Business

Amazon and Others Form 'The Package Coalition'

Only a few days before a Trump task force is expected to recommend major U.S. Postal Service reforms, a group of ecommerce and logistics companies have formed a lobbying Coalition to take their case to the people and to Congress – to keep USPS delivery services “reliable and affordable”.

Amazon.com's distinctive shipping box. If Trump's task force has its way, the company may have to pay higher shipper charges to continue to bring it to your door. Photo: Scott Zhang, CC

Donald Trump has made no secret of his anger with Jeff Bezos, the owner of The Washington Post and CEO of ecommerce giant Amazon. Going back to April 3, 2018, he claimed that “the post office is losing billions of dollars… because it delivers packages for Amazon at a very below cost [sic]… And that’s not fair to the United States. It’s not fair to our taxpayers.” This is unfortunately another fact-challenged statement from Trump, since among other things it is not even legal for the U.S. Postal Service to sell shipping services at below cost.

That has not stopped Trump from setting up a task force some months ago to review USPS pricing on USPS postal service delivery fees. While that review is long overdue as ecommerce has completely changed retail shopping and package shipping in the last ten years, major ecommerce providers have a lot to lose if Trump’s task force raises rates by too much.

That is why on August 1 a group of major ecommerce retailers announced the proactive formation of The Package Coalition. The organization includes members from such companies as Amazon, Columbia Sportswear, Express Scripts (a pharmacy benefits management company), the National Retail Federation (an industry group representing retailers of all kinds), OSM Worldwide (a package shipping firm), Pitney Bowes, Publishers Clearing House and QVC (a major television shopping channel). The membership represents retailers, e-commerce and logistics companies who The Coalition refers to as the “millions of small, medium and large businesses that have harnessed the power of retail and he ability to sell online to further create jobs and contribute to the economic health of communities nationwide”.

As the lobbying group said in its formal announcement about the group, the goal of The Coalition is to “work proactively with policymakers and the public to highlight the importance of the postal delivery services to American businesses and consumers”. Among the many points The Coalition wants to remind the public is that in 2017 package shipping services “contributed an additional $7 billion to the Postal Service’s bottom line”.

John McHugh, chairman of The Package Coalition, said in the first statements announcing the new lobbying group that, “Reliable and affordable postal package delivery is a key engine of the American economy.  We support policy solutions to preserve this channel of commerce for all Americans, especially those in remote and rural areas that do not have consistently affordable alternatives to the Postal Service. Members of The Package Coalition partner with the US Postal Service to deliver their goods over the last mile to more than 150 million American homes and businesses.”

The Coalition has benefited significantly from two major business benefits for some time.

One was its ability to ship products across state lines without states collecting sales taxes, provided an ecommerce company had no substantial physical presence in the state they were shipping into. That rule, put in place in 1992 by a Supreme Court decision in the case of Quill Corporation v. North Dakota, stood for 26 years without change. It effectively allowed ecommerce providers to undercut local pricing of competitive goods for a long time. On June 21, 2018, in the face of a very different retail industry, the Supreme Court reversed that earlier decision on the grounds that much had changed. It is now legal for states to demand sales tax collection from companies shipping from out of state, regardless of whether they have offices in the state.

The second advantage of ecommerce providers was that the USPS has not changed the structure of how its package shipping rate overhead costs were allocated for a long time. Even as the mix of business within the USPS shifted and increased significantly to package shipping versus first class mail type services, it kept allocating overhead expenses – used to help calculate margins on shipping service fees it charged – based on the same mix of services it had in place years ago. That likely has resulted in lower cost fees on services than might have happened if overhead charges were calculated differently.

The combination of the lower allocated overhead charges and other business issues going on with USPS has caused significant financial problems for the Postal Service. According to the executive order Trump signed establishing the postal task force, USPS has lost $65 billion since the financial crisis of 2007-2009. It is also behind on proper funding of retiree health benefits for the service, something it is required by law to fund on its own.

The postal service task force is moving rapidly to complete its analysis and is expected to publish its recommendations report on August 10. Anticipating that those recommendations will hurt its members – and perhaps erroneously so – the Package Coalition has, according to McHugh, “sent out emails asking for meetings with both House and Senate members”.

McHugh hopes for a positive response from those members. He formerly served in Congress as chairman of the postal service subcommittee, so he knows the people, the politics, and much of the truth about the financial situation of the Postal Service. It is unlikely he will have much influence on the task force report, since there is only a little over a week before that gets published. But he, Amazon, and the other members of The Coalition are surely hopeful they will have a major role in influencing any changes in fee charges for USPS that Congress may eventually approve.

For a detailed review of the facts behind Donald Trump’s charges about Amazon’s alleged unfair low shipping charge arrangements with the USPS, please see “FACT CHECK:  Amazon’s Postal Shipping Rates”, published in Trillions.biz on June 7, 2018.