SAN FRANCISCO, CA - JANUARY 04:  Amazon Prime boxes are seen in a bundle of recycled cardboard at Recology's Recylce Central on January 4, 2018 in San Francisco, California. Recycle centers are seeing a spike in cardboard recycling following the holidays after a record year for online retailers. The U.S. Postal Service estimates that they delivered ten percent more packages in 2017 with Amazon shipping over five billion items for Prime members.  (Photo by Justin Sullivan/Getty Images)
Retailers in the age of Amazon: Adapt or die
01:00 - Source: CNN Business
Washington CNN  — 

The Treasury Department released a long-expected proposal for overhauling the US Postal Service on Tuesday that stopped short of full privatization, an idea the White House floated over the summer.

President Donald Trump ordered the report in April after repeatedly attacking the Postal Service’s deal with Amazon, which he said on Twitter was “making Amazon richer and the Post Office dumber and poorer.”

The 70 pages of recommendations do not directly address contracts with individual shippers, which are confidential. But if implemented, they may result in rate hikes for Amazon and other large e-commerce companies, which pay the Postal Service to deliver packages to remote places that may otherwise be too expensive to serve.

The Treasury-led task force, which included various agency heads, consulted with associations that represent the Postal Service’s major users. They found little appetite for fully privatizing the agency, which could have undermined its current mission to serve rural America. The unions that represent postal workers have waged a months-long campaign opposing privatization, and business groups didn’t support the idea either.

But the task force did conclude that the Post Office should act more like a private business in some ways, including having the “authority to charge market-based prices for both mail and package items.” Currently, the agency is limited in how quickly it can raise rates, among other restrictions imposed by Congress that prevent it from adapting to a steady decline in the volume of first-class mail.

In the new business model the task force envisions, the Post Office would retain uniform prices for “essential services” like shipments of pharmaceuticals and government notices, to every address in the country. But it would charge more for “commercial services,” including advertising mail and most anything you might order on Amazon.

“Many of the Task Force’s proposed reforms to pricing, costing, and services are designed to create such a transfer of value from commercially oriented products to socially oriented essential services,” the report reads. “Although the USPS must still serve all citizens and businesses in the country, its goal with respect to commercial mailers and shippers must be to optimize long-term revenue based on market principles, rather than to ensure access to a rate-regulated, uniform government service.”

The Coalition for a 21st Century Postal Service, which represents business mailers including Amazon and eBay, cautioned against hiking prices for commercial products. Art Sackler, the association’s director, said that while the Postal Service’s package revenues are currently growing at a quick clip, FedEx and UPS are already stealing some of that business as online retail increases demand for deliveries in densely-populated areas.

“So the air may slowly go out of that balloon,” Sackler said. “And if you raise prices significantly, you’re going to do nothing but speed that up.”

While recommending that the Post Office explore alternative income streams such as charging other shippers access to post office boxes and selling hunting licenses, the report took a stand against allowing the agency to offer financial services. That idea that had gained traction in the Obama administration as a strategy to put the Post Office on sound financial footing while also providing access to checking accounts and small loans in underserved areas.

“When we measured the impact of postal banking could have, the communities that would most benefit are rural areas – Trump country, honestly,” said Mehrsa Baradaran, a law professor at the University of Georgia who helped Obama’s Treasury officials develop banking proposals. “What they’re saying is the Post Office should not add any more revenue sources, and then they project that the Post Office won’t have more revenue.”

The report also focuses on cutting costs, including personnel compensation, which is still higher than the Postal Service’s private sector competitors despite years of outsourcing and union concessions. One recommendation would eliminate collective bargaining over wages, which is currently the case for most federal government unions.

“This report calls for slashing universal service,” said Mark Dimondstein, president of the American Postal Workers Union, which represents 200,000 of the Postal Service’s 643,000 employees. “Recommendations would slow down service, reduce delivery days and privatize large portions of the public Postal Service. Most of the report’s recommendations, if implemented, would hurt business and individuals alike.”

Many of the actions outlined in the report, such as redefining what counts as an “essential” service subject to rate caps, could be accomplished through administrative action. But most changes having to do with the Post Office’s governance structure and employee relations would have to go through Congress.

Business groups have pushed the White House to support bills long pending in Congress that would address the requirement that the Post Office pre-fund its retiree benefits – which are the source of much of its apparent deficit – as well as make smaller tweaks to pricing and contracts with large mailers.

Comprehensive changes seem unlikely, however, even those now backed by the White House.

“Getting reform passed has been an elusive goal,” says Michael Plunkett, president of the Association for Postal Commerce, which also represents mailers. “Some of these things could be done through very targeted legislation that doesn’t seek to overhaul the Postal system.”