Published July 17, 2017
As a student of all things Amazon, a Wall Street Journal opinion piece, Why the Post Office Gives Amazon Special Delivery, caught my eye. Below are what I believe to be the highlights:
- The United States Postal Service (USPS) delivers Amazon’s packages well below its own costs; this subsidy is speeding up the collapse of traditional retailers in the U.S. and providing an inequitable advantage for Amazon.
- In 2007 the USPS determined that 5.5% of the agency’s fixed costs must be allocated to packages. A decade later, around 25% of their revenue comes from packages, though their share of fixed costs has not kept pace.
- Citigroup estimates that if costs were fairly allocated, on average a USPS parcels would cost $1.46 more to deliver.
- About two-thirds of Amazon’s domestic deliveries are made by through the USPS.
- With high volumes and warehouses near local USPS depots, Amazon enjoys low rates unavailable to its competitors, through the use of postal injection.
These numbers differ from my own calculations, but even if they are correct, they miss the point. The USPS exists as a legal monopoly to provide a uniform service to all residents. Due to mail volumes being down since the adoption of electronic communication, without package delivery the USPS would not exist. . The USPS has made the smart decision to fill up trucks that are legally obligated to deliver to every U.S. address and would otherwise be empty, and have kept the pricing at a point that will keep the much-needed volume in their network.
The article also describes Amazon as taking advantage of the USPS, while describing FedEx and UPS as companies trying to compete against a legal monopoly giving below-cost and favored service to Amazon. Anyone who has ever sent or received anything delivered by FedEx Smartpost or UPS Surepost, can see the misleading notion here. FedEx and UPS are using the exact same USPS service offerings, at similar rates to Amazon for final mile delivery. While most retailers do not have the volume necessary to do postal injection on their own, as long as they have a contract with FedEx or UPS (among many others), they have access to the same offerings that Amazon is utilizing.
It is not Amazon’s use of the USPS’s subsidized rates for postal injection that is giving them an advantage over other retailers; it is Amazon’s dense network of fulfillment centers, sortation centers, and retail locations, which have been intentionally located to optimize its utilization of the USPS. This is the real threat Amazon poses to other sellers. It is also a big part of the genius behind Amazon’s announced acquisition of Whole Foods. To understand the implications of this game-changing acquisition, sellers (an umbrella term I use for retailers, wholesalers, distributors, and brands anyone who sells a product), should read my newest white paper, Food Fight: Eight Truths About the New Era of Retail. Let’s stop worrying about how the USPS is delivering packages for Amazon (and everyone else) and focus on the real disruptors the “Everything Store”, Amazon, has implemented that legitimately threaten sellers everywhere.