In mid- April President Donald Trump signed an executive order creating a task force to study the United States Postal Service. Trump said that USPS is on "an unsustainable financial path" and "must be restructured to prevent a taxpayer-funded bailout." The task force will be assigned to study factors including USPS's pricing in the package delivery market and will have 120 days to submit a report with recommendations. Trump's claim the service could be charging more may not be entirely far-fetched. A 2017 analysis by Citigroup supports his claim by concluding that the postal service was charging below-market rates as a whole on parcels. Hopefully, the study will also bring into the light the fact the USPS provides companies shipping from China and many other places with super low rates while outgoing packages from Americans get slammed.
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Without a bit of transparency and hearing the opinions of a few learned souls with nothing to gain I have a difficult time thinking we are getting the whole unvarnished truth. Rather than presenting facts, the MarketWatch story sighted other Marketwatch articles and an article in the Washington Post that is owned by Amazon's CEO Jeff Bezos. The articles appear to circle around giving each other substance and collaborating that there was nothing to see here. One of the articles centered around comments from an analyst that was bullish the stock and had a buy rating on the stock who defended his position by saying that comments made by President Trump concerning the USPS losing money on packages they deliver for Amazon were motivated by hope it would damage Bezos
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Still, numbers can be manipulated to mislead and even before claiming this has happened it is important to recognize some deliveries are far more expensive to make than others. The contract between Amazon and the USPS is said to expire in October and in light of this President Trump has issued an executive order for an analysis of the U.S. Postal Service’s financial situation which should clarify what Amazon and others should be paying. As it continues to struggle with losses year after year the United States Postal Service is an example that something as basic as delivering a package can be costly and no easy task. This is especially true when you are responsible for taking it the last mile or to the doorstep located down the road, up the hill and through the woods in sparsely populated areas. Amazon started taking most of its packages directly to the Postal Service in 2013, a way of avoiding the expensive last leg of the delivery in high-density metro areas as well as on America's backroads.
The fact the USPS goes to these locations on a regular basis doesn't mean Amazon "deserves" the right to be able to tag along at the same rate they would pay for a package delivered across the street. The true or real cost of putting Amazon packages in the hands of consumers is not easy and forces us to circle back to another big issue and that centers around the cost to society and other American retailers. Any benefit to or claimed by the USPS is quickly negated by the cost of businesses and retailers forced to close all across America from unfair competition created by taxpayers subsidizing cheap deliveries for Amazon packages. It must be noted that the toll on communities is massive when local stores and businesses close and jobs are lost. While online sales have their place in the area of commerce local retailers and distributors of goods should not be put at a disadvantage.
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In January, Postal Service spokesman David Partenheimer wrote an op-ed in The Hill pushing back against calls for it to raise package rates saying,“Some of our competitors in the package delivery space would dearly love for the Postal Service to aggressively raise our rates higher than the marketplace can bear so they could either charge more themselves or siphon away postal customers,” however, this totally misses the point and confuses the real mission or mandate of the USPS and muddles American values. It is not the job of government subsidized entities to compete with free enterprise. While this highlights the difficulty of determining what is fair it does little to blur the fact some policies simply are not good for America.
The idea Amazon is entering the delivery business world should force any logical investor to question why their stock is trading at a PE 300 time future earnings. It is insane to think any "delivery company" can ever be worth such a high multiple. I almost have to laugh when people say the stock market has not disconnected from the economy and reflects the health of the American economy. Some investors remain oblivious to the fact much of the market gain has been in just a few stocks known as the FAANG stocks. These few stocks have far outpaced the rest of the market when it comes to gains in value. Both UPS and FedEx have over the years honed their delivery systems for maximum efficiency and cut cost to the bone. The packages these companies deliver are often far too valuable to trust to low paid employees that come and go through a revolving door. It is understandable that Amazon wants to mitigate shipping cost but to think they are going to do it on the cheap is a reach.
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Footnote; The articles below looks at Amazon's plans to enter the delivery business and why President Trump is so concerned about Amazon.