Judging by President Trump's ongoing tweet attacks on Amazon, the eCommerce beast doling out more cash to get the USPS' services would be welcome news. UBS says that it held a call with Patrick Donahoe, a former Postmaster General at the USPS, to discuss the highly publicized arrangement. Donahoe reportedly confirmed that the Amazon contract is profitable for the USPS.
Here is a walk-through of the arrangement via UBS. Amazon is a holding in Action Alerts Plus.
"The USPS business is primarily split into two areas: 1) Market dominant products/"monopoly mail"; & 2) Competitive products (where Amazon would fall). By law, competitive products must cover their costs, including both operating costs associated with the service provided (sorting, loading, etc.) and an allocation of 5.5% of the USPS's institutional/fixed costs (which has a fairly broad definition).
The PRC's review of the USPS's current 5.5% allocation of fixed costs to the package business provides a potential path to higher package prices. A high level frame indicates a move up from 5.5% to 10% would drive only a modest 6% increase in package price to provide a full offset."
The Worst Case
"While the PRC is undergoing a 10 yr. review and could potentially raise prices, Mr. Donahoe stated the USPS is cognizant of the positive impact private shippers have had to USPS financials & recognize the elasticity of units from a company like Amazon (i.e. can accelerate own last mile efforts &/or reposition volume to others). In a worst case scenario (USPS prices up mid-teens), we think downside risk to our 2019 estimated GAAP operating income is 11-16% (or $1.2-1.7 billion) with a more likely scenario that Amazon accelerates last-mile build out."