Dear Thinker:

Below is good journalism in yesterday's WSJ about Trump being right that the Post Office is subsidizing Amazon and other delivery companies.  To add insult to government incompetence, there was no first-class mail service yesterday because of George H.W. Bush's funeral, as if the cost of the funeral itself wasn't enough--and as if he was some sort of potentate.  Not only did most taxpaying serfs have to work, but they couldn't get any first class mail.  But the Post Office did deliver Amazon packages yesterday.  I'll betcha that 99% of reporters didn't notice the contradiction. 

Cheers,

Mencken's Ghost

Postal Service Review Proposes Sweeping Changes Likely to Hit Amazon

The report calls for raising prices for many types of commercial package deliveries

By

John D. McKinnon and

Paul Ziobro

The Wall Street Journal, Updated Dec. 4, 2018 8:18 p.m. ET

WASHINGTON—A Treasury-led task force is proposing that the U.S. Postal Service charge more for certain package deliveries, going after Amazon.com Inc. and other online retailers that President Trump has said benefit at the post office's expense.

The Postal Service hasn't priced package deliveries with profitability in mind, according to the task force's report released Tuesday. It said the agency should be able to charge market-based prices for mail and package items that aren't deemed essential services. The report, requested by Mr. Trump in April, recommended raising prices for many types of commercial package deliveries, a growing business for the Postal Service.

Mr. Trump has often claimed on Twitter that the Postal Service has given a sweetheart arrangement to Amazon, which he blames for unfairly hurting bricks-and-mortar retailing. Mr. Trump also has clashed with Amazon founder Jeff Bezos over coverage of his administration in the Washington Post, which is owned by Mr. Bezos.

"Only fools, or worse, are saying that our money losing Post Office makes money with Amazon," Mr. Trump tweeted in April before signing the executive order calling for the report.

Amazon declined to comment on Tuesday. Since Mr. Trump's election, Amazon and Mr. Bezos have largely avoided responding directly to Mr. Trump's tweets about them.

Higher rates on package services would hit Amazon, which Morgan Stanley estimates relies on the Postal Service to deliver up to 45% of its packages. Analysts have estimated it's cheaper for Amazon to use the Postal Service than traditional carriers such as FedEx Corp. and United Parcel Service Inc., because the online retailer primarily injects sorted packages into the Postal Service network, paying for only the last leg of delivery.

FedEx and UPS would also be subject to the higher rates, as they often use the Postal Service for last-mile delivery. The two carriers would likely offset higher costs by passing them on to large shippers, including retailers such as Target Corp. and Walmart Inc. The Postal Service's parcel rates have long been viewed as a floor for shipping rates. Analysts view higher rates ultimately as beneficial to the carriers.

The Package Coalition, a group that includes Amazon, the National Retail Federation and several big direct-mail firms, said in a statement it was concerned that the task force's recommendations would harm consumers, large and small businesses, and rural communities "by raising prices and depriving Americans of affordable delivery services."

The report concludes that the Postal Service isn't correctly assessing the costs it incurs in delivering packages for companies like Amazon because it hasn't sufficiently updated its formula to reflect the rapid rise in package volumes and the decline in mail volumes.

The Postal Service has said it doesn't lose money on its shipping contracts, pointing to annual regulatory reviews that show the agency more than covers its costs, as required by regulations. However, some shippers, like UPS, have argued that the methodology for determining the costs needs revision.

Also, the Postal Service is already planning to hit Amazon, FedEx and UPS with significant price increases. The agency has received approval to raise prices on its Parcel Select service between 9.3% and 12.3%, starting early next year. Under that service, large shippers sort packages themselves and deposit them directly into the Postal Service for home delivery.

Tuesday's report didn't provide details on how much more USPS should be charging customers. It recommends rethinking the definition of what qualifies for the Postal Service's so-called universal-service obligation, a legal requirement that it deliver everywhere in the U.S. Senior administration officials on Tuesday made clear that strictly commercial packages—as well as commercial mail such as catalogs—shouldn't be covered by universal service.

That would mean those services wouldn't be covered by government protections such as price caps. But administration officials insisted that any solutions shouldn't disadvantage rural areas by treating them differently from urban areas.

Many of the report's recommendations could be implemented by the Postal Service's existing leadership, senior administration officials said. Those changes "would affect the entire e-commerce market," one administration official said.

The USPS was reviewing the recommendations and will take "all appropriate actions within our control" to fulfil its mission of providing fast and reliable service to all American businesses and consumers, Postmaster General Megan Brennan said in a statement.

The American Postal Workers Union sharply criticized the report. APWU President Mark Dimondstein said the recommendations would slash universal service, reduce delivery days and "hurt business and individuals alike."

USPS leaders have long advocated for greater leeway in setting some rates, including on so-called market-dominant products like first-class mail where it has a virtual monopoly. The agency and some big businesses have also called for a legislative overhaul that would change how it accounts for USPS retirees' future health benefits, a calculation that makes up the bulk of annual losses.

The report rejects the idea of scaling back the Postal Service's obligation to pre-fund its huge retiree health liabilities. "The Task Force does not believe that this general policy should change or that the liability for USPS retiree health benefits should be shifted to the taxpayers," the report says.

Art Sackler, manager of the Coalition for a 21st Century Postal Service, which represents companies and other groups that rely on the postal system, said any proposal must address overhauling the pre-funding of retiree health benefits. "The existing mail and packaging price caps remain fully functional if retiree health pre-funding is adequately addressed through bipartisan legislation that enjoys broad stakeholder support," he said.

The Treasury-led study also generally steers clear of privatization, and plays down the idea of allowing the Postal Service to get into banking-type services, given its "narrow expertise and capital limitations."

The Postal Service faces significant financial challenges. It has been losing money for more than a decade and is on an unsustainable path, the report says. The USPS is forecast to lose tens of billions of dollars over the next decade and currently has $89 billion in liabilities versus $27 billion in assets, for a net deficit of $62 billion.

Revenue has been declining in the shift toward digital correspondence. Many officials worry that a taxpayer-funded bailout will be required without action.