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Analyst Accuses USPS Of Giving Amazon Huge Subsidy

One shipping industry watcher is accusing the United States Postal Service of effectively subsidizing the price of shipping Amazon’s packages.

According to Fortune, Josh Sandbulte, who is also a money manager, the USPS has gone beyond just agreeing to offer Sunday delivery for the online retail giant. In an opinion piece in the Wall Street Journal, Sandblute explained that Congress has prohibited the USPS from setting its parcel prices below its costs to keep it from unfairly undercutting competitors like FedEx and UPS. But the formula for calculating those costs was set in 2006, and it hasn’t kept pace as packages make up a higher and higher percentage of USPS volume.

So while the law set the share of infrastructure costs associated with packages at 5.5 percent, boxes now make up about 25 percent of USPS revenue. And an April analysis by Citigroup found that if package delivery shouldered its fair share of Postal Service system costs, each box would cost $1.46 more to deliver.

While that “subsidy” is systemwide — and USPS has courted other large eCommerce companies — Amazon’s size means that it receives a much bigger benefit, shipping around 40 percent of its deliveries with USPS. In Sandbulte’s view, this means the Postal Service is “picking winners and losers in the retail world.”

It is important to note, however, that Sandbulte’s investment firm holds FedEx stock, so he has a direct interest in critiquing the USPS. And while he describes the pricing situation as “a gift card from Uncle Sam,” implying there’s tax money involved, the USPS doesn’t actually receive tax revenue.

In addition, USPS’s legal duty to provide universal service means that even at a discount, shipping boxes for Amazon helps it generate revenue from potentially unused capacity. Fixed costs aside, USPS package delivery is profitable, helping subsidize rural service and letter delivery.

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