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Amazon draining US Postal Service of money? Trump may raise shipping rates

Toluse Olorunnipa, Jennifer Jacobs & Ben Brody | B/ 15 Apr 18 | 12:44 AM

FILE PHOTO: US President Donald Trump. Photo: Reuters

President Donald Trump issued a surprise order on Thursday for his administration to study the U.S. Postal Service after his campaign manager complained to him that taxpayers were subsidizing Amazon.com Inc. at the expense of small businesses, according to a person familiar with the matter.

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It wasn’t clear whether Trump’s conversation with his campaign manager, Brad Parscale, proved to be the catalyst for the executive order. Even so, Parscale would’ve found a sympathetic ear in the president, who has inveighed against Amazon and its deal with the Postal Service in recent weeks.

Trump’s order calls for a commission -- to be led by Treasury Secretary Steven Mnuchin -- to examine the Postal Service’s finances, including its relationship with shippers like Amazon and the prices it charges them. The order didn’t mention Amazon, but it was interpreted as a first step toward turning the president’s rhetorical attacks on the company into policy. The stock fell about 1.2 percent on Friday.

Elaine Kamarck, director of the Center for Effective Public Management at the Brookings Institution said that increasing the cost of shipping would have a particularly strong impact on rural areas -- harming not only Amazon but also Trump because it would hit his political base.

“Imagine if you had to pay the real price of delivering to a farmhouse in the middle of Montana," Kamarck said. “That begins to add an awful lot of dollars to the price of their goods."

‘Destroying Small Businesses’

Trump has accused Amazon of draining the Postal Service of money it can’t afford to lose. The Postal Service has lost more than $65 billion over the past decade as Americans increasingly transmit messages online, according to the order.

Parscale has vented to Trump about the shipping issue for more than a year, and has taken his criticism public in recent weeks. His complaints center on arcane international shipping agreements, which he said were forcing American taxpayers to subsidize the company while hurting small businesses, said the person familiar with the matter, who spoke on condition of anonymity.

The order, however, focuses on domestic rates and delivery. It makes no mention of international agreements -- a role for the State Department.

Parscale told Trump, as well as White House aides and policy staff, about purported benefits Amazon and eBay Inc. receive in the form of subsidized rates on shipments from China and elsewhere, the person said. He said the benefits stem from the 144-year-old, 192-nation Universal Postal Union, now a part of the United Nations, which sets rates for international shipping, including discounts for developing countries.

“‘How about the fact that we subsidize large portions of @amazon’s and @eBay’s marketplaces with nearly free shipping from China and other countries destroying small businesses in America?" Parscale said on Twitter last week.

Limited Power

Trump hasn’t specifically commented about international shipping rates or the UN’s role in setting them. Trump didn’t say much in response to Parscale’s argument Monday, said the person familiar with the conversation.

“Amazon has the money to pay the fair rate at the Post Office, which would be much more than they’re paying now," Trump said to reporters at the White House earlier this month. “Amazon is going to have to pay much more money to the Post Office, there’s no doubt about that."

Yet Trump has limited power to reshape the Postal Service or increase Amazon’s shipping rates without an act of Congress, where many of his proposals have failed to gain traction. Trump will have an opportunity to appoint two additional members to the Postal Regulatory Commission later this year, but the five-member body already has reached its maximum of three Republicans. While the PRC helps set postal rates, it is bound by several Congressional mandates that limit rate hikes.

Amazon regularly uses the Postal Service to complete what’s called the “last mile" of delivery, with letter carriers dropping off packages at some 150 million residences and businesses daily. The company has a network of 35 “sort centers" where customer packages are sorted by ZIP code, stacked on pallets and delivered to post offices for the final leg of delivery.

The Postal Service has said it benefits financially from its relationship with Amazon, which is one of its largest customers. The task force will be required to submit a report to the president within 120 days with recommendations for “administrative and legislative reforms," according to the order.

Renegotiating international shipping rates through the UN would likely require action by the State Department. Earlier this week, Republican Senator Bill Cassidy of Louisiana proposed legislation that would require the secretary of state to negotiate the “elimination of all foreign subsidies for international postal shipments" by Jan. 1, 2021.

‘Universal Service Obligation’

A renegotiation of the international shipping agreements also might fail to hurt Amazon. A top global policy executive for the company, which has invested billions in its own distribution systems that compete with China’s mail, told Congress in 2015 testimony that the current low rates paid by China and others were “anti-competitive and discriminatory." The executive, Paul Misener, also urged the U.S. to pressure the UPU while pursuing bilateral talks with China that would allow its rates to rise to the U.S. level.

"There are ongoing controversy over this system," said Michael Plunkett, a former USPS official who serves as the president and chief executive officer of the Association for Postal Commerce. "In recent months, there’s been more and more attention to the fact."

Plunkett, whose group represents businesses and organizations that use the mail, said the “issue probably will be within the scope of items under review by this commission."

Plunkett said many potential changes, including the closing of post offices or reducing delivery, would have to go through a Congress during an election year, when lawmakers have already shown little appetite for such action.

The executive order requires the commission to examine “the expansion and pricing of the package delivery market and the USPS’s role in competitive markets."  It also calls for a fresh review of the definition of the “universal service obligation," which is a loosely defined mandate for the Postal Service to provide affordable service to all customers.

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