Trump, Amazon in addition to the Postal Service: The story behind the tweet

See how Amazon packages ship with less than :60 in human hands

On Friday morning, President Donald Trump decided to take on the U.S. Postal Service.

“Why can be the United States Post Office, which can be losing many billions of dollars a year, while charging Amazon in addition to others so little to deliver their packages, creating Amazon richer in addition to the Post Office dumber in addition to poorer?” he wrote on Twitter. “Should be charging MUCH MORE!”

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The tweet gave Trump the opportunity to slam Amazon (AMZN), which has been a frequent target of his ire. nevertheless with the tweet, the president also waded into a long-running, Byzantine debate over how much the Postal Service should charge for its services.

In short: Trump can be likely right which the Postal Service charges less than the item definitely costs to deliver packages, in addition to Amazon can be one of its biggest customers. nevertheless which’s not the root of the agency’s fiscal problems.

First of all, the U.S. Postal Service can be unlike any some other business. the item carries a government sanctioned monopoly over first-class mail, which the item can be obligated to send to every corner of the United States for the cost of a stamp.

At the same time, the item competes with FedEx in addition to UPS to deliver parcels — nevertheless its rates are approved by a board appointed by the president, in addition to almost every aspect of its operations are governed by Congress.

With email replacing snail mail, which first-class mail business has declined dramatically — the item’s down by 40% since peaking in 2000. Meanwhile, the parcel delivery business has exploded. nevertheless the Postal Service hasn’t been able to compensate for collapsing mail volumes due to a 2006 law which capped cost increases at the rate of inflation in addition to also limited the proportion of its budget which could be devoted to its parcel business.

Related: UPS unveils Saturday delivery — in addition to 6,000 fresh jobs

Still, the Postal Service might be able to eke out a profit if the item weren’t for another way in which Congress has tied its hands: the item requires the agency to pre-fund its retiree health benefits in addition to count them as operating expenses. In fiscal 2016, the Postal Service brought in $69.4 billion in revenue, was liable for $5.8 billion in retiree health benefits in addition to reported a $5.6 billion net loss.

the item makes sense to look to package delivery as a way to turn those fortunes around.

An analyst note by Citigroup via April found which prices could have to go up by $1.41 per package in 2018 — or about 40% — to reflect the true cost of delivery. (Those calculations are based on an analysis by UPS (UPS), which along with FedEx (FDX) stands to gain enormously if the Postal Service raises its prices, so they should be taken using a grain of salt.)

which could be a big hit to Amazon, which can be one of the largest users of which parcel delivery service. The Citigroup analysts estimate which could add $2.6 billion to its current shipping costs, an increase of about 28%. Amazon did not respond to a request for comment.

Perversely, which could end up benefiting the Seattle retail behemoth. According to Citigroup, Amazon already gets bulk pricing discounts because of its enormous volume, in addition to can be rapidly building out its own distribution network, which will give the item more delivery options down the line. For which reason, the Citigroup analysts predict which a Postal Service cost hike could hurt some other retailers more than Amazon.

“Such a scenario should further increase Amazon’s cost advantage to consumers,” Citi’s note reads. “While the higher shipping costs could likely hurt Amazon’s margin inside short-term, increased purchase frequency in addition to customer density should benefit margins over time.”

Related: Trump budget could hit tens of thousands of federal workers

So, can be any of This particular going to happen?

inside short term, partially. The Postal Regulatory Commission just completed a year-long review of rate-setting policy, in addition to recommended which the Postmaster General be given the authority to raise rates a couple percentage points above inflation, which could bring the agency closer to breakeven.

Meanwhile, the Postmaster General has urged passage of legislation pending in Congress which could give the agency more control over its operations in addition to relieve the item of the burden of pre-funding health benefits. Looking forward, a coalition of unions in addition to public interest nonprofits have advocated for allowing the Postal Service to provide some other services, such as banking, through its vast network of post offices.

Trump has sway over the Postal Service. He’s made three board nominations, who are currently awaiting Senate action. By law, the item’s supposed to have nine appointed members, in addition to currently the item has none.

Correction: An earlier style of This particular article incorrectly stated the number of nominations the president has made so far to the Postal Service board.

sy88pgw (fresh York) First published December 29, 2017: 3:04 PM ET


Trump, Amazon in addition to the Postal Service: The story behind the tweet

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