon Web Services forecasts.

The analyst reiterates his outperform rating on the company’s stock and bumped his price target to $2,400 from $2,100, implying 36 percent upside over the next 12 months from Friday’s close.

President Donald Trump, a frequent Amazon critic, has often taken to Twitter in the past year to blast what he deemed unfair practices at the e-commerce giant and its use of the Postal Service.

For instance, the president reinforced his assessment that Amazon’s business is costing taxpayers “many billions of dollars” through subsidized rates at the United States Post Office.

“I am right about Amazon costing the United States Post Office massive amounts of money for being their Delivery Boy,” Trump tweeted in April. “Amazon should pay these costs (plus) and not have them bourne [sic] by the American Taxpayer.”

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Amazon Announces Order of 20,000 Sprinter Vans For Delivery Network

By Richard Meldner

Source: Daimler AG
Amazon confirmed on Wednesday that it is ordering 20,000 Mercedes-Benz vans from Daimler AG to jump-start its delivery program it announced in June.

READ MORE: Amazon Encouraging Entrepreneurs To Start Delivery Business

The announcement of the Amazon order came in conjunction with Daimler AG’s opening of its new manufacturing plant in North Charleston, South Carolina to better supply the second largest market of its popular Sprinter vans.

“We’re proud to partner with Mercedes-Benz Vans to contribute to local economies through the order of Amazon branded Sprinter vans produced at their new plant in North Charleston.

Thanks to the tremendous response to Amazon’s new Delivery Service Partner program, we are excited to increase our original order of branded Sprinter vans to 20,000 vehicles so new small businesses will have access to a customized fleet to power deliveries of Amazon packages.”

Dave Clark, Amazon’s Senior Vice President of Worldwide Operations

This opening order will jump start Amazon’s ambitions to build out its delivery network with local entrepreneurs who will receive financial assistance from the company to acquire the Amazon-branded Sprinter vans.

In a separate statement to the Wall Street Journal, an Amazon representative said the company had received “tens of thousands” of applications for the new program, and will likely select about 500 applicants to start.

The Growth of a Logistics Network

For several years now Amazon has been building out intra-warehouse logistics which includes trucks and air delivery via its Prime Air fleet.

Earlier in the year, the company announced it would be expanding its operations at Cincinnati/Northern Kentucky International Airport by building its own cargo terminal instead of leasing daytime terminal space from DHL.

READ MORE: Amazon to Expand Prime Air Operations at CVG Air Hub

The order of 20,000 delivery vans is not a small number for a company that does not have an existing route-based ground parcel operation.

For comparison, FedEx Ground operates about 60,000 delivery vehicles, which includes OTR trucks, to service the United States and Canada.

Certainly, at the beginning Amazon will focus on urban areas, likely utilizing a similar system as it exists at FedEx Ground where local business owners operate specific delivery routes.

Even with an aggressive expansion plan, it will still take years for Amazon to shift away many deliveries from its current logistics partners such as USPS, UPS, and FedEx.

Especially during the busy holiday season Amazon will need their help to maintain its promised delivery times.

This will create an interesting dilemma for the logistics partners as they still want to work with Amazon to handle their packages, but may also find themselves competing against the online retailer for logistics business.

READ MORE: Amazon to Take on FedEx and UPS with ‘Shipping with Amazon’

As we often have seen with Amazon, they go big and they go bold and the company is willing to take chances to disrupt an industry.

And there is no doubt that this order of 20,000 Sprinter vans will change the U.S. logistics landscape over the next decade.

What do you think about this order of 20,000 Sprinter vans by Amazon? Head over to our Facebook Discussion Group or use the comments section below.

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Senate cancels postal service hearing; Trump’s Amazon crusade delayed

Jeffrey Dastin
4 Min Read

SAN FRANCISCO (Reuters) – A Senate hearing about reforming the U.S. Postal Service that could have scrutinized what Amazon.com Inc (AMZN.O) and others pay for package delivery has been delayed, three sources familiar with the matter told Reuters, moving back President Donald Trump’s effort to hike the world’s largest online retailer’s rates.

Trump has repeatedly attacked Amazon on Twitter for treating the Postal Service as its “delivery boy” by paying less than it should for deliveries and contributing to the service’s $65 billion loss since the global financial crisis of 2007-2009, without presenting evidence.

The president ordered a task force in April to study the Postal Service, an independent establishment of the executive branch of the U.S. government, looking at its financial health and what it charges customers such as Amazon for package deliveries, in a report due Aug. 10.

However, the White House has decided it will not yet release the report, forcing the Senate Committee on Homeland Security and Governmental Affairs to postpone a hearing on postal reform that was planned for Sept. 5, the sources said. One said the hearing was postponed “indefinitely.”

That means any legislation that raised the Postal Service’s rates on Amazon and other shippers has been kicked further into the future.

The task force briefed the president on its preliminary findings and recommendations earlier this month, a spokeswoman for the U.S. Treasury Department, which is in charge of the task force, told Reuters.

“The task force will continue our work to identify solutions to strengthen the USPS business model driving toward a public report before the end of the year,” she said. “It is clear that the governance of USPS must be fixed and we encourage Congress to take actions towards that goal.”

The rates the Postal Service charges Amazon and other bulk customers are not made public. Federal regulators that review contracts made by the service have not raised any issues with the terms of its deal with Amazon.

Trump’s attacks on Amazon have gone hand-in-hand with attacks on its founder and Chief Executive Jeff Bezos, who privately owns the Washington Post, which has published several articles critical of Trump’s campaign and presidency.

Trump has described the newspaper as Amazon’s “chief lobbyist.” The Washington Post’s top editor has said Bezos has no involvement in its news coverage.

The president’s tweets attacking Amazon temporarily knocked down its stock earlier this year on fears that government action prompted by Trump might hurt the company’s profits. The shares have since recovered and Amazon is on track to become only the second U.S. publicly traded company with a stock market value of more than $1 trillion, alongside Apple Inc (AAPL.O).

Amazon did not return a request for comment.  The retailer and cloud-computing firm is only one of several that have attracted Trump’s ire. He attacked Boeing Co (BA.N) over a previous Air Force One deal. Earlier this week, he accused Alphabet Inc (GOOGL.O) subsidiary Google’s search engine of promoting negative news articles and hiding “fair media” coverage of him, without presenting evidence.

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