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US Postal Service price hikes could cost Amazon more than $1 billion

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6 years ago

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usps
The
US Postal Service has proposed hiking prices.
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  • The US
    Postal Service     has proposed
    price hikes     that could be a major blow to Amazon. 
  • Credit Suisse estimates the price hikes could cost Amazon
    up to $1.1 billion. 
  • The price hikes come after months of criticism from President
    Donald Trump, who argued that the Postal Service gives Amazon an
    unreasonably good deal. 

The US Postal Service’s proposed price hikes could be a major
blow to Amazon. 


Earlier in October, the USPS proposed a price increase of
12.3% for its lightweight parcel select service. Non-lightweight
parcel select prices would increase by an average of 9.3%. The
proposed price hikes would go into effect in January
2019 if they are approved by the Postal Regulatory
Commission.

Credit Suisse estimates the price hikes could cost Amazon
somewhere in the range of $400 million to $1.1 billion,
CNBC reports.

Parcel select is used by Amazon, as well as companies such as
FedEx and UPS, for “last-mile” package delivery. The USPS’ low
fixed costs and mandate to deliver mail to Americans make it an
ideal option to get a package from a fulfillment depot to its
final destination.

Amazon doesn’t seem too worried about the proposed rate
hikes, however.

“
We’re not expecting a material impact from
these rate changes in 2019,” CFO Brian Olsavsky said during the
company’s third-quarter earnings call on Thursday. 

Trump has criticized Amazon’s deal with the USPS for months.

“The Amazon Washington Post has gone crazy against me ever since
they lost the Internet Tax Case in the U.S. Supreme Court two
months ago,” Trump tweeted
in July. “Next up is the U.S. Post Office which they use, at a
fraction of real cost, as their ‘delivery boy’ for a BIG
percentage of their packages.”


Donald Trump Ivanka Trump
President
Donald Trump.
Carlos
Barria/Reuters

In April, Trump ordered
the formation of a task force to
investigate the USPS and what he called its “unsustainable
financial path.” The order said the USPS had lost $65 billion
since the Great Recession and needed to be “restructured to
prevent a taxpayer-funded bailout.”

A USPS spokesperson said in an email to Business Insider
earlier this month that the proposed price increase was not a
response to Trump’s criticism.

“The price increases reflect the best judgment of the Postal
Service Governors, who are seeking to establish new rates that
will keep the Postal Service competitive, while also providing
the Postal Service with much needed revenue,” the spokesperson
said.

The USPS reported a net loss of $2.7 billion on $69.6 billion
in revenue in 2017. Raising prices on shipping packages is seen
as one way to address this problem. Since Amazon is one of the
USPS’ biggest customers in the package-shipping business, Citi
estimates that raising prices could cost the e-commerce
giant billions
of dollars.

However, Amazon isn’t the only company that is getting a great
deal from the USPS through the parcel select service. Higher
costs will also be a blow to companies like FedEx and UPS.

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