Unsanitized: Does Amazon Rip Off the Postal Service?

Plus, the Heroes Act becomes ridiculous. This is The COVID-19 Daily Report for May 15, 2020.

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First Response

I believe I was the first to report that Ronald Stroman, the deputy postmaster general and number two in the hierarchy, was forced out of his job on Monday. That has now been widely reported and the USPS made it official in a regulatory filing Wednesday, but I mentioned it Tuesday on Twitter. I didn’t have much else to add; Louis DeJoy, the Trump donor and new postmaster general, was always going to get his own number two. But Stroman, who’s still listed on the USPS website, was an important figure, the top deputy at the postal service since 2011. The Lawyers’ Committee for Civil Rights Under Law called for oversight hearings, saying in a statement that “Stroman’s untimely departure signals deepening chaos and disruption inside the Postal Service at a critical moment during the 2020 election season.”

One of Trump’s allies said the quiet part loud about Stroman’s departure. J. Christian Adams, a notorious voter suppression architect, exulted in his demise, saying he “was working at cross purposes with @realDonaldTrump on #VoteByMail… got booted, the hard way.”

Adams is just talking his book though; more than anything, the putsch inside the Postal Service (remember vice chair of the Board of Governors David Williams has also resigned) is about trying to hit Amazon in the pocketbook by raising rates on package delivery, because of animus with Jeff Bezos over his ownership of the Washington Post. Sure enough, the Postal Service is now reviewing its package delivery contracts, succumbing to the influence of the Trump administration, which is dangling a $10 billion line of credit over its head while revenue craters during the coronavirus crisis.

The use of government to punish a perceived enemy is obviously inappropriate. But one thing is being glossed over here: is the Postal Service getting ripped off by Amazon, as Trump claims? And the answer to that is “maybe.”

Read all of our Unsanitized reports

First of all, it’s important to note that we’re talking about a relatively small number of packages. Amazon (and all ecommerce sites, and even rival shippers UPS and FedEx) borrow the Postal Service’s universal infrastructure to every mailbox in the U.S. for “last mile” service. In hard-to-reach areas that last mile could be hundreds of miles, and it’s extremely cost-prohibitive for the Amazons of the world to do it themselves. Of course, those hard-to-reach areas are home to fewer people, and in metro areas Amazon has built out its own shipping network; it delivers roughly half of its own packages. Amazon generally delivers the cheap-to-deliver packages itself in dense, urban zip codes, and pushes the more expensive ones onto USPS.

Even there, you have to subtract out 70 to 80 percent of the volume, because those packages weigh less than one pound. The USPS has discounted contracts with big customers for bulk shipping—known as “Negotiated Service Agreements”—but all packages under one pound fall under a “Parcel Select Lightweight” contract, which is uniform among all shippers. There’s no discount given to Amazon or anyone for those. (Volume does not equal value; it’s more expensive to ship larger packages.)

So at issue is a small portion of rural or remote delivery, and a portion of the packages on those. Amazon is pretty clearly getting subsidized on that subset of its shipping. While 20 percent of all packages go to rural areas, Amazon’s internal service only ships about 11 percent to rural zip codes. USPS picks up the slack there. It could be as much as four times the price for Amazon to deliver a rural package than a suburban or urban one. That’s the level of the subsidy, on a fraction of total packages delivered.

If you believe Amazon has no other way to reach those customers with its own delivery network, then yes, they could stand to pay higher prices. “Amazon should pay the actual cost of those rural routes, that is where the USPS should play hardball,” says Shaoul Sussman, a fellow with the Institute for Local Self-Reliance. Sussman believes that USPS will end up shipping orders in those areas even if Amazon stops using the postal infrastructure. “What will happen is that sellers on the platform will simply begin to buy postage directly from USPS,” he says.

The Postal Service could also stop prioritizing Amazon packages and offering Sunday delivery, which they do for no other client. If they denied Sunday delivery on that subset of packages, Amazon wouldn’t have many options.

Now, this wouldn’t break Amazon. The cost would likely be absorbed by third-party sellers and customers, and again, it’s not that many packages. I think Amazon is more in trouble with smaller e-commerce and local delivery services, as everyone catches up to their networks and learns delivery amid the pandemic. Your corner store will always be able to deliver faster than the Amazon warehouse, if they pay attention to it.

But could the Postal Service make some more money from Amazon without affecting their revenue? Yes.

Odds and Sods

I was on the BradCast with Brad Friedman talking pandemic response, you can listen here.

I had a long conversation on The Discourse podcast, we covered a number of topics, it was fun. Listen here (it may be paywalled for a couple more days).

At the Prospect, Alex Sammon writes that we are at the dawn the BlackRock era, as the asset manager giant is poised for post-pandemic dominance. Terri Gerstein explains how cities and states can step up on occupational safety and health enforcement, in the absence of federal action. Brittany Gibson interviews the Republican Secretary of State in Washington, where they have all vote by mail. And Sarah Jaffe highlights the strange phenomenon of “negative PTO,” where workers overdraw their paid time off and have to pay it back to the company, even if they’re laid off.

All of our coronavirus stories can be found at prospect.org/coronavirus.

We Can Be Heroes

The Heroes Act gets a vote in Congress today, and I am still marveling at the incoherence of it all. The manager’s amendment released last night only adds to the confusion. I have no idea what anyone’s trying to accomplish here.

For example, the bill scales back the K Street bailout, by prohibiting 501(c)(4) dark money groups that run political ads from getting PPP forgivable loans. But the (c)(6) trade groups are still eligible (technically their registered lobbyists cannot be part of the payroll equation, but their other employees, directors, and support staff can). This is at least straightforward corruption: data from the Democratic Policy Center shows that trade association PACs “have donated at least $191 million to current lawmakers.” So of course they’re getting a free money kickback.

The other big change is less explainable. The initial bill had up to $10,000 in student loan forgiveness for all borrowers, a position taken by presumptive Democratic nominee Joe Biden. The Congressional Budget Office scored this around $250-$300 billion, more than the House leadership expected. (We know how many people have student loans and we know how much $10,000 is, I don’t understand the surprise.) So Democrats scaled it back to cover only “economically distressed” people, kind of an impossible standard. (If you’re making $50 in payments a month, or if you were laid off after March 12 because “economic distress” is defined pre-pandemic, you don’t qualify.)

This would save less than half the cost. So $100 billion or so. In a $3 trillion bill. That’s roughly 3 percent of the cost. A $3 trillion bill is appropriate but a $3.1 trillion bill isn’t? Only when it’s $3.1 trillion will criticism about “runaway spending” follow? What?

This puts Nancy Pelosi to the right of Joe Biden for the dumbest reason imaginable. Meanwhile the bill subsidizes COBRA for laid-off workers who lose health insurance, an unbelievably expensive proposition (about 50 percent more per person than putting the unemployed on Medicare, according to the Political Economy Research Institute at UMass). So cost is only a concern when you’re not propping up the private insurance industry.

This bill, pitched as a messaging effort, has now been made toxic for swing-district members. Every ad in the fall will come from it. Either they say no, and they are accused of voting to fire cops and teachers, or they say yes, and are accused of voting to bail out lobbyists and insurance companies. (And slumlords and debt collectors.) There’s no vision of what to accomplish; it’s a grab-bag of wish list policies and attempts at compromise with special interests, of moonshot spending and carefully trimmed and means tested measures.

What will happen is that this entire bill will be thrown out except for a fraction of the state and local fiscal aid, paired with capital gains tax cuts or whatever the Trump administration decides they want, and this sorry exercise will have done nothing but hurt re-election chances and expose Pelosi’s preoccupations. What a waste.

Today I Learned

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