The Wall Street Journal pointed out on Friday that the United States Postal Service has long held a legal monopoly on first class mail. The exclusivity granted the United States Postal Service over first class mail comes with the responsibility of providing universal service. Each US citizen gets their mail at the same price and quality. However, as the volume of first class mail diminishes, the Postal Service must fill their spare capacity by shipping packages, and thus falling into competition with other delivery giants such as UPS and FedEx.
To ensure fair competition between the national postal service and private entities, Congress passed the Postal Accountability and Enhancement Act in 2006 prohibiting the sale of package delivery services at less than the cost.
Bottom line: It all adds up to another advantage for retailer Amazon.com
Amazon is putting small mom and pop retailers out of business because it’s near impossible to compete with the pricing offered by the mega-company that is slowly but surely getting into every industry possible. Although they started off as a book seller, Amazon now sells food, clothing, tools, server space, movies, and just about everything else under the sun. In some ways, the argument can be made that the USPS is helping Amazon kill the small retailer. The explanation given in the WSJ is extremely eyeopening:
In 2007 the Postal Service and its regulator determined that, at a minimum, 5.5% of the agency’s fixed costs must be allocated to packages and similar products. A decade later, around 25% of its revenue comes from packages, but their share of fixed costs has not kept pace. First-class mail effectively subsidizes the national network, and the packages get a free ride. An April analysis from Citigroup estimates that if costs were fairly allocated, on average parcels would cost $1.46 more to deliver. It is as if every Amazon box comes with a dollar or two stapled to the packing slip—a gift card from Uncle Sam.
Amazon is big enough to take full advantage of “postal injection,” and that has tipped the scales in the internet giant’s favor. Select high-volume shippers are able to drop off presorted packages at the local Postal Service depot for “last mile” delivery at cut-rate prices. With high volumes and warehouses near the local depots, Amazon enjoys low rates unavailable to its competitors.
The WSJ points out that around two-thirds of Amazon’s domestic deliveries are made by the Postal Service. It’s as if Amazon gets a subsidized space on every mail truck.
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