For every Amazon package it delivers, the Postal Service loses $1.46

An old salesman joke: A salesman says, "We sell below cost." A customer asks how he can do that. "Simple," he says. "We buy below cost."

For a day or so last week, Jeff Bezos passed Bill Gates as the richest man in the world. And that's pretty much how he did it.

Bezos runs Amazon, which is primarily a shipping business. It relies on the U.S. Postal Service to deliver two-thirds of its packages. In many places now, it locates a depot near a post office, presorts the packages, and delivers them to the post office. The Postal Service, which has a monopoly on last-mile delivery, does the rest.

Bezos can sell shipping below cost because he buys it below cost. He buys below cost because of what the Journal piece termed "an unappreciated accident of history."

The Postal Service has a legal monopoly to deliver first-class mail and non-urgent letters. It is the only entity that can put something into a mailbox or through a mail slot. It is legally obliged to provide the service at the same level and price nationwide. That means, even with mail volume down 40 percent since 2006, the Postal Service still must visit 155 million mailboxes every day.

Since 2007, the Postal Service has been required to allocate 5.5 percent of its fixed costs to package delivery and to incorporate that into its pricing. That figure made sense then, but today, 25 percent of the Postal Service's business is package delivery. And thanks to features of the Amazon deal – such as Sunday delivery, grocery delivery, even delivery from fish markets to local restaurants – the expenses have climbed.

The Postal Service has made significant gains in automation and other cost-cutting moves. But the deals it is operating under are unsustainable. It's about selling something over and over and over again to your biggest customer — who also is one of your biggest competitors in spaces such as same-day delivery — for $2 when you should be charging 75 percent more.

If you're in a deal where you lose money and your partner profits wildly, maybe deal-making is not for you. When tax dollars are at stake — and they are, regardless of Postal Service protestations — we have an interest in assuring the deals the Postal Service makes serve it and not the richest, or second-richest, man in the world.

 Read more at Washington Examiner

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