I have been following the criticism of the United States Postal Service (USPS) by President Trump very closely. According to Trump, Amazon is using the USPS as its personal delivery service for packages all the while underpaying the USPS for every packaged shipped. Trump believes that Amazon is “ripping off” the Postal Service.
In June 2018, I wrote an article where I outlined several recommendations related to the USPS. I also stated that a task force created at the request of Trump, was in the process of investigating the USPS to determine the facts regarding why the USPS loses billions of dollars annually.
(Read the article to learn more about the details related to how the recommendations I make in this article would actually be managed, the challenges of the unfunded liabilities of the USPS, and so forth).
Between 2007 and 2018, the Postal Service has experienced net losses totaling $69 billion. The Postal Service is expected to lose tens of billions of dollars over the next decade. As I stated in June “Donald Trump is correct in insisting that solutions be identified to end the losses and make the Postal Service sustainable and profitable.”
Overview Of The Task Force Report On The U.S. Postal System
The belief held by Trump that Amazon is ripping off the USPS was disproved by the task force. According to the task force report, the Postal Service is not correctly assessing the costs it incurs in delivering packages for companies like Amazon, but the Postal Service is not losing money shipping packages for Amazon.
The reason why the Postal Service is losing money is because Americans are mailing fewer and fewer First Class letters. Fewer letters being mailed results in the USPS generating less revenue. Delivering commercial packages for Amazon, eBay and other e-commerce companies and retailers isn’t able to make up for the lost revenue. Bottom line: the USPS isn’t generating enough revenue to cover its operating costs.
“The USPS’s business model — including its governance, product pricing, cost allocation and labor practices — must be updated in light of its current operating realities,” the report said.
Last month, the Postal Service reported a financial loss for the 12th straight year, citing declines in mail volume and the costs of its pension and health care obligations.
I believe a concept I refer to as Direct to Customer in Office (DTCO) would provide the USPS with a model to improve operational efficiency. I wrote about the concept in this article.
The task force identified several key recommendations that should be implemented to improve the operational efficiency of the USPS along with generating more revenue. Among the key findings is the need for the Postal Service to price package delivery to maximize profits instead of maximizing package volume. Simply put: The USPS should raise prices on each package delivered to cover all operating costs.
A pricing error I frequently uncover as a consultant is the inability of an organization to correctly price shipping. There is a significant lack of understanding within many companies regarding the science of logistics network optimization and the impact on costs. The USPS is no different.
Amazon and other retailers will resist price increases but the last mile delivery network of the USPS is so vast that retailers don’t have the luxury to abandon the USPS. Whatever rates the USPS deems necessary will be passed along to its commercial customers, including Amazon. (Amazon’s creation of a last mile delivery service run by entrepreneurs several months ago will have no material impact. Amazon must continue to use the USPS for years to come.)
In regards to the recommendation made by the task force, three in particular are noteworthy:
- Explore and implement new business lines that generate revenue, and that present no balance sheet risk to the USPS.
- As a means of generating more income, the mailbox monopoly could be monetized. (In other words, charge other delivery companies a fee to deliver products to a U.S. mailbox).
- Evaluate areas of USPS operations where the USPS could expand third party relationships in order to provide services in a more cost efficient manner (e.g., mid-stream logistics and processing).
Based on the recommendations contained in the report, I maintain my original recommendation to President Trump that I made in June 2018. President Trump, Amazon should run the USPS. Here’s why.
Amazon maintains a significant relationship with many government agencies in Washington, DC including the CIA through its AWS line of business. Amazon is actively pursuing a massive contract with the Department of Defense to move the Pentagon to the cloud. The $10B JEDI cloud contract is something Amazon wants to win very badly.
Amazon also recently selected a city near Washington, DC as a location for a new headquarters that will employ 25,000 people.
Instead of viewing Amazon as the problem, I strongly advise Trump to view Amazon as the solution. Specifically, I advise President Trump to work with Jeff Bezos and members of Congress to implement the following recommendations:
- Contract Amazon to convert the USPS to the cloud and run the USPS on AWS. (Contracts should be for a minimum of five years).
- Contract Amazon to run the day-to-day operations of the USPS. Give Amazon an option to acquire the USPS. (Privatizing the USPS is a recommendation that continue to be made after multiple reviews of the USPS).
- Sell the naming rights to mailboxes to Amazon and give Amazon the authority to define, design, remove, install, manage and maintain mailboxes. (This is significant in terms of allowing Amazon to leverage its lockers to modernize the Postal Service and provide consumers with a much better customer experience).
- Contract Amazon to identify the optimal business model whereby physical/online retail can be integrated into the Postal Service ecosystem to generate additional revenue. (This includes grocery and food delivery throughout the USPS delivery network as well as converting certain post offices to retail centers).
- Change the business model of the USPS from delivering mail to becoming one of the largest third-party logistics (3PL) companies in the United States. The last mile delivery network of the USPS has incredible value.
The task force has identified that massive changes need to be made to make the Postal Service profitable and sustainable. Frankly, many people see no reason for the USPS to exist but I highly doubt that Congress under any administration will vote to kill the USPS. Therefore, all recommendations should be evaluated and assessed. I do not presume to have the best ideas regarding the USPS.
It would be mandatory for multiple agencies to conduct audits of Amazon to ensure transparency of pricing and operations. Additionally, audits would have to be conducted to prove Amazon is providing equal service to all customers of the USPS including its largest competitors. The fears of Amazon not providing the best service to all customers is overblown.
One final point: Amazon isn’t the only company that I believe can run the USPS. Walmart, FedEx, UPS, XPO Logistics or a combination of several companies working together may be the best solution. I selected Amazon because of its growing business interests with the federal government, AWS, supply chain and logistics expertise and position as the largest e-commerce company shipping the most packages.
President Trump is wrong that Amazon is scamming the USPS but Trump was right to insist that an in-depth assessment of the USPS be conducted. There are no easy answers when it comes to the USPS. Now that the facts are in, I hope Trump will set aside his personal feelings towards Jeff Bezos and Amazon. Trump should leverage the report to drive his administration to find solutions.
Trump should also take action. Trump should contact Bezos and ask this question: “Jeff, how would Amazon run the Postal Service?”
Bezos and his executive team are supremely qualified to answer the question.