Monday, May 13, 2019

Study Refutes Trump's Claim That USPS Loses Money on Amazon

An independent government watchdog today seemingly refuted President Trump’s claims that the U.S. Postal Service loses “a fortune” on a sweetheart deal with Amazon.

The USPS Office of Inspector General released a study indicating that the Postal Service’s growing practice of entering into customized contracts with package shippers is paying off.

“The number of these 'Negotiated Service Agreements' (NSAs) has increased from 66 in fiscal year (FY) 2012 to more than 1,000 in FY 2018,” the report says. “In FY 2017, only five contracts lost money, down from 14 the previous year.”

“The Postal Service’s largest NSAs contribute the most financially.” The few money-losing contracts have been “mostly low-volume NSAs,” the report says, and the USPS and Postal Regulatory Commission typically take action to fix or terminate those deals.

NSAs are “solidly profitable” and “perform strongly for the Postal Service,” the Inspector General’s report states. The watchdog agency has often criticized the Postal Service severely on other matters.

The report was heavily redacted – enough to put even Attorney General William Barr to shame – to avoid any public mention of specific customers or any revelations that would help the USPS’s private-sector competitors.

But it clearly suggests that the Postal Service is making a profit on such major “Parcel Select” customers as Amazon, FedEx, and UPS.

Though there are only 24 Parcel Select NSAs, the report indicates that they have as much volume and generate more revenue and profit than any of the other four types of domestic-shipping NSAs.

“Parcel Select is generally used by consolidators and large shippers who can presort packages and drop them off by the truckload at postal facilities that are close to the final destination, paying a lower rate based on how close they get the packages to their delivery point. The Postal Service takes the packages the ‘last mile’ and delivers them to their ultimate destination,” the report explains.

In other words, because these shippers handle everything except for the last mile, they are profitable for the Postal Service even though they pay less than does someone who drops off packages at her local post office for delivery in another state.

Parts of the report were heavily redacted.
“NSAs are a tool to better meet customer needs when some aspect of the Postal Service’s off-the-shelf offerings does not,” the report says. Private-sector competitors have similar practices:

“Most carriers offer discounts to certain classes of clients, such as new customers or high-volume shippers. As a result, carriers can charge very different prices for delivering the same package to the same destination.”

“Many NSAs bring in new customers that were previously shipping with another carrier,” the report says. “So long as those deals cover their costs, any product-level profits they generate would improve the Postal Service’s bottom line because the profit is based on new volume.”

But when a customer already does most of its shipping with the Postal Service, an NSA may reduce prices in a way that makes the customer less profitable, the report notes.

The report doesn't address whether the Postal Service's cost-accounting practices are keeping pace with the rapid growth in package delivery or are accurately measuring the cost of such deliveries.

Related articles:


Alliance of Nonprofit Mailers said...

Whether they are "profitable" is not in question with the board and regulator checking that they cover cost. The more important and difficult question is whether they are anywhere near maximizing the potential profit. The heavily redacted OIG report doesn't seem to answer this question other than "solidly." A business can "lose" money relative to cost but it also can "lose" money relative to opportunity.

Anonymous said...

While these NSAs may appear to be profitable you need to peel the onion back a little further. The way USPS allocates their costs for financial reporting is under a lot of scrutiny. They have been accused of allocating way too much cost to their mail products and not nearly enough to the package business--inflating the benefits of their package operation to the public. For example, a majority of the cost associated with the USPS purchasing bigger vehicles to support the expanding shipping business gets allocated to mail even though the mail business continues to shrink. Trump has been made aware of these concerns and is the reason he continues to question the actions of the Postal Service.

Unknown said...

So why is the USPS broke? Management keeps cutting wages, and money for equipment, vehicles ,etc. where they need it the most, while they keep wasting money on the bonus and non-essential micro management programs.

Anonymous said...

As a USPS employee, a Rural Carrier, you are not delivering this overabundance of volume of parcels in a USPS vehicle (the Postal Truck everyone recognizes and sees deliver your City mail) we provide our own vehicle--SUV's, Jeeps, Vans, etc.--and receive an allowance on our paychecks for using our Personal Vehicle from USPS for gas, maintenance, insurance, etc. This explosion of the overabundance of parcels being dropped off to USPS by Amazon, UPS, FedEx, etc., those Companies have much larger van type vehicles and these parcels no longer fit in the Rural Carrier's SUV/Jeep/Van. That USPS is not accommodating the amount of parcels to deliver in 1 days work by implementing more USPS Mail Delivery Trucks to each route, the SUV's/Jeeps/Vans can no longer carry all the parcels to be delivered for each day.
And USPS has basically become a parcel delivery service, ask any Postal Worker about the amount of parcels being delivered today, it is an enormous amount compared to just a few years ago.
Not to mention, USPS with this large amount of parcels, now wants to pay employees LESS money for Each parcel to deliver, basically cut your pay to deliver more. And Amazon is the biggest business dropping off the largest amount of parcels, and the largest Sized parcels. USPS needs to purchase more Postal Mail Trucks for the routes to accommodate the deals they are making with these Companies for using USPS for their "last mile" parcel delivery service.
These companies are dropping off large parcels such as mattresses, bed frames, strollers, Amazon Pantry, including fishing poles longer than the SUV's/Jeeps/Vans, so you can see why the carriers in Personal Vehicles are unable to load up a days work into their delivery vehicle. And that is only the parcels we are speaking of, you still need room for the mail, magazines, large manila envelopes of Insurance Policies, etc. and then add space for your actual letter mail.
And the simple resolution is, the Post Office needs to provide more Postal Vehicles, and they do not spend the money to get the job done that they agreed to do with these Companies by taking on their parcel deliveries.
Typical government, sign Contracts with businesses to receive said amount of money but do nothing to update their service to get the job done, they have the funds, but spend it on bonuses to management instead of new equipment to get a job done.
Do not take the word of the OIG who does not deliver mail, their job is in an office somewhere that is nowhere near where the work is being done and has no idea on a day to day basis what comes into a Post Office nor how it gets out.

Anonymous said...

As a carrier, we are making 2 trips a day because we are full..USPS is loosing money!! costing more gas for the oversized packages. The trucks are blowing up and being rebuilt, they are over 30 years old! This is costing more money. When will you realize you ARE LOOSING MONEY?