Amazon shares fall four percent as Trump renews attack

[FarCenter]

(Reuters) - Shares of Amazon.com Inc (AMZN.O) fell 4 percent on Monday after U.S. President Donald Trump again attacked the online retailer over the pricing of its deliveries through the United States Postal Service and promised unspecified changes.

“Only fools, or worse, are saying that our money losing Post Office makes money with Amazon,” Trump tweeted.

“They lose a fortune, and this will be changed. Also, our fully tax paying retailers are closing stores all over the country...not a level playing field!”

...

Details of Amazon’s payments to the U.S. Postal Service (USPS) are not publicly known, but some Wall Street analysts have estimated it pays the postal service roughly half what it would to United Parcel Service Inc (UPS.N) or FedEx Corp (FDX.N) to deliver a package.

“President Trump’s comments are consistent with industry sources we have spoken to in the shipping industry, who often label Amazon’s deal with the USPS as a sweetheart deal,” DA Davidson analyst Tom Forte wrote in a note.

“An argument, however, could be made that the USPS was losing billions before it expanded its service offerings for Amazon and would, still, likely lose billions if Amazon discontinued its use of the USPS tomorrow,” Forte said.

https://www.reuters.com/article/us-amazon-com-trump/amazon-shares-fall-four-percent-as-trump-renews-attack-idUSKCN1H9185

Trump's information appears to come from this Fortune article.

This Analyst Claims the U.S. Postal Service Is Giving Amazon a Huge Subsidy

According the Sandbulte, Congress has barred 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, set in 2006, hasn’t kept pace as packages have come to make up a higher and higher percentage of USPS volume. The law set the share of infrastructure costs associated with packages at 5.5%, but boxes now make up around 25% of Postal Service revenue.

Sandbulte cites an April analysis by Citigroup that put a price tag on the resulting distortion. If package delivery bore its fair share of Postal Service system costs, each box would cost $1.46 more to deliver. That “subsidy” is systemwide, and the USPS has courted other large e-commerce companies.

But Amazon’s size means that it benefits disproportionately, and ships around 40% of its deliveries with USPS. In Sandbulte’s view, this means the Postal Service is “picking winners and losers in the retail world.”

But Sandbulte’s investment firm holds FedEx stock, meaning he has a direct interest in critiquing the USPS, and his analysis is debatable on several points. He disingenuously describes the pricing situation as “a gift card from Uncle Sam,” which implies there’s tax money involved. But the USPS doesn’t receive tax revenues.

Additionally, 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. So there’s room for disagreement about whether the situation is actually unjust.

Amazon issued the following statement in response to Sandbulte’s claims: “As is the case with all of its customers, our partnership with USPS is reviewed annually by the Postal Regulatory Commission, which has spent decades reviewing and approving USPS costing and pricing practices. The Postal Regulatory Commission has consistently found that Amazon’s contracts with the USPS are profitable. Amazon has invested hundreds of millions of dollars in a network of more than 20 package sortation facilities that inject directly into the USPS last mile network bypassing most of USPS network. This investment resulted in more efficient processes as well as thousands of jobs and related economic benefits in local communities.”

http://fortune.com/2017/07/16/amazon-postal-service-subsidy/

Amazon's volume is likely fairly profitable on an "incremental cost" basis, i.e. the added volume is greater than the added cost. It may be unprofitable on a "fully allocated" cost basis in that it is not covering its fair share of USPS's fixed costs.

But I'd guess that FedEx and UPS would be happy to have the business back. My recollection of Amazon's early years is that most boxes came UPS. Plus, Amazon may get into delivery business and cut out the middleman, especially in the denser areas.

Amazon's Delivery Dream Is a Nightmare for FedEx and UPS

Amazon's ambition has been in plain sight for years. The company has built its own network of merchandise warehouses and package sorting centers. It enlisted its own airplanes and truck trailers to transport cargo. It registered to move freight across oceans, and in dozens of cities it tapped couriers to deliver packages directly to shoppers' doors.

[C_U_L8R]

1. Isn't this abuse of power??

Singling out an individual company and spreading bullshit and lies about it - tarnishing their reputation and driving their stock down. This from a President? Amazon should sue him. Every Amazon shareholder should sue him. It's really not right.

[Ferrets are Cool]

3. It is illegal. The bigger question is who is going to stop him. nt

[TexasProgresive]

2. As of this time the DJ is -1.28%, NYSE is -1.20% and the NASDAQ is -2.29%

tRump seems able to crater the whole market not just Amazon. But do you think some of us should invest in Amazon? I can't as I just spent $400.00 at Amazon yesterday on something totally frivolous.

[RKP5637]

4. Here, Amazon delivers everything with their own fleet of trucks, 7 days a week. Nothing comes by

USPS, FedEx, UPS or DHL.