Proposed price changes which the United States Postal Service (USPS) has announced on letters, postcards and parcels, could cost Amazon more than US$1 billion in 2019, according to a
recent analysis by Credit Suisse.
USPS earlier this month announced it filed notice with the Postal Regulatory Commission - the body tasked with regulatory oversight of the agency - of proposed price changes to take effect January 27, 2019, if approved.
U.S. president Trump, a frequent Amazon critic, has often used Twitter tweets in the past year to blast what he deemed unfair practices at the e-commerce giant and its use of the Postal Service,
which he claimed was costing taxpayers "many billions of dollars" through subsidised USPS rates.
In a note, Credit Suisse analyst Stephen Ju wrote: "As we roll forward the sensitivity analysis to 2019, we arrive at a potential incremental shipping expense range of US$400 million to US$1.1 billion range with the assumption that 40% to 50% of U.S. packages are shipped via the Postal Service."
Package delivery firms might benefit should the U.S. exit the UPU
Based on the higher fees as well as rising labor expenses as a result of Amazon's minimum wage increase and moderating shipping volume, Ju cut his 2019 pro forma earnings per share estimate by nearly 19% to $34.99.
In a related development, however, Amazon and shippers such as FedEx and UPS could gain from the Trump administration’s announcement in mid-October that the U.S. will withdraw from the Bern, Switzerland headquartered Universal Postal Union (UPU).
The White House said it planned to leave the 144-year old international postal alliance, because of its “flawed system” which allowed developing countries like China to ship goods around the world more cheaply and put American firms at a disadvantage. It added that the pull-out could be retracted if the governing body would end the highly subsidised rates.
Advocating for a negotiated UPU solution
The move to withdraw from the UPU will not affect broader industrial supply chains because the postal pact covers packages of only 4.4 pounds or smaller.
While American manufacturers selling goods domestically through e-commerce would benefit if subsidies were lifted, some U.S. exporters have argued against withdrawing from the UPU, fearing that rates charged by foreign postal services could rise in retaliation and make their products less competitive abroad. Members of the International Mailers Advisory Group, including DHL e-commerce, have advocated for a negotiated solution within the UPU.
Solving the matter amicably
Meanwhile, UPU's Director General Bishar Hussein said the organisation was doing everything possible to solve the matter of the remuneration rates known as terminal dues. He noted that members had agreed on a proposal to adjust the timelines on the discussion on the remuneration related subject in order to present "a proposal to the Council of Administration by the April 2019 session.”
Mr Hussein reiterated his plans to meet with U.S. government representatives to further discuss the matter and said he hoped to resolve the matter amicably. “I would urge the U.S., and all members, to exercise flexibility while discussing this matter,” he added.
China not irritated by Trump’s plan to exit the UPU
The U.S. notification to leave the UPU takes one year to go into effect and in the meantime, according to officials, the U.S. will be negotiating with countries around the world to get to a point where it can self-declare its postal rates.
China, meanwhile downplayed the U.S. decision to quit the UPU. A Foreign Ministry spokesman was quoted as saying by the South China Morning Post that it regretted the decision, but China would continue working with all sides "to make our contribution to the development of the global postal service.”
According to Zhang Baohui, a professor of political science at Lingnan University in Hong Kong, America’s departure from the UPU was part of U.S. President Donald Trump’s strategy for the “all-out containment” of China but its significance, in comparison to the damage caused by U.S. tariffs on Chinese imports, would be limited.
Nol van Fenema
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