Will Trump destroy home delivery when Americans need it most?
With COVID-19 causing Americans to shelter in their homes and shutting stores coast-to-coast, the need for safe deliveries of essentials to our doors is, itself, essential. President Trump, however, is trying to force the U.S. Postal Service (USPS) to impose what amounts to a “package tax” on deliveries, demanding significantly higher delivery rates that would be borne by already beleaguered and often-unemployed Americans.
In the CARES Act, the administration refused to provide emergency appropriations to USPS to cover COVID-19 related losses. Instead, the administration only agreed to a $10 billion emergency credit line and even then only if the Postal Service agreed to Treasury-imposed conditions. So if USPS refuses to increase shipping rates, the president has said he will block access to this $10 billion emergency credit line approved by Congress. This would likely lead to the Postal Service’s collapse.
The president, who is under fire for showing favoritism in which companies get government contracts for ventilators or masks, seems to make no secret of why he wants USPS to charge higher rates. His target is Amazon CEO Jeff Bezos, who owns the Washington Post, a frequent Trump critic. “The Postal Service is a joke because they’re handing out packages for Amazon and other internet companies and every time they bring a package, they lose money on it,” But on USPS economics, he is entirely wrong.
In recent years, USPS has lost billions of dollars as receipts from delivering first-class and marketing mail has declined, and the COVID-19 crisis has reduced those revenues by perhaps an additional one-third.
Package delivery from the e-commerce revolution is the one area in which USPS hasn’t been losing money. Even Amazon, which has its expanding fleet of delivery vehicles, still uses USPS to carry many packages the “last mile” to the customer’s front door, bringing much-needed revenues to USPS. By law, USPS must charge Amazon and other shippers package rates that cover USPS direct costs like the mail carrier’s time delivering packages, and at least 5.5 percent of fixed or overhead costs, for example, of the mail facilities. Shippers cover more than 20 percent of those costs. Postal Service revenues from delivering packages rose from $21.5 billion in fiscal 2018 to $22.8 billion in 2019.
Forcing USPS to raise rates on e-commerce shippers would foist those higher rates ultimately on Americans ordering online just at a time when unemployment is skyrocketing, paychecks are disappearing, and package delivery is the only lifeline for millions attempting to survive the crisis. The president called for rates to increase four or five times! This will undoubtedly stir up public anger.
Also, the Americans most impacted will be those in less urbanized areas, where USPS rather than UPS and FedEx trucks deliver most packages. Many merchants in these areas that also rely more on USPS, now can only ship items purchased online because their businesses are closed to walk-in customers. And these areas are traditionally Trump country. Does this administration want to alienate its political base in Ohio, Wisconsin, Pennsylvania, Kentucky and elsewhere?
Further, UPS and FedEx would likely deliver more of their packages on their trucks, bypassing USPS and meaning less money in its coffers. So the USPS would be in no better shape, and American businesses and consumers would suffer.
The president should celebrate Amazon’s and other companies’ efforts to keep Americans supplied with essentials during this crisis. He also should recognize that for millions of small businesses, selling online is the only way they can hang on right now, and an unnecessary “package tax” will put them in even greater peril. And he should acknowledge that the Postal Service is a lifeline to Americans stuck at home.
But he is also right that the Postal Service, which has been bleeding money, needs serious reform. USPS should immediately cut costs, stop hiring, and outsource where it can gain efficiencies. But opposing an emergency appropriation, or blocking it from borrowing from its credit line, when Postal Service delivery efforts are most needed and when its survival is on the line, makes no economic or political sense.
Edward Hudgins is a senior fellow at The Heartland Institute and the editor of “The Last Monopoly: Privatizing the Postal Service for the Information Age and Mail @ the Millennium: Will the Postal Service Go Private?”