Diary

Treasury Should Not Cripple Ecommerce During Coronavirus Crisis

AP Photo/Bebeto Matthews

Empty shelves for disinfectant wipes wait for restocking, as concerns grow around COVID-19, Tuesday March 3, 2020, in New York. A man from New York City’s suburbs was hospitalized in serious condition with COVID-19 on Tuesday, a case that prompted school closings and quarantines for congregants of a now-shuttered synagogue. The state’s second confirmed case also raised the possibility that the virus is spreading locally. (AP Photo/Bebeto Matthews)

With millions of Americans sheltering in place and stores closed coast to coast because of the coronavirus, the importance of ecommerce could not be clearer. Trucks from the U.S. Postal Service and other carriers bring much-needed supplies right to the doors of the desperate. Yet in the $2.2 trillion CARES Act relief bill, Congress gave the Treasury Department a weapon it might well wield to harm USPS and, in the process, deal yet another blow to already beleaguered Americans.

With letter mail revenues reportedly falling by as much as one-third in the wake of the virus, USPS joins many businesses that could shut down in coming months. Although the CARES Act offers direct assistance to other businesses to get them through the crisis, USPS was offered only new borrowing authority with strings attached by Treasury. That poses a serious problem. Here’s why.

For decades, USPS has been losing money as more people pay bills, shop, and communicate online. Add to that many inefficiencies that still plague it and it’s clear USPS is in need of serious reform.

The one area in which it hasn’t been losing money is package delivery. With ecommerce growing, online emporia make greater use of USPS. Amazon is the ecommerce leader and one of USPS’s biggest customers. And while it has its own expanding fleet of delivery vehicles, it still makes use of USPS to carry many packages the “last mile” to the customer’s door. By law, USPS must charge Amazon and other shippers package rates that cover USPS direct costs and an appropriate share of overhead costs. The Postal Service has done so and then some. Indeed, Postal Service revenues from delivering packages rose from $21.5 billion in fiscal year 2018 to $22.8 billion in 2019.

But some private express carriers have been complaining for years about the growth of USPS’s ecommerce package delivery business.  Private express carriers resent that the Postal Service can serve residential routes more economically than they can because USPS is going to every door every day anyway.

The private express carriers have convinced President Trump to argue, incorrectly, that USPS is losing money delivering packages and should, therefore, raise the rates it charges beyond those legally prescribed. Treasury might now tell USPS that if it wants to tap its $10 billion credit line, it must increase prices and reduce service. This is a terrible idea from every perspective.

To begin with, those higher rates ultimately would be foisted on Americans ordering online at a time when unemployment is skyrocketing and paychecks are disappearing. This will certainly stir up anger.

Further, Americans most effected would be those in remote and rural areas where USPS is the only affordable alternative. Many merchants in these areas, that also rely more on USPS, now can only ship items purchased online because their businesses are closed to walk-in customers. And these areas are traditionally Trump country. Does this administration want to alienate its own political base?

Serious thinking and new ideas are necessary to keep USPS in businesses. Its current business model is not sustainable in the ecommerce and internet age. Should it be subsidized? Privatized? Whatever the best future policies might be, the administration should not impose policy changes during the crisis that will harm USPS as well as American consumers and businesses at the time they need it most.

Edward Hudgins is a senior scholar at The Heartland Institute and the editor of The Last Monopoly: Privatizing the Postal Service for the Information Age and Mail @ the Millennium: Will the Postal Service Go Private?