E-commerce Shipment Costs to Rise
Two recent and important developments will impact domestic and international e-commerce shipments. The first one concerns the U.S. Postal Service’s relationship with Amazon. Let me set the stage.
The Postal Service lost $2.7 billion in 2017. U.S. taxpayers guarantee the perennially stressed postal worker retirement fund. And first-class mail receipts are off by $1.8 billion YoY vs. FY 2016. Losses have been going on for decades.
Back in 2013, reacting to the reduction in profitable first-class mail as consumers and businesses switched to email, the USPS floated the idea of eliminating Saturday delivery. They never did. Today, in the era of an explosive increase in e-commerce deliveries (Prime-arily Amazon), the Postal Service went in the opposite direction—they make deliveries on Saturday and Sunday, contributing to the past year’s losses.
The Amazon rate agreement with the Postal Service has expired. For many, it seems unfair that huge e-commerce postal customers use cheap and plentiful Uber-like final-mile delivery services instead of the Postal Service in high-density urban areas (see bit.ly/GrimyMile). Yet where there is no Uber delivery density in the suburbs, and especially in rural areas, the Postal Service is the go-to for final-mile delivery.
The Trump administration wants the Postal Service to charge Amazon more. The USPS agrees, floating a 9- to 12-percent rate increase idea. One approach to normalize parcel rates, given the continuing increase in e-commerce shipments, is to consider charging Uber-competitive rates in urban areas, and significantly more where no Uber density exists, given the higher costs of those deliveries to the USPS. Bottom line: Domestic e-commerce delivery costs will rise, and the Postal Service should not subsidize Prime deliveries.
The second development concerns the Trump administration’s intent to withdraw the United States from the Universal Postal Union (UPU). Why? "Reciprocity." The USPS in effect subsidizes hundreds of millions of inbound e-commerce shipments to the United States each year. Parcel shipments from Shanghai to New York often cost less than similar parcel deliveries from Los Angeles to New York.
Every president since Ronald Reagan complained about this inequity, but was unable to do anything about it. Until now. The National Association of Manufacturers and U.S. e-commerce companies laud the position.
UPS dialed in: "UPS believes the Administration took the right step in addressing the inequities of the UPU system," said David Abney, chairman and CEO of UPS. "Foreign postal operators should not be given government approved advantages in what is a competitive market. All parties should pay the same parcel delivery rates for the same services from the U.S. Postal Service, regardless of whether the country of origin is foreign or domestic."