Amazon Shipping Subsidized by the Government

Have you ever wondered how Amazon's Prime Shipping is able to even come close to being a good business model? Certainly there are some Amazon items that have a bigger ticket due to "free" Prime shipping, but there are surely some that don't. The Wall Street Journal is explaining some of the mystery behind shipping mayhem.

An April analysis from Citigroup estimates that if costs were fairly allocated, on average parcels would cost $1.46 more to deliver. It is as if every Amazon box comes with a dollar or two stapled to the packing slip—a gift card from Uncle Sam.

Amazon is big enough to take full advantage of “postal injection,” and that has tipped the scales in the internet giant’s favor. Select high-volume shippers are able to drop off presorted packages at the local Postal Service depot for “last mile” delivery at cut-rate prices. With high volumes and warehouses near the local depots, Amazon enjoys low rates unavailable to its competitors. My analysis of available data suggests that around two-thirds of Amazon’s domestic deliveries are made by the Postal Service. It’s as if Amazon gets a subsidized space on every mail truck.

How long did it take you to realize that "arrow" on the side of the box was a smile?

I used to think that was a smile till I realized it's supposed to signify "A to Z" meaning Amazon carriers or at least third-party supplies pretty much anything that's available in retail sectors. As for the shipping costs thing, not really a big surprise - the surprise is that it took someone like the WSJ to take so long to get around to doing some research into it I suppose.

I thought it was a boner.

I mean, if they are doing a lot of the work and dropping it close to destination, how is that a 'subsidy'

A to Z.
AmaZon.
AmaZing.
(Smile!)

Behind a paywall so I cant see the original article.

However I would assume that this isnt specific to Amazon and any large shipper would be able to get discount rates. Its just a case of Amazon making good business choices by taking advantage of bulk shipping prices.

Tiberian said:

I used to think that was a smile till I realized it's supposed to signify "A to Z" meaning Amazon carriers or at least third-party supplies pretty much anything that's available in retail sectors. As for the shipping costs thing, not really a big surprise - the surprise is that it took someone like the WSJ to take so long to get around to doing some research into it I suppose.

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It took me a heck of a long time to notice it was a-z, it only shows a-z with the smile a few different places on the website. I seriously was discussing this the other day when our prime membership came up, this article makes sense now! I figured they had a deal with all the major carriers and just took hits from accounts that actually shopped vs those that use it for streaming etc, so it balanced out. I wonder if the lower price to those on welfare is subsidized...sure seems like these large companies are double dipping. Like oh how Tesla is only afloat on taxpayers backs? Something is not right here, ain't how it's supposed to work.

Any competent logistics / supply chain professional would be or are doing this. No surprises here, pool distribution is very common.

kju1 said:

Behind a paywall so I cant see the original article.

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Strange, I do not get a paywall.

Yea I do not get how this is even remotely described as a "subsidy". The post office sells a service (last "mile" delivery) and amazon pays for that service. Everything in business is an economy of scale, ie the more you buy the cheaper it is. That is in no way a subsidy.

If another company wants to get the same price as amazon, all they have to do is build their infrastructure to deliver the packages to the post office and agree to deliver the same rough amount that amazon does a year.

Its an advocacy article from a fund that owns FedEx stock that wants postal rates to be higher....

The reality is that the last mile delivery by USPS is basically free money for the USPS. They are going to run the routes anyways, they are going to use the vehicles, the differential in fuel costs are basically non-existent.

thekipper said:

Any competent logistics / supply chain professional would be or are doing this. No surprises here, pool distribution is very common.

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But that is the point. Should we allow large monoliths to beat little startup competitors? And consume them?

We treat corporations as 'living entities' with rights and laws pertaining to them.

How would you feel if you were born into this earth with the likely possibility that you could become food for somebody else?

On a broader level, we should reconsider our economic priorities.
Shouldnt the economic motive be to 'maximize utility', not just 'maximize profit'?

Utility is different than profit and should include some level of human self worth.

Riouken said:

Yea I do not get how this is even remotely described as a "subsidy". The post office sells a service (last "mile" delivery) and amazon pays for that service. Everything in business is an economy of scale, ie the more you buy the cheaper it is. That is in no way a subsidy.

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Its even more than that, the packages arrive at the USPS locations pre-sorted for delivery by route. The USPS is literally loading stack A into truck A and doing their normal routes.

aaronspink said:

Its even more than that, the packages arrive at the USPS locations pre-sorted for delivery by route. The USPS is literally loading stack A into truck A and doing their normal routes.

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I know if anything this is a subsidy for the government. Hell if it was not for amazon the postal service would very likely be out of business.

bwanaaa said:

But that is the point. Should we allow large monoliths to beat little startup competitors? And consume them?

We treat corporations as 'living entities' with rights and laws pertaining to them.

How would you feel if you were born into this earth with the likely possibility that you could become food for somebody else?

On a broader level, we should reconsider our economic priorities.
Shouldnt the economic motive be to 'maximize utility', not just 'maximize profit'?

Utility is different than profit and should include some level of human self worth.

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I don't know if you have been paying attention to Amazon, but they've done everything but maximize profit. They have literally said multiple times that profit isn't their priority and their balance sheets reflect that. They operate on a razor thin margin in retail, lower than basically everyone else and generally also have better customer service and selection than anyone else.

If they are paying for sorting and destination hub drop off, they are saving the government a small boatload of money. Should they get a discount? The question is why not?

Why do you think Amazon opens so many warehouses in seemingly odd locations? To minimize shipping costs. No subsidy here, Amazon is just not using the "full services" of the USPS.

Anyone surprised by this doesn't know logistics. Hell Fedex and UPS uses USPS.

aaronspink said:

Its an advocacy article from a fund that owns FedEx stock that wants postal rates to be higher....

The reality is that the last mile delivery by USPS is basically free money for the USPS. They are going to run the routes anyways, they are going to use the vehicles, the differential in fuel costs are basically non-existent.

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Exactly. This isn't a subsidy, this is easy money for the postal system, and is actually HELPFUL to the bottom line of the USPS.

Remote regions get supplies they simply couldn't get at prices they would never pay. Here in Canada, Prime is a lifeline to places that can see $100+ prices on a box of diapers, or $12 for a jug of milk. The bottom line is that Amazon has done more to improve the quality of life in Iqaluit than any cynical, half hearted government program has ever done. Honestly, subsidising Amazon's activities in remote regions might be the most efficient way to normalise the standard of living.

The post is what it is, feeling that Amazon should somehow be punished for almost keeping the post office afloat is just idiocy. I realise that the very idea of paying it forward is "communist" and fuck everyone else but me, but the point of the post office is to standardise a level of service throughout a nation, and around the world. The same service levels are supposed available across the board, whether a company or a person.

Edit: As an aside, Canada Post doesn't use your packages for sports, target practice, as obstacles in a race, or as wheel chocks. So they're already better than UPS.

Package mangling bastards.

FedEx and UPS are slowly getting squeezed out of the Amazon logistics chain anyway, Usps is next, Amazon wants to be completely vertically integrated. That's the end game for them.

Agreed with the others this is definitely not a subsidy. It's really a click bait article IMHO.

sub·si·dy/ˈsəbsədē/
noun

1. a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive.
2. a parliamentary grant to the sovereign for state needs.

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Amazon is just using the tools available to it. If other businesses want to follow then they only have to invest in opening their own warehouses to ship to the local USPS like Amazon does and they will get the same discount Amazon does if they match their volume.

It's not a subsidy. They get cut rates because they do the pre-sorting and a lot of the handling that the PO doesn't need to do now. UPS/Fedex offers the same cuts and they are certainly not subsidizing any shipping for Amazon. Any large shipper can get the same rates but you need to be large enough to have semi truck loads of packages every day and have the sorting capabilities to pull it off.

In fact, even UPS and Fedex get the same cuts with USPS. Ever hear of UPS Surepost or FedEx Smartpost, it's the exact same thing. UPS/Fedex does the presorting, and hands off the packages to USPS for the last mile delivery.

UPS has stated many times that the last mile delivery is the most expensive for them and small parcels are not a money maker for the UPS.

It is a smile on the side of the box too. I remember some of the Amazon TV commercials catch phrase being the "Box that smiles back"

"Mr. Sandbulte is co-president of Greenhaven Associates, a money-management firm that owns FedEx common stock." explains this entire article.

And heck, even UPS does the same thing. I have 2 package coming in the next week where UPS delivers directly to USPS for last-mile delivery.

This is a way for the USPS to actually survive.

I talked about this with my wife because she was complaining about the SurePost and what not from UPS and USPS. For some companies they would send it to you starting with UPS but it would get sent to the postoffice and switch over to USPS and take an extra day.
I told her i can bet you that the USPS cut a deal with the other companies to get a cut of the cost to help their business. Remember not to long ago they were talking about ending Saturday mail deliveries, by doing this they are making up the costs by taking a small cut of each deliver from FedEx and UPS.
Amazon want to start their own delivery company anyway so this is just temporary.....the drones will soon be flying around. I didn't see anywhere in the article that said the post office was paying amazon to deliever packages thats not cost effective at all......the writer just made a blind statement based of their own thinking not of the fact that amazon is cutting costs by pre-sorting for USPS.
Totally agree that this is not subsidized but good cost management from Amazon.

Chaos Machine said:

FedEx and UPS are slowly getting squeezed out of the Amazon logistics chain anyway, Usps is next, Amazon wants to be completely vertically integrated. That's the end game for them.

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No, Amazon will work with USPS pretty much as long as they can/are allowed. Yes, in some locations, Amazon is increasingly doing the full delivery service, but this is primarily in big cities where there other business properties like Prime Now and Amazon Fresh already require then to have a local delivery network. But those services aren't viable outside of large metro areas.

If anything Amazon is subsidizing USPS.

kju1 said:

Behind a paywall so I cant see the original article.

However I would assume that this isnt specific to Amazon and any large shipper would be able to get discount rates. Its just a case of Amazon making good business choices by taking advantage of bulk shipping prices.

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i agree with you. this is not a subsidized business practice in most dictionaries

aaronspink said:

No, Amazon will work with USPS pretty much as long as they can/are allowed. Yes, in some locations, Amazon is increasingly doing the full delivery service, but this is primarily in big cities where there other business properties like Prime Now and Amazon Fresh already require then to have a local delivery network. But those services aren't viable outside of large metro areas.

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You aren't thinking outside the box, why do you think they have such a hard on for drone deliveries? They eventually want to remove people from the last mile. I can see drones being even more important to them in rural areas. We aren't there yet but I can see a day in the next 10-15 years where that is reality

I don't think the argument is that is ACTUALLY a subsidy....

But the post office generally operates at a loss, so really ANY company using their services as part of their for-profit service could be viewed as effectively getting a subsidy because the USPS is charging them less than market rate to conduct business.

Uvaman2 said:

I mean, if they are doing a lot of the work and dropping it close to destination, how is that a 'subsidy'

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"Subsidy" is a trigger word. They deliberately used it to generate clicks/impressions/whatever the fuck the buzzword these days is.

Uvaman2 said:

I mean, if they are doing a lot of the work and dropping it close to destination, how is that a 'subsidy'

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It's not a subsidy. The post office delivers mail along their routes every day, but their isn't enough volume of regular mail in these days of email to cover their costs. Postal workers drive their routes and deliver a small volume of regular mail. The way to make this more efficient is to increase the volume of deliveries so that the fixed costs are spread out across more deliveries.
So someone got the very bright idea of using the post office for the home delivery part of delivering packages since their workers were traveling the rout and making deliveries anyway. In order to get people to use their service they unsurprisingly have to price their services for less than what it would cost to have someone from say UPS deliver the same package. Otherwise it wouldn't be worth handing off the packages and dealing with an additional group handling the packages.
So yes, it does save Amazon money to use the post office to deliver packages to the home. Why would anyone use them it if didn't?
The Post Office is still losing money because they are required to offer service even where it is unprofitable to do so. However, if they were not delivering packages for other shipping companies and large retailers, they would be losing even more money, not less.
The only way to make the US Postal Service profitable is to allow them close unprofitable locations and allow them to set rates that will cover their costs in rural delivery areas. However that wouldn't work either, because setting the rates high enough to cover their costs would price them out of the market because their labor costs are higher than their competitors because Postal Workers get paid better and have better benefits than private delivery service employees.
The government is providing subsidies of a sort. They are subsidizing the costs of package delivery in some areas and they are subsidizing the pay that postal workers receive. Subsidizing the delivery costs in those areas is pretty much a necessity. Subsidizing the wages of postal workers above what others in the industry make is a policy decision that some support, some don't, but I don't see changing any time soon.
The USPS could raise their rates for delivering packages but with a large percentage of their costs being fixed, delivering fewer packages at a higher rate per package ends up bringing in less overall revenue and causes them to lose more money overall.

Pusher of Buttons said:

I don't think the argument is that is ACTUALLY a subsidy....

But the post office generally operates at a loss, so really ANY company using their services as part of their for-profit service could be viewed as effectively getting a subsidy because the USPS is charging them less than market rate to conduct business.

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There is exactly one delivery company receiving a subsidy and that is the USPS. They have to receive a subsidy because of the restrictions placed on them. They have to deliver mail to every household. They have to keep officers open even in areas where they are grossly unprofitable. They also have a unionized workforce and higher labor costs than any of their competitors.

Their costs for delivering to the home only vary a relatively small amount with the volume of packages. In order to operate most efficiently and in their case, lose the least amount of money possible, they have to keep package volume up around optimal levels.

If you want to have all package delivery services compete without subsidies, then the USPS would quickly go bankrupt and disappear. The USPS needs subsidies to survive, and they need package volume to be as efficient as possible and lose the least amount of money as possible. So the USPS has learned that they need price their delivery to home service for other transport companies low enough to make it worthwhile for those companies to use the USPS for some of their deliveries. If they price their service too close to what it costs other companies to deliver the packages themselves, then those companies won't bother with outsourcing package delivery to the USPS and will do it themselves, and then the USPS will lose even more money.

There are market forces involved, but the USPS isn't in exactly the same market as UPS and Fedex because they have different constraints, and the USPS has to attract delivery business away from other companies that don't have the same requirements of maintaining volume in order to remain efficient, or at least not close to the same extent.

Is it subsidized if they're paying USPS to simply do the last mile delivery? Sounds like a discount is warranted in that case. Why would they pay full load for doing a lot of the work.

Flatrock19 said:

There is exactly one delivery company receiving a subsidy and that is the USPS. They have to receive a subsidy because of the restrictions placed on them. They have to deliver mail to every household. They have to keep officers open even in areas where they are grossly unprofitable. They also have a unionized workforce and higher labor costs than any of their competitors.

Their costs for delivering to the home only vary a relatively small amount with the volume of packages. In order to operate most efficiently and in their case, lose the least amount of money possible, they have to keep package volume up around optimal levels.

If you want to have all package delivery services compete without subsidies, then the USPS would quickly go bankrupt and disappear. The USPS needs subsidies to survive, and they need package volume to be as efficient as possible and lose the least amount of money as possible. So the USPS has learned that they need price their delivery to home service for other transport companies low enough to make it worthwhile for those companies to use the USPS for some of their deliveries. If they price their service too close to what it costs other companies to deliver the packages themselves, then those companies won't bother with outsourcing package delivery to the USPS and will do it themselves, and then the USPS will lose even more money.

There are market forces involved, but the USPS isn't in exactly the same market as UPS and Fedex because they have different constraints, and the USPS has to attract delivery business away from other companies that don't have the same requirements of maintaining volume in order to remain efficient, or at least not close to the same extent.

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I'm not arguing for or against it....just is what it is. Airlines, over the road trucking companies, etc. all essentially receive subsidy to maintain the infrastructure they utilize for profit making.

Wasn't the USPS going to completely stop Saturday delivery before Amazon increased its USPS usage? Now I see them delivering packages every Sunday.

next you'll tell me all those mass (emphasis on MASS) mailed flyers and unwanted adds don't pay full price too!

But regardless of what they pay to USPS they are subsidized by the government. Free shipping? Well that costs the business something, oh hey look at what happens with tax time, they aren't taxed on earnings they are taxed on Earnings MINUS Expense, and guess what goes in the expense column?

sfsuphysics said:

next you'll tell me all those mass (emphasis on MASS) mailed flyers and unwanted adds don't pay full price too!

But regardless of what they pay to USPS they are subsidized by the government. Free shipping? Well that costs the business something, oh hey look at what happens with tax time, they aren't taxed on earnings they are taxed on Earnings MINUS Expense, and guess what goes in the expense column?

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Business taxes are a joke, they are just another(Hidden) layer of tax on consumers. Businesses dont pay those taxes the consumers do in the way of higher prices.

Strange. The vast majority of my shipments are delivered by Amazon and the rest just depend, but for the most part if it's not delivered by Amazon and it's small and light (e.g. a cable, earplugs, CD or DVD), USPS delivers it. The rest of the time it's UPS. Last mile by USPS is rare, IME, with Prime orders.